<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 15, 1996
REGISTRATION NO. 333-06729
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
ZAPATA CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2077 C-74-1339132
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1717 ST. JAMES PLACE, SUITE 550
HOUSTON, TEXAS 77056
(713) 940-6100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
JOSEPH L. VON ROSENBERG III
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE SECRETARY
ZAPATA CORPORATION
1717 ST. JAMES PLACE, SUITE 550
HOUSTON, TEXAS 77056
(713) 940-6100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
---------------------
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 WHICH 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 SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
===============================================================================
<PAGE> 2
********************************************************************************
* THIS PRELIMINARY OFFICIAL STATEMENT AND THE INFORMATION CONTAINED *
* HEREIN ARE SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY *
* NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* OFFICIAL STATEMENT IS DELIVERED IN FINAL FORM. UNDER NO CIRCUMSTANCES *
* SHALL THIS PRELIMINARY OFFICIAL STATEMENT CONSTITUTE AN OFFER TO SELL *
* OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF *
* THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION *
* OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER *
* THE SECURITIES LAWS OF ANY SUCH JURISDICTION. *
********************************************************************************
SUBJECT TO COMPLETION, DATED AUGUST 15, 1996
[ZAPATA CORPORATION LOGO]
August , 1996
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of Zapata Corporation, a Delaware corporation ("Zapata"), to
be held on September 27, 1996, at 10:00 a.m., New York time, at the offices of
Bloomberg Financial Markets Commodity News, 499 Park Avenue, New York, New York.
At the Annual Meeting, you will be asked to consider and vote upon the
issuance of shares of Zapata common stock, $0.25 par value, in connection with
the merger (the "Merger") of Houlihan's Restaurant Group, Inc., a Delaware
corporation ("Houlihan's"), with and into Zapata Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Zapata, which will then change its
name to Houlihan's Restaurant Group, Inc. (the "Merger Proposal"). In addition,
you will be asked to vote upon three other proposals (the "Additional
Proposals") relating to the (i) election of members of the Zapata Board of
Directors, (ii) approval of the 1996 Long-Term Incentive Plan of Zapata and
(iii) a stockholder proposal to request the Zapata Board of Directors to take
the steps necessary to provide for cumulative voting of Zapata Common Stock (the
"Stockholder Proposal").
The Merger Proposal and the Additional Proposals are more fully described
in the accompanying Joint Proxy Statement/Prospectus and the appendices thereto,
including discussions therein concerning Zapata's reasons for the Merger and
factors which should be considered in connection with your vote on the Merger
Proposal. Please review this information carefully.
Malcolm I. Glazer and his affiliates own 10,395,384 shares of Zapata Common
Stock (approximately 35.2% of the outstanding shares) and 7,325,815 shares of
the common stock of Houlihan's (approximately 73.3% of the outstanding shares).
Malcolm I. Glazer and members of his family occupy two of the five positions on
the Zapata Board of Directors and five of the seven positions on the Board of
Directors of Houlihan's. See "Risk Factors" and "Approval of the Merger and
Related Transactions--Interests of Certain Persons in the Merger."
AFTER CAREFUL CONSIDERATION, A SPECIAL COMMITTEE OF THE ZAPATA BOARD OF
DIRECTORS CONSISTING OF MESSRS. R. C. LASSITER, CHAIRMAN, ROBERT V. LEFFLER, JR.
AND W. GEORGE LOAR (THE "ZAPATA SPECIAL COMMITTEE") HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE MERGER PROPOSAL AND UNANIMOUSLY RECOMMENDS THAT YOU
VOTE FOR THE MERGER PROPOSAL. THE ZAPATA SPECIAL COMMITTEE HAS RECEIVED THE
OPINION OF ITS FINANCIAL ADVISER, CS FIRST BOSTON CORPORATION, THAT, AS OF THE
DATE OF SUCH OPINION AND BASED UPON AND SUBJECT TO CERTAIN MATTERS STATED
THEREIN, THE CONSIDERATION TO BE PAID BY ZAPATA IN THE MERGER IS FAIR, FROM A
FINANCIAL POINT OF VIEW, TO ZAPATA. IN ADDITION, THE ZAPATA BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR THE ELECTION OF EACH NOMINEE TO THE BOARD OF DIRECTORS
NAMED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS AND A VOTE FOR THE
ADOPTION OF THE 1996 LONG-TERM INCENTIVE PLAN OF ZAPATA. THE ZAPATA BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST THE STOCKHOLDER PROPOSAL.
The members of the Zapata Special Committee have been granted a proxy to
vote the approximately 35.2% of the outstanding shares of Zapata Common Stock
beneficially owned by Malcolm I. Glazer on the Merger Proposal, and have
determined to vote such shares pursuant to the proxy on the Merger Proposal in
the same manner as the votes cast on the matter by holders of a majority of the
shares of Zapata Common Stock not beneficially owned by Malcolm I. Glazer
present and voting on the matter.
Whether or not you plan to attend the Annual Meeting, we ask that you
indicate the manner in which you wish your shares to be voted and sign and
return your proxy as promptly as possible in the enclosed envelope so that your
vote may be recorded. You may vote your shares in person if you attend the
Annual Meeting, even if you send in your proxy.
We appreciate your continued interest in Zapata.
Sincerely,
Avram A. Glazer
President and Chief Executive
Officer
<PAGE> 3
ZAPATA CORPORATION
1717 ST. JAMES PLACE, SUITE 550
HOUSTON, TEXAS 77056
(713) 940-6100
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 27, 1996
To the Stockholders of Zapata Corporation:
Notice is hereby given that the Annual Meeting of Stockholders (the "Annual
Meeting") of Zapata Corporation, a Delaware corporation ("Zapata"), will be held
at the offices of Bloomberg Financial Markets Commodity News, 499 Park Avenue,
New York, New York, on September 27, 1996, at 10:00 a.m., New York time, for the
following purposes:
1. To consider and vote upon a proposal to approve the issuance of
shares of Zapata common stock, $0.25 par value ("Zapata Common Stock"),
pursuant to the Agreement and Plan of Merger dated as of June 4, 1996, as
amended (the "Merger Agreement"), by and among Zapata, Zapata Acquisition
Corp., a Delaware corporation and wholly owned subsidiary of Zapata
("Sub"), and Houlihan's Restaurant Group, Inc., a Delaware corporation
("Houlihan's"), providing for the merger (the "Merger") of Houlihan's with
and into Sub. The Merger and Merger Agreement and the transactions
contemplated thereby are described in detail in the attached Joint Proxy
Statement/Prospectus.
2. The election of two directors as members of Class I of the Zapata
Board of Directors.
3. To consider and vote upon the proposed 1996 Long-Term Incentive
Plan of Zapata covering 5,000,000 shares of Zapata Common Stock.
4. To consider and vote upon a stockholder proposal to request the
Zapata Board of Directors to take the steps necessary to provide for
cumulative voting of Zapata Common Stock.
5. Such other business as may properly come before the Annual Meeting
or any adjournment or postponement thereof.
Only stockholders of record at the close of business on August 19, 1996 are
entitled to notice of and to vote at the Annual Meeting and any adjournment or
postponement thereof. A list of such stockholders will be available for
inspection at least ten days prior to the Annual Meeting during normal business
hours at the offices of Zapata.
Stockholders are cordially invited to attend the Annual Meeting in person.
Those who do not plan to attend and who wish their shares voted are requested to
sign, date and mail promptly the enclosed proxy, for which a return envelope is
provided.
By Order of the Board of Directors,
[SIG]
Joseph L. von Rosenberg III
Executive Vice President, General
Counsel
and Corporate Secretary
Houston, Texas
August , 1996
<PAGE> 4
***************************************************************************
* *
* WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE *
* COMPLETE THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED *
* RETURN ENVELOPE. *
* *
***************************************************************************
HOULIHAN'S RESTAURANT GROUP, INC.
TWO BRUSH CREEK BOULEVARD
KANSAS CITY, MISSOURI 64112
AUGUST , 1996
To Our Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of Houlihan's Restaurant Group, Inc., a Delaware corporation
("Houlihan's"), to be held on September 26, 1996, at 10:00 a.m. (local time) at
Houlihan's offices located at Two Brush Creek Boulevard, Kansas City, Missouri.
At the Special Meeting, you will be asked to consider and vote upon an
Agreement and Plan of Merger dated as of June 4, 1996, as amended (the "Merger
Agreement") by and among Zapata Corporation ("Zapata"), Zapata Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of Zapata ("Sub"),
and Houlihan's and the transactions contemplated thereby. Pursuant to the Merger
Agreement, Houlihan's will be merged with and into Sub (the "Merger") which will
then change its name to Houlihan's Restaurant Group, Inc., and stockholders of
Houlihan's will receive a combination of cash and Zapata common stock valued at
$8.00 per share, as more fully set forth in the Merger Agreement.
Attached is a Notice of Special Meeting and Joint Proxy
Statement/Prospectus which serves as a joint proxy statement for Houlihan's and
Zapata and also serves as a prospectus of Zapata for the shares of Zapata common
stock to be issued in connection with the Merger. The Merger Agreement and the
Merger are more fully described in the Joint Proxy Statement/Prospectus and the
appendices thereto, including discussions therein concerning Houlihan's reasons
for the Merger, the consideration to be received in the Merger, and other
information about the parties to the Merger and other factors which should be
considered in connection with your vote on the Merger. Please review this
information carefully.
Malcolm I. Glazer and his affiliates own 10,395,384 shares of Zapata Common
Stock (approximately 35.2% of the outstanding shares) and 7,325,815 shares of
the common stock of Houlihan's (approximately 73.3% of the outstanding shares).
Malcolm I. Glazer and members of his family occupy two of the five positions on
the Zapata Board of Directors and five of the seven positions on the Board of
Directors of Houlihan's. See "Risk Factors" and "Approval of the Merger and
Related Transactions--Interests of Certain Persons in the Merger."
Stockholders of Zapata will consider the Merger proposal at a meeting on
September 27, 1996. A special committee of the Zapata Board of Directors (the
"Zapata Special Committee") has unanimously approved the Merger Agreement and
has recommended that Zapata's stockholders vote to approve the issuance of the
shares of Zapata common stock issuable in connection with the Merger (the
"Merger Proposal"). The members of the Zapata Special Committee have been
granted a proxy to vote the approximately 35.2% of the outstanding shares of
Zapata common stock beneficially owned by Malcolm I. Glazer on the Merger
Proposal at the Zapata stockholders meeting, and have determined to vote such
shares pursuant to the proxy on the Merger Proposal in the same manner as the
votes cast on the matter by holders of a majority of the shares of Zapata common
stock not beneficially owned by Malcolm I. Glazer present and voting on the
matter.
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the Merger Agreement, and, based solely on the recommendation of a
special committee of your Board of Directors (the "Houlihan's Special
Committee"), has approved the proposed Merger. The Houlihan's Special Committee
has unanimously approved the Merger Agreement and unanimously recommends that
you vote in favor of it. In addition, the Houlihan's Special Committee has
received the opinion of its financial advisers, Donaldson, Lufkin & Jenrette
Securities Corporation, that the consideration to be received by the
stockholders of Houlihan's pursuant to the Merger (other than Malcolm I. Glazer
and his affiliates) is fair to such stockholders from a financial point of view.
Consummation of the Merger is subject to certain conditions, including
approval by the affirmative vote at the meeting of the holders of a majority of
Houlihan's outstanding common stock. The 7,325,815 shares of Houlihan's Common
Stock beneficially owned by Malcolm I. Glazer are sufficient to approve and
adopt the Merger Agreement and approve the Merger. Malcolm I. Glazer has
indicated that, subject to obtaining appropriate consents from banks to which
certain of those shares are pledged, those shares will be voted in favor of the
approval and adoption of the Merger Agreement and the approval of the Merger.
Your vote is important regardless of the number of shares that you own. Whether
or not you are planning to attend the meeting, it is important that your shares
be represented. Please complete, sign and date the enclosed proxy and mail it at
your earliest convenience in the return envelope provided.
Sincerely,
Frederick R. Hipp
President and Chief Executive
Officer
<PAGE> 5
HOULIHAN'S RESTAURANT GROUP, INC.
TWO BRUSH CREEK BOULEVARD
KANSAS CITY, MISSOURI 64112
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 26, 1996
---------------------
To the Stockholders of Houlihan's Restaurant Group, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of Houlihan's Restaurant Group, Inc., a Delaware corporation
("Houlihan's"), will be held on September 26, 1996, at 10:00 a.m. (local time)
at Houlihan's offices located at Two Brush Creek Boulevard, Kansas City,
Missouri, for the purpose of considering and voting upon the following matters:
1. A proposal to approve an Agreement and Plan of Merger dated as of June
4, 1996, as amended (the "Merger Agreement") by and among Zapata Corporation, a
Delaware corporation ("Zapata"), Zapata Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Zapata ("Sub") and Houlihan's,
providing for the merger of Houlihan's with and into Sub (the "Merger"),
pursuant to which stockholders of Houlihan's will receive a combination of cash
and Zapata common stock valued at $8.00 per share, as more fully set forth in
the Merger Agreement. The Merger Agreement and the Merger are more fully
described in the Joint Proxy Statement/Prospectus and appendices.
2. Such other business as may properly be brought before the Special
Meeting or any adjournment or postponement thereof.
Only stockholders of record as of the close of business on August 19, 1996
will be entitled to notice of, and to vote at, the Special Meeting, and any
adjournment or postponement thereof. For a period of at least ten days prior to
the Special Meeting, a complete list of stockholders entitled to vote at the
Special Meeting will be available for inspection during ordinary business hours
at Houlihan's principal executive offices.
Consummation of the Merger is subject to certain conditions, including
approval by the affirmative vote at the meeting of the holders of a majority of
the outstanding shares of Houlihan's common stock entitled to vote thereon. Your
vote is important regardless of the number of shares that you own. Whether or
not you are planning to attend the Special Meeting, please mark, sign and date
the enclosed proxy and return it as soon as possible in the enclosed stamped
envelope. You may revoke the proxy at any time prior to its exercise at the
meeting, but only by delivering written notice of revocation or a duly executed
proxy bearing a later date to the Corporate Secretary of Houlihan's at
Houlihan's principal executive offices prior to the Special Meeting or to the
Secretary of the Special Meeting while the meeting is in progress, or by
appearing at the Special Meeting and voting in person.
By Order of the Board of Directors
William W. Moreton
Executive Vice President/Secretary
Kansas City, Missouri
August , 1996
<PAGE> 6
***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************
SUBJECT TO COMPLETION, DATED AUGUST 15, 1996
ZAPATA CORPORATION
AND
HOULIHAN'S RESTAURANT GROUP, INC.
JOINT PROXY STATEMENT
---------------------
ZAPATA CORPORATION
PROSPECTUS
---------------------
This Joint Proxy Statement/Prospectus is being furnished to the
stockholders of Zapata Corporation, a Delaware corporation ("Zapata"), in
connection with the solicitation of proxies by the Board of Directors of Zapata
(the "Zapata Board of Directors") for use at the Annual Meeting of Stockholders
of Zapata (the "Zapata Annual Meeting") to be held on September 27, 1996, at
10:00 a.m., New York time, at the offices of Bloomberg Financial Markets
Commodity News, 499 Park Avenue, New York, New York, and at any adjournment or
postponement thereof.
This Joint Proxy Statement/Prospectus also is being furnished to the
stockholders of Houlihan's Restaurant Group, Inc., a Delaware corporation
("Houlihan's"), in connection with the solicitation of proxies by the Houlihan's
Board of Directors for use at the Special Meeting of Stockholders of Houlihan's
(the "Houlihan's Special Meeting") to be held on September 26, 1996, at 10:00
a.m., local time, at Houlihan's offices located at Two Brush Creek Boulevard,
Kansas City, Missouri, and at any adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus constitutes the prospectus of Zapata
with respect to shares of Zapata common stock, $0.25 par value ("Zapata Common
Stock"), to be issued in connection with the merger (the "Merger") of Houlihan's
with and into Zapata Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of Zapata ("Sub"), pursuant to the Agreement and Plan of Merger dated
as of June 4, 1996, as amended, by and among Zapata, Sub and Houlihan's attached
hereto as Appendix A (the "Merger Agreement").
Malcolm I. Glazer and his affiliates own 10,395,384 shares of Zapata Common
Stock (approximately 35.2% of the outstanding shares) and 7,325,815 shares of
the common stock of Houlihan's (approximately 73.3% of the outstanding shares).
Malcolm I. Glazer and members of his family occupy two of the five positions on
the Zapata Board of Directors and five of the seven positions on the Board of
Directors of Houlihan's. See "Risk Factors" and "Approval of the Merger and
Related Transactions--Interests of Certain Persons in the Merger."
---------------------
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. STOCKHOLDERS ARE URGED TO READ AND CONSIDER CAREFULLY THIS
JOINT PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY, INCLUDING THE MATTERS REFERRED
TO BEGINNING ON PAGE 21 UNDER "RISK FACTORS."
---------------------
THE SECURITIES ISSUABLE PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
This Joint Proxy Statement/Prospectus and the accompanying proxy cards are
first being mailed or delivered to the stockholders of Zapata and Houlihan's on
or about August , 1996.
---------------------
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS AUGUST , 1996.
<PAGE> 7
AVAILABLE INFORMATION
Zapata and Houlihan's are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith Zapata files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission") and
Houlihan's files reports and other information with the Commission. Such
reports, proxy statements and other information filed with the Commission can be
inspected and copied at the Commission's Public Reference Room, Judiciary Plaza,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the public
reference facilities maintained by the Commission at its regional offices
located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of such materials can be obtained from the Commission at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of certain of such
information may be accessed through the Commission's Internet web site at
http://www.sec.gov. Additionally, material filed by Zapata can be inspected at
the offices of The New York Stock Exchange, Inc. (the "NYSE"), 20 Broad Street,
New York, New York 10005.
Zapata has filed with the Commission a Registration Statement (the
"Registration Statement") on Form S-4 under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the shares of Zapata Common
Stock to be issued pursuant to the Merger Agreement. As permitted by the rules
and regulations of the Commission, this Prospectus, which constitutes a part of
the Registration Statement, does not contain all information set forth in the
Registration Statement. Copies of the Registration Statement, including the
exhibits thereto, may be inspected, without charge, at the offices of the
Commission referred to above, or obtained at prescribed rates from the Public
Reference Section of the Commission at the address set forth above. Statements
contained in this Joint Proxy Statement/Prospectus relating to the contents of
any contract or other document referred to herein are not necessarily complete,
and reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
---------------------
ALL INFORMATION CONCERNING ZAPATA CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS HAS BEEN FURNISHED BY ZAPATA AND ALL INFORMATION CONCERNING
HOULIHAN'S CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS HAS BEEN FURNISHED
BY HOULIHAN'S. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATION WITH RESPECT
TO THE MATTERS DESCRIBED IN THIS JOINT PROXY STATEMENT/PROSPECTUS OTHER THAN
THOSE CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ZAPATA, HOULIHAN'S OR ANY
OTHER PERSON. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES, OR MAKE A
SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR TO OR FROM ANY PERSON
TO OR FROM WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES BE DEEMED TO IMPLY THAT THERE
HAS BEEN NO CHANGE IN THE ASSETS, PROPERTIES OR AFFAIRS OF ZAPATA OR HOULIHAN'S
SINCE THE DATE HEREOF OR THAT THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
2
<PAGE> 8
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Zapata and by
Houlihan's are incorporated by reference in this Joint Proxy
Statement/Prospectus:
(a) Zapata's Annual Report on Form 10-K, as amended by Form 10-K/A,
for the fiscal year ended September 30, 1995;
(b) Zapata's Quarterly Reports on Form 10-Q for the quarters ended
December 31, 1995, March 31, 1996 and June 30, 1996;
(c) Zapata's Current Reports on Form 8-K dated November 17, 1995,
December 15, 1995, April 9, 1996, April 30, 1996, June 4, 1996 and June 19,
1996;
(d) Houlihan's Annual Report on Form 10-K for the fiscal year ended
December 25, 1995;
(e) Houlihan's Quarterly Report on Form 10-Q for the quarters ended
March 25, 1996 and June 24, 1996; and
(f) Houlihan's Current Reports on Form 8-K dated May 9, 1996 and June
4, 1996.
---------------------
ZAPATA DOCUMENTS DELIVERED HEREWITH
Accompanying this Joint Proxy Statement/Prospectus are copies of Zapata's
(i) Annual Report on Form 10-K, as amended by Form 10-K/A, for the fiscal year
ended September 30, 1995, (ii) Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996 and (iii) Current Report on Form 8-K dated June 19, 1996.
HOULIHAN'S DOCUMENTS DELIVERED HEREWITH
Accompanying this Joint Proxy Statement/Prospectus are copies of Houlihan's
(i) Annual Report on Form 10-K for the fiscal year ended December 25, 1995 and
(ii) Quarterly Report on Form 10-Q for the quarter ended June 24, 1996.
---------------------
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL
OWNER, TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON REQUEST.
REQUESTS FOR ZAPATA DOCUMENTS SHOULD BE DIRECTED TO ZAPATA CORPORATION,
ATTENTION: CORPORATE SECRETARY, 1717 ST. JAMES PLACE, SUITE 550, HOUSTON, TEXAS
77056 (TELEPHONE: 713-940-6100). REQUESTS FOR HOULIHAN'S DOCUMENTS SHOULD BE
DIRECTED TO HOULIHAN'S RESTAURANT GROUP, INC., ATTENTION: CORPORATE SECRETARY,
P.O. BOX 16000, KANSAS CITY, MISSOURI 64112 (TELEPHONE: 816-756-2200). TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, REQUESTS SHOULD BE RECEIVED BY SEPTEMBER ,
1996.
3
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................................................................. 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 3
ZAPATA DOCUMENTS DELIVERED HEREWITH................................................... 3
HOULIHAN'S DOCUMENTS DELIVERED HEREWITH............................................... 3
SUMMARY............................................................................... 7
The Companies....................................................................... 7
Interests of Glazer Family in both Zapata and Houlihan's............................ 8
The Zapata Annual Meeting........................................................... 8
The Houlihan's Special Meeting...................................................... 9
The Merger.......................................................................... 9
Zapata Summary Consolidated Financial Information................................... 16
Houlihan's Selected Consolidated Financial Information.............................. 17
Zapata and Houlihan's Summary Unaudited Pro Forma Combined Condensed Financial
Data............................................................................. 18
Comparative Per Share Data.......................................................... 19
Comparative Market Price Data and Dividend Policy................................... 20
RISK FACTORS.......................................................................... 21
Uncertainties Relating to Houlihan's Business....................................... 21
Uncertainties Relating to Zapata's Business......................................... 22
Costs of the Transaction............................................................ 23
Different Interests of Glazer Group and Certain Members of Houlihan's Management
from Those of Other Holders; Other Transactions with Glazer Group................ 24
Control by the Glazer Group Following the Merger.................................... 24
Litigation.......................................................................... 25
THE ZAPATA ANNUAL MEETING............................................................. 28
General............................................................................. 28
Matters to Be Considered at the Zapata Annual Meeting............................... 28
Record Date; Outstanding Shares; Quorum............................................. 28
Vote Required; Abstentions and Non-Votes............................................ 28
Voting of Proxies................................................................... 29
Solicitation of Proxies; Expenses................................................... 30
THE HOULIHAN'S SPECIAL MEETING........................................................ 31
General............................................................................. 31
Matters to Be Considered at the Houlihan's Special Meeting.......................... 31
Notification of Market Value........................................................ 31
Record Date; Outstanding Shares; Quorum............................................. 31
Vote Required; Abstentions and Non-Votes............................................ 31
Voting of Proxies................................................................... 31
Solicitation of Proxies; Expenses................................................... 32
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS....................................... 33
Background of the Merger............................................................ 33
Zapata's Reasons for the Merger; Recommendation..................................... 35
Houlihan's Reasons for the Merger; Recommendation................................... 36
Opinion of CS First Boston.......................................................... 37
Opinion of DLJ...................................................................... 41
Operations Following the Merger..................................................... 44
Certain Federal Income Tax Consequences............................................. 45
Interests of Certain Persons in the Merger.......................................... 47
Irrevocable Proxy and Standstill Agreement.......................................... 48
Regulatory Approvals................................................................ 49
</TABLE>
4
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Accounting Treatment................................................................ 50
Restrictions on Sales of Stock...................................................... 50
THE MERGER AGREEMENT.................................................................. 51
Merger Consideration................................................................ 51
Conversion of Shares; Procedures for Exchange of Certificates; Fractional Shares.... 53
Appraisal Rights.................................................................... 54
Treatment of Stock Options.......................................................... 56
Conditions to the Merger............................................................ 56
Representations and Warranties...................................................... 57
Certain Covenants; Conduct of Business.............................................. 58
Certain Employment and Indemnification Arrangements................................. 58
Additional Agreements............................................................... 59
Expenses and Termination Fee........................................................ 59
Amendment, Waiver and Termination................................................... 59
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS........................... 61
DESCRIPTION OF ZAPATA CAPITAL STOCK................................................... 70
Common Stock........................................................................ 70
Preferred Stock..................................................................... 70
Preference Stock.................................................................... 71
Certain Provisions of the Zapata Restated Certificate of Incorporation and
By-laws.......................................................................... 72
Delaware General Corporation Law.................................................... 74
COMPARATIVE RIGHTS OF STOCKHOLDERS.................................................... 74
General............................................................................. 74
Interested Stockholder Transactions................................................. 74
Amendment of Certificate of Incorporation........................................... 74
Amendment of By-laws................................................................ 75
Special Meetings of Stockholders.................................................... 75
Special Meetings of Directors....................................................... 75
Number of Directors................................................................. 75
Quorum.............................................................................. 75
Removal of Directors................................................................ 76
ADDITIONAL INFORMATION CONCERNING HOULIHAN'S.......................................... 77
Certain Relationships and Related Transactions...................................... 77
Security Ownership of Certain Beneficial Owners and Management of Houlihan's........ 78
ADDITIONAL PROPOSALS FOR A VOTE OF ZAPATA STOCKHOLDERS................................ 79
Proposal No. 2
Election of Directors............................................................ 79
Nominees......................................................................... 79
Continuing Directors............................................................. 79
Actions in Connection with the Merger............................................ 80
Committees of the Zapata Board of Directors; Attendance at Meetings.............. 80
Compensation of Directors........................................................ 81
Resignation of Director.......................................................... 81
</TABLE>
5
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management and Executive Compensation............................................ 84
Summary Compensation Table....................................................... 84
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values.......................................................................... 85
Pension Plan Information......................................................... 85
Employment Agreements and Other Incentive Plans.................................. 85
Section 16(a) Beneficial Ownership Reporting Compliance.......................... 86
Report of the Compensation Committee............................................. 86
Compensation Committee Interlocks and Insider Participation...................... 87
Certain Relationships and Related Transactions................................... 89
Security Ownership of Certain Beneficial Owners and Management of Zapata......... 90
Stockholder Return Performance Graph............................................. 91
Proposal No. 3
Approval of 1996 Long-Term Incentive Plan of Zapata.............................. 92
Vote Required.................................................................... 94
Proposal No. 4
Stockholder Proposal to Provide for Cumulative Voting............................ 94
Proponents' Statement in Support of Proposal..................................... 94
Comment by Management............................................................ 95
Vote Required.................................................................... 95
Other Matters....................................................................... 96
Stockholder Proposals for 1997 Annual Meeting of Stockholders....................... 96
EXPERTS............................................................................... 96
APPENDICES
Appendix A -- Agreement and Plan of Merger........................................ A-1
Appendix B -- Opinion of CS First Boston Corporation.............................. B-1
Appendix C -- Opinion of Donaldson, Lufkin & Jenrette Securities Corporation...... C-1
Appendix D -- Section 262 of the Delaware General Corporation Law................. D-1
Appendix E -- 1996 Long-Term Incentive Plan of Zapata............................. E-1
ANNEXES
Annex A -- Zapata's Annual Report on Form 10-K, as amended by Form 10-K/A, for
the fiscal year ended September 30, 1995
Annex B -- Zapata's Quarterly Report on Form 10-Q for the quarter ended June
30, 1996
Annex C -- Zapata's Current Report on Form 8-K dated June 19, 1996
Annex D -- Houlihan's Annual Report on Form 10-K for the fiscal year ended
December 25, 1995
Annex E -- Houlihan's Quarterly Report on Form 10-Q for the quarter ended June
24, 1996
</TABLE>
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<PAGE> 12
SUMMARY
The following includes a summary of certain information contained elsewhere
in this Joint Proxy Statement/Prospectus and in the Appendices and Annexes
hereto. For a more complete description of the information summarized below,
stockholders are urged to read this Joint Proxy Statement/Prospectus and its
Appendices and Annexes in their entirety. This Joint Proxy Statement/Prospectus
contains forward-looking statements that involve risks and uncertainties. Actual
results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors."
THE COMPANIES
Zapata Corporation
Zapata is in the process of implementing a plan to reposition Zapata into
the food packaging, food and food service equipment and supply businesses
(collectively, the "food services business"), from the natural gas services and
other energy businesses in which it formerly was engaged. To date, the companies
in the food services business which Zapata's Board of Directors or a special
committee thereof has evaluated or in which Zapata has made investments have
been companies in which Malcolm I. Glazer has had a substantial ownership
position. Zapata currently conducts marine protein operations involving the
production and sale of a variety of protein and oil products from menhaden. In
addition, in August 1995, Zapata acquired 4,189,298 shares (or 28.9%) of the
outstanding common stock of Envirodyne Industries, Inc. ("Envirodyne"), a major
supplier of food packaging products and food service supplies, from the Malcolm
Glazer Trust established U/A dated as of March 23, 1990 (the "Malcolm Glazer
Trust") at a price of approximately $4.48 per share ($18.8 million in the
aggregate). In June and July 1996, Zapata purchased an additional 1,688,006
shares of Envirodyne Common Stock in brokerage and privately negotiated
transactions for aggregate consideration of approximately $7.0 million ($4.144
per share). As a result of these transactions, Zapata currently owns
approximately 40.6% of the outstanding shares of Envirodyne common stock. In
1996, Zapata completed the disposition of its natural gas compression operations
and its natural gas gathering, processing and marketing operations. Zapata
retains an interest in natural gas production operations in Bolivia.
Zapata is a Delaware corporation organized in 1954. As used herein, the
term "Zapata" refers to Zapata Corporation or to Zapata Corporation and its
consolidated subsidiaries, as applicable. Zapata's principal executive offices
are located at 1717 St. James Place, Suite 550, Houston, Texas 77056, and its
telephone number is (713) 940-6100. See the accompanying Annual Report on Form
10-K of Zapata, as amended by Form 10-K/A, for the fiscal year ended September
30, 1995 and the accompanying Quarterly Report on Form 10-Q of Zapata for the
quarter ended June 30, 1996 for additional information relating to Zapata.
Zapata Acquisition Corp.
Sub is a Delaware corporation recently organized by Zapata for the purpose
of effecting the Merger. It has no material assets and has not engaged in any
activities except those required to effect the proposed Merger. Sub's executive
offices are located at 1717 St. James Place, Suite 550, Houston, Texas 77056,
and its telephone number is (713) 940-6100.
Houlihan's Restaurant Group, Inc.
Houlihan's operates full service casual dining restaurants in 23 states. At
July 22, 1996, it operated 99 restaurants, including 61 Houlihan's, 28 Darryl's,
four upscale Seafood Grills and six specialty restaurants comprised of four
dinnerhouses, one upscale steakhouse and the Buena Vista Cafe. At that date,
Houlihan's also franchised 25 Houlihan's restaurants in ten states and the
Commonwealth of Puerto Rico.
Houlihan's is a Delaware corporation that has succeeded to a business
started in 1962. As used herein, the term "Houlihan's" refers to Houlihan's
Restaurant Group, Inc. or to Houlihan's Restaurant Group, Inc. and its
consolidated subsidiaries, as applicable. Houlihan's principal executive offices
are located at Two Brush Creek Boulevard, Kansas City, Missouri 64112 and its
telephone number is (816) 756-2200. See the
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<PAGE> 13
accompanying Annual Report on Form 10-K of Houlihan's for the fiscal year ended
December 25, 1995 and the accompanying Quarterly Report on Form 10-Q of
Houlihan's for the quarter ended June 24, 1996 for additional information
relating to Houlihan's.
INTERESTS OF GLAZER FAMILY IN BOTH ZAPATA AND HOULIHAN'S
Malcolm I. Glazer and his affiliates own 10,395,384 shares of Zapata Common
Stock (approximately 35.2% of the outstanding shares) and 7,325,815 shares of
common stock of Houlihan's (approximately 73.3% of the outstanding shares).
Malcolm I. Glazer and members of his family occupy two of the five positions on
the Zapata Board of Directors and five of the seven positions on the Board of
Directors of Houlihan's. Malcolm I. Glazer acquired 7,154,918 shares of
Houlihan's common stock upon the consummation of the bankruptcy plan of
reorganization of a predecessor of Houlihan's in exchange for approximately
$69,975,000 in aggregate principal amount of subordinated notes of the
predecessor held by Malcolm I. Glazer. The remainder of the shares of Houlihan's
Common Stock held by Mr. Glazer were acquired in market transactions. See "Risk
Factors" and "Approval of the Merger and Related Transactions--Interests of
Certain Persons in the Merger."
THE ZAPATA ANNUAL MEETING
The Zapata Annual Meeting will be held on September 27, 1996 at 10:00 a.m.,
New York time, at the offices of Bloomberg Financial Markets Commodity News, 499
Park Avenue, New York, New York.
At the Zapata Annual Meeting, including any adjournment or postponement
thereof, the stockholders of Zapata will be asked to consider and vote upon the
approval of the issuance of shares of Zapata Common Stock pursuant to the Merger
Agreement (the "Merger Proposal"). In addition, at the Zapata Annual Meeting,
the stockholders of Zapata will consider and vote upon the following three
additional proposals (the "Additional Proposals"): (i) election of members of
Class I of the Zapata Board of Directors; (ii) approval of the proposed 1996
Long-Term Incentive Plan of Zapata; and (iii) a stockholder proposal to request
the Zapata Board of Directors to take the steps necessary to provide for
cumulative voting of Zapata Common Stock (the "Stockholder Proposal"). THE
APPROVAL OF ANY OF THE ADDITIONAL PROPOSALS IS NOT CONDITIONED UPON THE APPROVAL
OF ANY OTHER ADDITIONAL PROPOSAL OR THE MERGER PROPOSAL.
The close of business on August 19, 1996 has been fixed as the record date
(the "Zapata Record Date") for the determination of the stockholders of Zapata
entitled to notice of and to vote at the Zapata Annual Meeting. Holders of
Zapata Common Stock are entitled to one vote for each share of Zapata Common
Stock held by them. Holders of Zapata $2 noncumulative convertible preference
stock ("Zapata $2 Preference Stock") are entitled to one vote for each share of
Zapata $2 Preference Stock held by them. The holders of a majority of the
combined outstanding shares of Zapata Common Stock and Zapata $2 Preference
Stock, present either in person or by properly executed proxies, will constitute
a quorum at the Zapata Annual Meeting. See "The Zapata Annual Meeting."
The approval of the Merger Proposal requires the affirmative vote of a
majority of the combined votes of the outstanding shares of Zapata Common Stock
and Zapata $2 Preference Stock entitled to vote, voting together as a single
class, which are present in person or by proxy at the Zapata Annual Meeting. The
election of members of Class I of the Zapata Board of Directors will be by a
plurality of the votes cast by the holders of Zapata Common Stock and Zapata $2
Preference Stock. See "The Zapata Annual Meeting--Vote Required; Abstentions and
Non-Votes." As of the Zapata Record Date, shares of Zapata Common Stock
were issued and outstanding, of which approximately 35.4% were beneficially
owned by directors, executive officers and affiliates of Zapata (excluding
shares that may be acquired upon exercise of options exercisable within
60 days of the Zapata Record Date).
In September 1995, Zapata's Board of Directors established a special
committee (the "Zapata Special Committee") for the purpose of investigating
merger and acquisition transactions involving Zapata and Houlihan's and
Specialty Equipment Companies, Inc. ("Specialty"). The Zapata Special Committee
was appointed in view of the ownership by Malcolm I. Glazer, Chairman of
Zapata's Board of Directors, as trustee of the Malcolm Glazer Trust, of an
aggregate of 10,395,384 shares, or approximately 35.2%, of the outstanding
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<PAGE> 14
Zapata Common Stock, and the beneficial ownership by Malcolm I. Glazer of a
substantial ownership interest in Houlihan's and Specialty as described below.
Malcolm I. Glazer, individually and as trustee of the Malcolm Glazer Trust, has
granted an irrevocable proxy to the members of the Zapata Special Committee to
vote all such shares of Zapata Common Stock in connection with the Merger
Proposal. THE MEMBERS OF THE ZAPATA SPECIAL COMMITTEE HAVE DETERMINED TO VOTE
SUCH SHARES PURSUANT TO THE PROXY ON THE MERGER PROPOSAL IN THE SAME MANNER AS
THE VOTES CAST ON THE MATTER BY HOLDERS OF A MAJORITY OF THE SHARES OF ZAPATA
COMMON STOCK NOT BENEFICIALLY OWNED BY MALCOLM I. GLAZER PRESENT AND VOTING ON
THE MATTER. See "Approval of the Merger and Related Transactions--Interests of
Certain Persons in the Merger," "--Irrevocable Proxy and Standstill Agreement"
and "Security Ownership of Certain Beneficial Owners and Management of Zapata."
On April 30, 1996, Zapata and Malcolm I. Glazer, individually and as
trustee of the Malcolm Glazer Trust, entered into an agreement (the "Standstill
Agreement") providing for certain restrictions on the acquisition, disposition
and voting of, and other matters relating to, Zapata Common Stock by Malcolm I.
Glazer and any corporation (excluding Zapata), person, partnership, trust or
other entity controlled, directly or indirectly, by Malcolm I. Glazer (the
"Glazer Group") during the term of the Standstill Agreement. See "Approval of
the Merger and Related Transactions--Irrevocable Proxy and Standstill
Agreement."
THE HOULIHAN'S SPECIAL MEETING
The Houlihan's Special Meeting will be held on September 26, 1996 at 10:00
a.m., local time, at Houlihan's offices located at Two Brush Creek Boulevard,
Kansas City, Missouri.
At the Houlihan's Special Meeting, including any adjournment or
postponement thereof, the stockholders of Houlihan's will be asked to consider
and vote upon the approval and adoption of the Merger Agreement and the approval
of the Merger.
The close of business on August 19, 1996 has been fixed as the record date
(the "Houlihan's Record Date") for the determination of the stockholders of
Houlihan's entitled to notice of and to vote at the Houlihan's Special Meeting.
Holders of Houlihan's common stock, $0.01 par value ("Houlihan's Common Stock"),
are entitled to one vote for each share of Houlihan's Common Stock held by them.
The holders of a majority of the outstanding shares of Houlihan's Common Stock,
present either in person or by properly executed proxies, will constitute a
quorum at the Houlihan's Special Meeting. See "The Houlihan's Special Meeting."
The approval and adoption of the Merger Agreement and approval of the
Merger require the affirmative vote of holders of a majority of the outstanding
shares of Houlihan's Common Stock. As of the Houlihan's Record Date, [9,998,012]
shares of Houlihan's Common Stock were issued and outstanding, of which 73.8%
were beneficially owned by directors, executive officers and affiliates of
Houlihan's (excluding 1,044,000 shares that may be acquired upon exercise of
options exercisable within 60 days of the Houlihan's Record Date). The Malcolm
Glazer Trust beneficially owns an aggregate of 7,325,815 shares, or
approximately 73.3%, of the outstanding Houlihan's Common Stock, which is
sufficient to approve and adopt the Merger Agreement and approve the Merger.
Malcolm I. Glazer has indicated that, subject to obtaining appropriate consents
from banks to which certain of those shares are pledged, the Malcolm Glazer
Trust will vote its shares of Houlihan's Common Stock in favor of the approval
and adoption of the Merger Agreement and the approval of the Merger. See "The
Houlihan's Special Meeting--Vote Required; Abstentions and Non-Votes" and
"Security Ownership of Certain Beneficial Owners and Management of Zapata."
THE MERGER
Merger Consideration. Under the Merger Agreement, the merger consideration
to be provided to holders of Houlihan's Common Stock will be valued at $8.00 per
share of Houlihan's Common Stock. Fifty percent of the total consideration
payable to all Houlihan's stockholders as a group will be cash and the balance
will be Zapata Common Stock valued at its Market Value. For purposes of valuing
the Zapata Common Stock to be issued as merger consideration, "Market Value"
means the average closing price of Zapata Common Stock as reported on the New
York Stock Exchange Composite Tape for the 20 trading days immediately preceding
the fifth trading day prior to the date of the Houlihan's Special Meeting.
Houlihan's
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<PAGE> 15
stockholders will be afforded several election alternatives as to the allocation
of the cash and Zapata Common Stock among themselves, including, among others,
an election to receive all cash and an election to receive all shares of Zapata
Common Stock. The elections will affect the consideration received by particular
holders, but not the total amount of cash and Market Value of Zapata Common
Stock issuable in the Merger. The ability of Zapata to satisfy requests to
receive the merger consideration entirely in cash is dependent upon several
factors, including the number of stockholders electing that option and the
Market Value of the Zapata Common Stock. In addition, as discussed below,
stockholders exercising the election to receive all cash may nevertheless be
required to accept a portion of their consideration in Market Value of Zapata
Common Stock to the extent required to assure that the Glazer Group does not own
more than 49.9% of the outstanding Zapata Common Stock following the Merger.
Absent the timely exercise of an election to receive a different mix of
consideration in the Merger, each holder of Houlihan's Common Stock will receive
$4.00 in cash, without interest, and $4.00 in Market Value of Zapata Common
Stock (the "Default Consideration"). Under the Merger Agreement and in lieu of
receiving the Default Consideration, holders of Houlihan's Common Stock may
elect to receive (i) $8.00 in Market Value of Zapata Common Stock (the "Stock
Election"), (ii) $8.00 in cash, without interest, subject to adjustment as
discussed below (the "Cash Election") or (iii) a residual combination of cash
and Market Value of Zapata Common Stock (totaling $8.00) determined so that the
aggregate merger consideration to all Houlihan's stockholders is equally divided
between cash and (on a Market Value basis) Zapata Common Stock (the "Residual
Election"). The equal division of the aggregate merger consideration between
stock and Market Value of Zapata Common Stock that is the basis for determining
the consideration payable to holders making the Residual Election assumes that
any Houlihan's stockholders who exercise their right to dissent from the Merger
under the Delaware General Corporation Law (the "DGCL") receive $8.00 per share
in cash.
Malcolm I. Glazer has agreed to exercise, and to the extent within his
actual control cause all other members of the Glazer Group to exercise, the
Residual Election with respect to shares of Houlihan's Common Stock owned by him
and other members of the Glazer Group. If, as a result of Cash Elections made by
others, members of the Glazer Group would own more than 49.9% of the outstanding
Zapata Common Stock following the Merger, the cash received by holders making
Cash Elections will be reduced on a pro rata basis (and Zapata Common Stock
having a Market Value equal to the amount of the reduction will be delivered to
them in lieu thereof) so that the amount of Zapata Common Stock deliverable
under the Residual Election is reduced to the extent necessary to prevent the
49.9% ownership threshold applicable to the Glazer Group from being exceeded.
Holders of Houlihan's Common Stock making the Stock Election will receive
$8.00 in Market Value of Zapata Common Stock without regard to the elections
made by other holders. Likewise, holders of Houlihan's Common Stock exercising
no election will receive $4.00 in cash and $4.00 in Market Value of Zapata
Common Stock without regard to the elections made by other holders.
Holders of Houlihan's Common Stock making the Cash Election would receive
$8.00 per share in cash only if no reduction in the cash to be received by them
(and corresponding reallocation to them of Zapata Common Stock) is necessary to
prevent the Glazer Group from owning more than 49.9% of the outstanding Zapata
Common Stock following the Merger. If all holders of Houlihan's Common Stock
other than members of the Glazer Group exercise the Cash Election, the full
$8.00 per share cash amount would be received only if the Market Value of the
Zapata Common Stock exceeds approximately $4.61 per share, which is
substantially in excess of current market prices. To the extent that less than
all holders of Houlihan's Common Stock other than members of the Glazer Group
exercise the Cash Election, the minimum Market Value of the Zapata Common Stock
that would be required to avoid a proration of cash would be reduced. For
example, if the holders of 75% of the shares of Houlihan's Common Stock other
than members of the Glazer Group exercise the Cash Election and the remaining
25% exercise no election and therefore are entitled to receive the Default
Consideration, the Market Value of the Zapata Common Stock above which no
proration would be required would be $3.99 per share. If the Market Value were
equal to $3.625 per share (the closing sales price of the Zapata Common Stock on
the NYSE on August 9, 1996), and if all holders of Houlihan's Common Stock other
than members of the Glazer Group exercised Cash Elections, such holders would
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receive approximately $6.40 per share in cash and $1.60 per share in Market
Value of Zapata Common Stock by reason of proration under the 49.9% ownership
limitation. The following table illustrates the per share consideration that
would be received in the Merger if all holders of Houlihan's Common Stock other
than members of the Glazer Group made the Cash Election, at differing Market
Value amounts for the Zapata Common Stock.
<TABLE>
<CAPTION>
Market Value of Zapata Common Stock
-------------------------------------------------------
$3.00 $3.25 $3.50 $3.75 $4.00 $4.25
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Non-Glazer Holders
Cash..................................... $5.39 $5.79 $6.20 $6.61 $7.01 $7.42
Market Value of Zapata Common Stock...... 2.61 2.21 1.80 1.39 0.99 0.58
Glazer Group
Cash..................................... 3.49 3.35 3.20 3.05 2.90 2.75
Market Value of Zapata Common Stock...... 4.51 4.65 4.80 4.95 5.10 5.25
</TABLE>
Members of the Glazer Group and any other holders of Houlihan's Common
Stock exercising the Residual Election will receive a combination of cash and
Zapata Common Stock (totaling $8.00 in value with Zapata Common Stock valued on
a Market Value basis) determined so that the aggregate merger consideration to
all Houlihan's stockholders is equally divided between cash and (on a Market
Value basis) Zapata Common Stock. The minimum cash deliverable under the
Residual Election would result if all holders of Houlihan's Common Stock other
than members of the Glazer Group made the Cash Election and the Market Value of
the Zapata Common Stock was sufficiently high so that no proration under the
49.9% ownership limitation applicable to members of the Glazer Group applied. In
that case, holders exercising the Residual Election would receive $2.54 per
share in cash and $5.46 per share in Market Value of Zapata Common Stock. The
maximum cash deliverable under the Residual Election would result if all holders
of Houlihan's Common Stock other than members of the Glazer Group made the Stock
Election, in which case holders making the Residual Election would receive $5.46
per share in cash and $2.54 per share in Market Value of Zapata Common Stock.
See "The Merger Agreement--Merger Consideration."
Zapata and Houlihan's anticipate that the final Market Value will be
determined as of the close of business on September , 1996. Not later than the
next business day, Zapata and Houlihan's will issue a joint press release to
notify stockholders of the final Market Value. In addition, stockholders may
contact Houlihan's Investor Relations at (816) 756-2200 Ext. 1285 for
information concerning the Market Value. See "The Houlihan's Special
Meeting--Notification of Market Value."
On May 1, 1996, the last full trading day before the public announcement of
Zapata's and Houlihan's intention to effect the Merger, the closing sales price
per share of Houlihan's Common Stock was $5.31 on the over-the-counter market
("OTC"). On August , 1996, the latest practicable trading day before printing
of this Joint Proxy Statement/Prospectus, the closing sales price per share of
Houlihan's Common Stock was $ on the OTC. See "-- Comparative Market
Price Data and Dividend Policy--Market Price
Data" for other recent market prices for Houlihan's Common Stock.
Effective Time of the Merger. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in the Merger Agreement, the
parties thereto will file a certificate of merger (the "Certificate of Merger")
with the Delaware Secretary of State. The Merger will become effective upon the
close of business on the date of such filing (the "Effective Time"), which,
assuming all conditions are met, is anticipated to occur promptly after the
conclusion of the Zapata Annual Meeting and the Houlihan's Special Meeting. See
"The Merger Agreement--Conditions to the Merger."
Conditions to the Merger; Termination. The obligations of Zapata and
Houlihan's to consummate the Merger are subject to the satisfaction of certain
conditions, including, among others: (i) obtaining requisite Zapata and
Houlihan's stockholder approvals; (ii) the absence of any restraining order or
injunction prohibiting consummation of the Merger; (iii) the approval for
listing on the NYSE of the shares of Zapata
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<PAGE> 17
Common Stock to be issued in the Merger; (iv) the receipt of certain legal
opinions with respect to the tax consequences of the Merger; and (v) the
refinancing of Houlihan's credit facility. Further, the obligation of Houlihan's
to consummate the Merger is subject to Zapata's having taken action to appoint
two designees of Houlihan's to the Zapata Board of Directors, effective
immediately following consummation of the Merger, and Zapata's having offered
employment to William W. Moreton as Executive Vice President and Chief Financial
Officer. See "The Merger Agreement--Conditions to the Merger."
The Merger Agreement may be terminated and the Merger may be abandoned
prior to the Effective Time notwithstanding approval by the stockholders of
Zapata and Houlihan's under the circumstances specified in the Merger Agreement,
including, without limitation: (i) by mutual consent of Zapata and Houlihan's by
action of their respective Boards of Directors or special committees thereof;
(ii) by either Zapata or Houlihan's if the Merger is not consummated before
October 1, 1996, despite the good faith effort of such party to effect such
consummation (unless the failure to so consummate the Merger by such date is due
to a breach of the Merger Agreement by the party seeking to terminate it); (iii)
by either Zapata or Houlihan's if a court of competent jurisdiction shall have
issued a non-appealable final order, decree or ruling having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger; (iv) by
Houlihan's if it accepts an acquisition proposal from another person and pays
Zapata's reasonable expenses incurred in connection with the Merger; (v) by
Zapata if Houlihan's Board of Directors or the special committee thereof
consisting of the two directors of Houlihan's not affiliated with Malcolm I.
Glazer (the "Houlihan's Special Committee") shall have withdrawn or modified, in
a manner adverse to Zapata, its recommendation for approval of the Merger
Agreement and the Merger; (vi) by Houlihan's if the Zapata Special Committee
shall have withdrawn or modified, in a manner adverse to Houlihan's, its
recommendation for approval of the issuance of Zapata Common Stock pursuant to
the Merger Agreement; (vii) by either Zapata or Houlihan's if one of the
conditions to its obligation to consummate the Merger has not been satisfied; or
(viii) by Zapata if holders of an aggregate of more than 1,000,000 shares of
Houlihan's Common Stock have provided notice of intent to dissent from, and have
not voted in favor of, the Merger as of the Closing Date. See "The Merger
Agreement--Amendment, Waiver and Termination."
Treatment of Stock Options
At the Effective Time, Houlihan's obligations with respect to each
outstanding option to purchase shares of Houlihan's Common Stock (each a
"Houlihan's Option") under its 1994 Stock Option Plan for Outside Directors and
1994 Executive Stock Option Plan (the "Houlihan's Stock Option Plans"), whether
vested or unvested, will be assumed by Zapata. Each Houlihan's Option so assumed
by Zapata shall continue to have, and be subject to, the same terms and
conditions set forth in the Houlihan's Stock Option Plans and agreements
pursuant to which such Houlihan's Option was issued as in effect immediately
prior to the Effective Time, except that (i) each Houlihan's Option shall be
exercisable for that number of whole shares of Zapata Common Stock equal to the
product of the number of shares of Houlihan's Common Stock covered by the
Houlihan's Option immediately prior to the Effective Time multiplied by the
ratio of $8.00 to the Market Value (the "Exchange Ratio"), rounded up to the
nearest whole number of shares of Zapata Common Stock and (ii) the per share
exercise price for the shares of Zapata Common Stock issuable upon the exercise
of such Houlihan's Option shall be equal to the quotient determined by dividing
the exercise price per share of Houlihan's Common Stock specified for such
Houlihan's Option under the applicable Houlihan's Stock Option Plan or agreement
immediately prior to the Effective Time by the Exchange Ratio, rounding the
resulting exercise price down to the nearest whole cent.
Certain Federal Income Tax Consequences
The Merger is intended to qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Baker & Botts, L.L.P., counsel for Zapata, is of the opinion that (subject to
the qualifications stated under the caption "Approval of the Merger and Related
Transactions--Certain Federal Income Tax Consequences" and based upon certain
customary factual representations made by both Zapata and Houlihan's) the Merger
will qualify as a reorganization within the meaning of Section 368(a) of the
Code and that the material federal income tax effects of the Merger to
12
<PAGE> 18
Houlihan's stockholders will be as described herein. A Houlihan's stockholder
who receives only Zapata Common Stock pursuant to the Merger will (i) not
recognize gain or loss on the exchange, (ii) have a basis in the Zapata Common
Stock equal to such stockholder's basis in the Houlihan's Common Stock exchanged
therefor, and (iii) have a holding period for the Zapata Common Stock that
includes such stockholder's holding period for the Houlihan's Common Stock
exchanged therefor. A Houlihan's stockholder who receives only cash pursuant to
the exchange and who does not own, actually or constructively, stock of Zapata
after the exchange will generally recognize capital gain or loss on the
exchange. A Houlihan's stockholder who receives both Zapata Common Stock and
cash pursuant to the Merger, or who receives only cash but actually or
constructively owns stock of Zapata after the exchange, will (i) generally have
the consequences with respect to shares of Zapata Common Stock received that are
described above in the case of a Houlihan's stockholder who receives only Zapata
Common Stock, (ii) not be permitted to recognize any loss realized on the
exchange, and (iii) be required to recognize any gain realized on the exchange
up to the amount of cash received, some or all of which may under certain
circumstances be taxable as dividend income. See "Approval of the Merger and
Related Transactions--Certain Federal Income Tax Consequences."
Dissenters' Appraisal Rights
Under Delaware law, Houlihan's stockholders may exercise appraisal rights
with respect to the Merger. In order to perfect appraisal rights, Houlihan's
stockholders must comply with certain statutorily prescribed procedures within
specified time periods. A vote against approval and adoption of the Merger
Agreement will not fulfill such statutory requirements without other action. A
Houlihan's stockholder who fails to perfect or who withdraws or otherwise loses
rights to an appraisal of its shares after the vote of Houlihan's stockholders
on the Merger and Merger Agreement will, as a result of the Merger, receive
$4.00 in cash, without interest, and $4.00 in Market Value of Zapata Common
Stock for each share of Houlihan's Common Stock held by such stockholder. See
"The Merger Agreement--Appraisal Rights." A copy of Section 262 of the Delaware
General Corporation Law regarding appraisal rights is attached as Appendix D to
this Joint Proxy Statement/Prospectus. Zapata stockholders will not have
appraisal rights in connection with the Merger.
Resales of Zapata Common Stock
The shares of Zapata Common Stock to be issued pursuant to the Merger will
be registered under the Securities Act, and therefore may be resold without
restriction by persons who are not deemed to be "affiliates" (as such term is
defined under the Securities Act) of either Zapata or Houlihan's. See "Approval
of the Merger and Related Transactions--Restrictions on Sales of Stock."
The Zapata Special Committee
The members of the Zapata Special Committee are Messrs. R. C. Lassiter,
Chairman, Robert V. Leffler, Jr. and W. George Loar. See "Additional Proposals
for a Vote of Zapata Stockholders--Continuing Directors" for information on the
background of the committee members. The members of the Zapata Special Committee
previously served as members of a special committee of the Zapata Board of
Directors formed to evaluate and act in connection with Zapata's acquisition
from the Malcolm Glazer Trust of stock of Envirodyne.
The compensation paid by Zapata to the members of the Zapata Special
Committee for their service on that committee in connection with the transaction
with Houlihan's was $20,000 in the case of Mr. Lassiter, the chairman of the
committee, and $15,000 in the case of each of Messrs. Leffler and Loar. Zapata
has also entered into indemnification agreements with the members of the Zapata
Special Committee containing provisions for comprehensive indemnification and
advancement of expenses to the fullest extent permitted by applicable law.
Messrs. Lassiter, Leffler and Loar have been named as defendants in actions
alleging breaches of fiduciary duty by them and other directors of Zapata in
connection with Zapata's investment in Envirodyne and in connection with its
proposed acquisition of Houlihan's in the Merger. Among other things, the
complaints in these actions allege that the members of the Zapata Special
Committee lack independence from
13
<PAGE> 19
Malcolm I. Glazer. Zapata denies the substantive allegations of these
complaints. See "Risk Factors--Litigation."
Recommendation of the Zapata Special Committee
The Zapata Special Committee has unanimously approved the Merger Agreement
and the Merger Proposal and unanimously recommends that Zapata stockholders vote
FOR approval of the Merger Proposal. See "Approval of the Merger and Related
Transactions--Zapata's Reasons for the Merger; Recommendation." See also "Risk
Factors" for a discussion of factors that should be considered carefully by
Zapata stockholders in connection with evaluating and voting on the Merger
Proposal.
Recommendation of the Houlihan's Special Committee
The Board of Directors of Houlihan's has, based solely on the
recommendation of the Houlihan's Special Committee, approved the Merger
Agreement and the Merger. The Houlihan's Special Committee unanimously
recommends a vote FOR approval and adoption of the Merger Agreement and approval
of the Merger by the stockholders of Houlihan's. See "Approval of the Merger and
Related Transactions--Houlihan's Reasons for the Merger." See also "Risk
Factors" for a discussion of factors that should be considered carefully by
Houlihan's stockholders in connection with evaluating and voting on the approval
and adoption of the Merger Agreement and approval of the Merger.
Opinion of CS First Boston
CS First Boston Corporation ("CS First Boston"), financial adviser to the
Zapata Special Committee, has rendered its written opinion, dated June 4, 1996,
to the Zapata Special Committee to the effect that, as of such date and based
upon and subject to certain matters stated in such opinion, the consideration to
be paid by Zapata in the Merger pursuant to the Merger Agreement (the "Merger
Consideration") is fair, from a financial point of view, to Zapata. A copy of
the written opinion of CS First Boston dated June 4, 1996 is attached hereto as
Appendix B and should be read carefully in its entirety with respect to the
assumptions made, matters considered and limitations on the review undertaken in
connection with such opinion. The opinion of CS First Boston is directed only to
the fairness of the Merger Consideration from a financial point of view to
Zapata, does not address any other aspect of the proposed Merger or any related
transaction and does not constitute a recommendation to any stockholder as to
how such stockholder should vote at the Zapata Special Meeting. See "Approval of
the Merger and Related Transactions--Opinion of CS First Boston."
Opinion of DLJ
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), financial
adviser to the Houlihan's Special Committee, has rendered a written opinion,
dated June 4, 1996, to the Houlihan's Special Committee to the effect that, as
of such date and based upon and subject to certain matters stated in such
opinion, the Merger Consideration to be received by Houlihan's stockholders
(other than Malcolm I. Glazer or his affiliates) in the Merger is fair to such
stockholders from a financial point of view. See "Approval of the Merger and
Related Transactions--Opinion of DLJ." The full text of the written opinion of
DLJ, which sets forth certain assumptions made, matters considered and
limitations on the review undertaken by DLJ, is attached as Appendix C hereto.
Houlihan's stockholders are urged to read the opinion carefully in its entirety.
The opinion of DLJ is directed only to the fairness of the Merger Consideration
from a financial point of view to Houlihan's stockholders, does not address any
other aspect of the proposed Merger or any related transaction and does not
constitute a recommendation to any stockholder of Houlihan's as to how such
stockholder should vote at the Houlihan's Special Meeting. See "Approval of the
Merger and Related Transactions--Opinion of DLJ."
Sub Operations After the Merger
Sub will be the surviving corporation following the Merger and will be
renamed "Houlihan's Restaurant Group, Inc." Zapata expects that, following the
Merger, Houlihan's Restaurant Group, Inc. will be operated
14
<PAGE> 20
as a subsidiary managed substantially independently of Zapata's other
operations. Its headquarters are expected to remain in Kansas City, Missouri.
See "Approval of the Merger and Related Transactions--Operations Following the
Merger."
The Houlihan's officers immediately prior to the Effective Time will serve
as the officers of Sub following the Effective Time, each to hold office from
the Effective Time until his or her successor is duly appointed and qualified.
The directors of the Sub following the Effective Time shall be Frederick R. Hipp
and such other person or persons as shall be designated by Zapata, each to hold
office from the Effective Time until his or her successor is duly elected or
appointed and qualified.
Interests of Certain Persons in the Merger
Malcolm I. Glazer and other members of the Glazer Group currently
beneficially own approximately 35.2% of the outstanding shares of Zapata Common
Stock and approximately 73.3% of the outstanding shares of Houlihan's Common
Stock. Although the Boards of Directors of Zapata and Houlihan's have each
formed a special committee to negotiate and otherwise act in connection with the
Merger, stockholders should be aware that, by virtue of such ownership, Malcolm
I. Glazer and other members of the Glazer Group have interests different from
stockholders of the respective companies generally. Because of the greater
percentage ownership of the Glazer Group in the Houlihan's Common Stock than in
the Zapata Common Stock, the Glazer Group would derive greater benefit from
terms of the Merger (including the consideration to be paid in exchange for
Houlihan's Common Stock) considered to favor Houlihan's than from such terms
considered to favor Zapata. The Standstill Agreement provides for certain
restrictions on the acquisition, disposition and voting of, and other matters
relating to, Zapata Common Stock by Malcolm I. Glazer and other members of the
Glazer Group, which restrictions are not applicable to other holders of Zapata
Common Stock.
In considering the recommendation of the Houlihan's Special Committee with
respect to the Merger Agreement and the transactions contemplated thereby,
stockholders should also be aware that certain members of the Board of Directors
of Houlihan's (including members of the Houlihan's Special Committee) and the
management of Houlihan's may have interests in the Merger that are in addition
to the interests of stockholders of Houlihan's generally (including, without
limitation, accelerated vesting of options and, in the case of certain officers,
termination benefits triggered by the Merger and, in the case of one officer, an
employment agreement to be entered into with Zapata as a condition to
consummation of the Merger). The Houlihan's Special Committee was aware of these
interests and considered them, among other factors, in approving the Merger. See
"Approval of the Merger and Related Transactions--Interests of Certain Persons
in the Merger."
Regulatory Matters
In connection with the Merger, Zapata and Malcolm I. Glazer each filed a
pre-merger notification form with the Federal Trade Commission and the Antitrust
Division of the Department of Justice under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"). The Federal Trade
Commission has granted Zapata's request for early termination of the waiting
period under the HSR Act. Except for the approvals of liquor licensing
authorities in certain jurisdictions in which Houlihan's operates, no other
material federal or state regulatory approvals must be obtained in order to
consummate the Merger. See "Approval of the Merger and Related
Transactions--Regulatory Approvals."
Accounting Treatment
For accounting and financial reporting purposes, the Merger will be
accounted for using the purchase method under generally accepted accounting
principles.
15
<PAGE> 21
ZAPATA SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary financial information has been derived from the
historical consolidated financial statements of Zapata as restated to reflect
Zapata's natural gas compression and natural gas gathering, processing and
marketing operations as discontinued operations. The summary unaudited financial
data for the nine months ended June 30, 1996 and 1995 include all adjustments
(consisting only of normally recurring adjustments) that Zapata considers
necessary for a fair presentation of consolidated operating results for such
interim periods. Results for the interim periods are not necessarily indicative
of results for the full year. The financial information set forth below should
be read in conjunction with Zapata's consolidated financial statements, related
notes and other financial information incorporated by reference in this Joint
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
ZAPATA CORPORATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS
ENDED JUNE 30, FISCAL YEAR ENDED SEPTEMBER 30,
------------------- ------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- -------- -------- -------- ------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues.............................. $60,273 $ 68,793 $103,068 $109,163 $78,754 $106,413 $ 93,410
Operating income (loss)............... 7,263 (11,020)(1) (9,220)(1) (31,607)(2) 3,559 10,901 3,063
Income (loss) from continuing
operations.......................... 2,393 (4,558) (5,844) (857)(3) 10,458(4) 2,431 2,087
Per share income (loss) from
continuing operations............... 0.08 (0.15) (0.19) (0.04) 0.37 0.08 0.07
Cash dividends paid on common and
preferred stock..................... -- 1,153 1,153 1,566 2,933 -- --
Common stock, dividends declared, per
share............................... -- -- -- 0.07 -- -- --
Weighted average common and common
equivalent shares................... 29,562 31,120 30,706 31,377 27,325 25,723 25,579
Other Financial Data:
Capital expenditures (excluding
acquisitions)....................... $ 4,411 $ 5,153 $ 7,341 $ 15,530 $ 2,812 $ 11,595 $ 8,730
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, --------------------------------------------------------------
1996 1995 1994 1993 1992 1991
--------------- -------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital....................... $ 105,654 $113,536 $139,526 $136,493(5) $ 30,281 $ 48,054
Total assets.......................... 234,807 239,391 254,788 322,073 304,339 318,021
Total debt............................ 40,885 53,616 53,112 135,989 139,950 150,622
Stockholders' equity.................. 156,760 145,290 154,542 146,264 124,880 122,853
</TABLE>
- ---------------
(1) Includes a $12.6 million provision for the nine months ended June 30, 1995
that was subsequently reduced to $12.3 million at September 30, 1995 for
asset impairment to reduce certain assets to their fair market values as a
result of adopting Statement of Financial Accounting Standards ("SFAS") No.
121.
(2) Includes a $29.2 million oil and gas valuation provision.
(3) Includes a $37.5 million pretax gain from the sale of 4.1 million shares of
Tidewater, Inc. ("Tidewater") common stock and expenses of $7.4 million
related to the prepayment of indebtedness.
(4) Includes a $32.9 million pretax gain from the sale of 3.5 million shares of
Tidewater common stock, a $6.4 million prepayment penalty in connection with
the refinancing of senior debt and a $5.7 million pretax loss resulting from
the disposition of Zapata's investment in Arethusa (Offshore) Limited.
(5) Includes $75.1 million of restricted cash primarily generated from the sale
of Tidewater common stock in June 1993, which was subsequently used to fund
the cash portion of the purchase price for the acquisition of Energy
Industries, Inc.
16
<PAGE> 22
HOULIHAN'S SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected financial information is derived from the historical
consolidated financial statements of Houlihan's. The selected unaudited
financial data for the twenty-six weeks ended June 24, 1996 and June 26, 1995
include all adjustments (consisting only of normally recurring adjustments) that
Houlihan's considers necessary for a fair presentation of consolidated operating
results for such interim periods. Results for the interim periods are not
necessarily indicative of results for the full year. The financial information
set forth below should be read in conjunction with Houlihan's consolidated
financial statements, related notes and other financial information incorporated
by reference in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
HOULIHAN'S RESTAURANT GROUP, INC.
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
TWENTY-SIX
WEEKS ENDED FISCAL YEAR ENDED(1)(2)
--------------------- ----------------------------------------------------------------
JUNE 24, JUNE 26, DEC. 25, DEC. 26, DEC. 27, DEC. 28, DEC. 30,
1996 1995 1995 1994 1993 1992 1991
---------- --------- ---------- ---------- --------- ------------- -------------
(Unaudited) (PREDECESSOR) (PREDECESSOR)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales............................ $ 135,198 $ 134,419 $ 267,622 $ 259,367 $ 257,225 $ 266,532 $ 287,060
Cost of sales, including operating
expenses exclusive of depreciation
and amortization shown
separately......................... 113,591 111,608 222,375 215,562 208,532 228,926 245,580
---------- --------- ---------- ---------- --------- -------- --------
Gross profit....................... 21,607 22,811 45,247 43,805 48,693 37,606 41,480
Depreciation and amortization........ 7,644 7,293 14,865 16,245 19,610 18,428 19,829
General and administrative
expenses........................... 8,559 8,079 16,938 17,176 17,736 15,038 14,646
Loss on disposition of properties,
net................................ 204 389 605 847 624 601 587
Interest expense..................... 3,510 4,439 8,189 6,562 6,428 10,242(3) 24,637(3)
Other (income), net.................. (2,441) (1,828) (3,531) (2,883) (2,700) (3,606) (3,712)
Reorganization items and
restructuring costs................ -- -- -- -- -- 3,612 13,913
Merger expenses...................... 584 -- -- -- -- -- --
Income tax provision (benefit)....... 1,839 2,023 3,916 2,900 4,026 (1,173) (6,206)
---------- --------- ---------- ---------- --------- -------- --------
Income (loss) before
extraordinary item............. 1,708 2,416 4,265 2,958 2,969 (5,536) (22,214)
Extraordinary gain on discharge of
prepetition liabilities............ -- -- -- -- -- 31,031 --
---------- --------- ---------- ---------- --------- -------- --------
Net income (loss).................. $ 1,708 $ 2,416 $ 4,265 $ 2,958 $ 2,969 $ 25,495 $ (22,214)
========== ========= ========== ========== ========= ======== ========
Earnings per common and common
equivalent share(4)................ $ 0.17 $ 0.24 $ 0.43 $ 0.30 $ 0.30 -- --
========== ========= ========== ========== ========= ======== ========
Weighted average common and common
equivalent shares(4)............... 10,021,307 9,998,012 10,032,254 10,012,928 9,998,012 -- --
========== ========= ========== ========== ========= ======== ========
Other Financial Data:
Capital expenditures................. $ 7,464 $ 6,625 $ 14,626 $ 17,814 $ 10,521 $ 7,978 $ 5,240
</TABLE>
<TABLE>
<CAPTION>
JUNE 24, DEC. 25, DEC. 26, DEC. 27, DEC. 28, DEC. 30,
1996 1995 1994 1993 1992 1991
----------- ---------- ---------- -------- ------------- -------------
(Unaudited) (PREDECESSOR)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital surplus
(deficit)(5)........................ $ (59,306) $ (15,494) $ (12,270) $ (9,220) $ (8,947) $ 5,512
Total assets.......................... 190,328 191,016 192,508 204,235 197,301 235,627
Total debt, including capitalized
leases.............................. 83,384 83,981 89,553 99,997 103,276 202,033
Stockholders' equity (deficit)........ 71,900 70,192 65,927 62,969 60,000 (17,951)
</TABLE>
- ---------------
(1) Unless otherwise indicated, references herein to years pertain to Houlihan's
52- or 53-week fiscal years ending the last Monday in December. All fiscal
years presented were 52-week fiscal years.
(2) "Predecessor" refers to Houlihan's prior to December 28, 1992, when the
Predecessor and certain related entities emerged from bankruptcy proceedings
under Chapter 11 of the U.S. Bankruptcy Code.
(3) From November 1991 to December 1992, interest expense attributable to the
senior subordinated notes was stayed, resulting in a decrease in interest
expense of $11,767 for 1992 and $1,260 for 1991.
(4) Earnings per common share for fiscal years 1992 and 1991 are not meaningful
due to reorganization and revaluation entries and the significant changes in
Houlihan's capital structure upon its reorganization, which was completed
December 28, 1992.
(5) Houlihan's ability to operate with working capital deficiencies is due to
the nature of the restaurant business, which does not require significant
investments in accounts receivable or inventories and which generally
permits the procurement of food and supplies on trade credit. The increase
in the deficiency at June 24, 1996 is a result of an increase in the current
portion of Houlihan's long-term debt under its bank credit facility.
17
<PAGE> 23
ZAPATA AND HOULIHAN'S SUMMARY UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL DATA
The following summary unaudited pro forma combined condensed financial data
present pro forma selected statement of operations data for the twelve months
ended September 30, 1995 and nine months ended June 30, 1996 and 1995, after
giving effect to (i) the Merger and (ii) the acquisition of (a) 4,189,298 shares
of common stock of Envirodyne in August 1995 (the "Initial Envirodyne Stock
Purchase"), (b) 818,006 additional shares of common stock of Envirodyne in June
1996 (the "Second Envirodyne Stock Purchase") and (c) 870,000 additional shares
of Envirodyne common stock in July 1996 (the "Third Envirodyne Stock Purchase"
and, together with the Initial Envirodyne Stock Purchase and the Second
Envirodyne Stock Purchase, the "Envirodyne Stock Purchases"), as if such
transactions were consummated on October 1, 1994, and unaudited pro forma
selected balance sheet data at June 30, 1996, giving effect to the Merger and
the Third Envirodyne Stock Purchase, as if such transactions were consummated on
that date. The Merger will be accounted for using the purchase method of
accounting. The summary pro forma combined condensed statement of operations
data for the fiscal year ended September 30, 1995 combine the results of
operations for Zapata's fiscal year ended September 30, 1995 with results of
operations for Houlihan's twelve months ended September 25, 1995, after giving
effect to pro forma adjustments. The summary pro forma combined condensed
statement of operations data for the nine months ended June 30, 1996 combine the
results of Zapata for the nine months ended June 30, 1996 and Houlihan's for the
nine months ended June 24, 1996 after giving effect to pro forma adjustments.
The summary pro forma combined condensed statement of operations data for the
nine months ended June 30, 1995 combine the results of Zapata for the nine
months ended June 30, 1995 and Houlihan's for the nine months ended June 26,
1995 after giving effect to pro forma adjustments. The summary pro forma
combined condensed balance sheet data as of June 30, 1996 combine the financial
position for Zapata as of June 30, 1996 with the financial position of
Houlihan's as of June 24, 1996, after giving effect to pro forma adjustments.
The following summary unaudited pro forma combined condensed financial data
are provided for comparative purposes only and should be read in conjunction
with the unaudited pro forma combined condensed financial statements and notes
thereto (which are included elsewhere in this Joint Proxy Statement/Prospectus)
and the separate audited consolidated financial statements and related notes of
Zapata and Houlihan's (which are incorporated by reference in this Joint Proxy
Statement/Prospectus). The following summary unaudited pro forma combined
condensed financial data have been prepared based on assumptions deemed
appropriate by Zapata and Houlihan's and may not be indicative of the results
that actually would have occurred if the Merger had been consummated on the
dates indicated or that may be obtained in the future. The per share information
has been computed on the assumption that the Market Value of the Zapata Common
Stock is $3.625 per share (the closing sales price on the NYSE on August 9,
1996), resulting in the issuance of 11,032,289 shares of Zapata Common Stock in
the Merger.
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS TWELVE MONTHS
ENDED JUNE ENDED JUNE 30, ENDED SEPT.
30, 1996 1995 30, 1995
------------- -------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Pro Forma Statement of Operations Data:
Revenues...................................................... $ 262,344 $270,997 $371,602
Operating income.............................................. 16,445 1,517 5,608
Income (loss) from continuing operations...................... 4,544 (730) (1,685)
Per share income (loss) from continuing operations............ 0.11 (0.02) (0.04)
Cash dividends paid on common and preferred stock............. -- 1,153 1,153
Common stock, dividends declared, per share................... -- -- --
Weighted average common and common equivalent shares.......... 40,809 42,379 41,966
Other Pro Forma Financial Data:
EBITDA(1):
Zapata...................................................... $ 9,705 $ (6,042)(2) $ (3,613)(2)
Houlihan's.................................................. 23,020 25,463 32,085
--------- -------- --------
Total................................................... $ 32,725 $ 19,421 $ 28,472
========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
(IN THOUSANDS)
<S> <C>
Pro Forma Balance Sheet Data:
Working capital................................................................ $ 53,067
Total assets................................................................... 391,089
Total debt..................................................................... 124,269
Stockholders' equity........................................................... 196,752
</TABLE>
- ---------------
(1) EBITDA (earnings before interest, taxes, depreciation and amortization) is
used by the management of both Zapata and Houlihan's as a supplemental
financial measurement in the evaluation of their respective businesses and
is presented here to provide additional information about the Merger. EBITDA
should not be considered as an alternative to net income as an indicator of
the combined operating performance of Zapata and Houlihan's or as an
alternative to cash flows as a measure of liquidity.
(2) Includes a $12.6 million provision for the nine months ended June 30, 1995
that was subsequently reduced to $12.3 million at September 30, 1995 for
asset impairment to reduce certain assets to their fair market values as a
result of adopting SFAS No. 121.
18
<PAGE> 24
COMPARATIVE PER SHARE DATA
The following table presents historical and pro forma per share data for
Zapata and historical and equivalent pro forma per share information for
Houlihan's after giving effect to the Merger using the purchase method of
accounting, assuming the Merger had been effective during all periods presented.
The pro forma data do not purport to be indicative of future operations or the
results that would have occurred had the Merger been consummated at the
beginning of the periods presented. The information set forth below should be
read in conjunction with the consolidated financial statements and notes thereto
of Zapata incorporated by reference in this Joint Proxy Statement/Prospectus,
the consolidated financial statements and notes thereto of Houlihan's
incorporated by reference in this Joint Proxy Statement/Prospectus, and the
unaudited pro forma combined condensed financial statements included elsewhere
in this Joint Proxy Statement/Prospectus. The pro forma per share information
has been computed on the assumption that the Market Value of the Zapata Common
Stock is $3.625 per share (the closing sales price on the NYSE on August 9,
1996), resulting in the issuance of 11,032,289 shares of Zapata Common Stock in
the Merger.
ZAPATA
<TABLE>
<CAPTION>
NINE MONTHS FISCAL YEAR
ENDED JUNE 30, ENDED SEPT. 30,
1996 1995
--------------- ---------------
<S> <C> <C>
Income per share from continuing operations
Historical............................... $ 0.08 $ (0.19)
Pro forma combined....................... 0.11 (0.04)
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1996
---------------
<S> <C>
Book value per share
Historical............................... $ 5.30
Pro forma combined....................... 4.85
</TABLE>
HOULIHAN'S
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
ENDED JUNE 30, ENDED SEPT. 30,
1996 1995
--------------- ---------------
<S> <C> <C>
Income per share from continuing operations
Historical............................... $ 0.31 $ 0.51
Equivalent pro forma combined per share
of Houlihan's exchanged for Zapata
Common Stock(1):...................... 0.24 (0.09)
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1996
---------------
<S> <C>
Book value per share
Historical............................... $ 7.19
Equivalent pro forma combined per share
of Houlihan's exchanged for Zapata
Common Stock(1):...................... 10.71
</TABLE>
- ---------------
(1) Based on receipt of 2.21 shares of Zapata Common Stock per share of
Houlihan's Common Stock by a holder making a Stock Election, assuming the
Market Value per share is $3.625 (the closing sales price of the Zapata
Common Stock on the NYSE on August 9, 1996).
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<PAGE> 25
COMPARATIVE MARKET PRICE DATA AND DIVIDEND POLICY
MARKET PRICE DATA
Zapata Common Stock is listed on the NYSE under the symbol "ZAP" and
Houlihan's Common Stock trades on the OTC under the symbol "HOUL." The table
below sets forth, for the calendar quarters indicated, the high and low sales
prices per share for (i) Zapata Common Stock, as reported in the consolidated
transactions reporting system and (ii) Houlihan's Common Stock as reported on
the OTC.
<TABLE>
<CAPTION>
ZAPATA HOULIHAN'S
COMMON STOCK COMMON STOCK
-------------- ---------------
HIGH LOW HIGH LOW
----- ----- ------ -----
<S> <C> <C> <C> <C>
1994:
First Quarter............................................... $6.88 $5.63 $11.25 $8.25
Second Quarter.............................................. 6.25 4.00 11.00 9.75
Third Quarter............................................... 5.50 4.00 10.00 8.00
Fourth Quarter.............................................. 4.50 3.25 9.75 6.25
1995:
First Quarter............................................... $4.13 $3.25 $ 8.50 $6.50
Second Quarter.............................................. 4.38 2.50 8.88 8.50
Third Quarter............................................... 4.63 2.88 8.88 7.13
Fourth Quarter.............................................. 4.50 3.00 7.13 4.50
1996:
First Quarter............................................... $3.75 $3.00 $ 5.50 $3.88
Second Quarter.............................................. 3.88 3.13 6.75 4.94
Third Quarter (through August , 1996).....................
</TABLE>
On May 1, 1996, the last full trading day before the public announcement of
Zapata's and Houlihan's intention to effect the Merger, the closing sales price
per share of (i) the Zapata Common Stock was $3.63 on the NYSE and (ii) the
Houlihan's Common Stock was $5.31 on the OTC. On June 4, 1996, the last full
trading day before the public announcement that Zapata and Houlihan's had
entered into the Merger Agreement, the closing sales price per share of (i) the
Zapata Common Stock was $3.63 on the NYSE and (ii) the Houlihan's Common Stock
was $6.50 on the OTC. On August , 1996, the latest practicable trading day
before printing of this Joint Proxy Statement/Prospectus, the closing sales
price per share of (i) the Zapata Common Stock was $ on the NYSE and
(ii) the Houlihan's Common Stock was $ on the OTC.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR ZAPATA AND
HOULIHAN'S COMMON STOCK. Following the Merger, Zapata Common Stock will continue
to trade on the NYSE under the symbol "ZAP" while Houlihan's Common Stock will
cease to be traded and there will be no further market for such stock.
DIVIDEND POLICY
Neither Zapata nor Houlihan's currently pays or is obligated to pay
dividends on its common stock. The rights of holders of Zapata Common Stock to
receive dividends or other payments with respect thereto are subject to the
prior and superior rights of holders of Zapata Preferred Stock and Zapata $2
Preference Stock then outstanding. As of the date of this Joint Proxy
Statement/Prospectus, 2,627 shares of Zapata $2 Preference Stock and no shares
of Zapata Preferred Stock were outstanding. Zapata has not paid any dividends on
the Zapata $2 Preference Stock for any period subsequent to the fourth quarter
of fiscal year 1994. The provisions of Zapata's Restated Certificate of
Incorporation governing the Zapata $2 Preference Stock restrict Zapata from
paying dividends on the Zapata Common Stock unless dividends on the Zapata $2
Preference Stock for the then-current quarter have been paid. Zapata currently
intends to retain its earnings for development of its businesses and not to
distribute earnings to holders of Zapata Common Stock as dividends.
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<PAGE> 26
RISK FACTORS
The following factors should be considered carefully by the stockholders of
Zapata and Houlihan's in connection with voting upon the Merger and the
transactions contemplated thereby. The discussion in this Joint Proxy
Statement/Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
below.
UNCERTAINTIES RELATING TO HOULIHAN'S BUSINESS
Expansion Strategy
Houlihan's ability to achieve its expansion plans, as described in the
accompanying Annual Report on Form 10-K for the fiscal year ended December 25,
1995, will depend on a variety of factors, many of which may be beyond
Houlihan's control, including Houlihan's ability to locate suitable restaurant
sites, negotiate suitable lease (or purchase) terms, obtain required
governmental approvals and licenses, construct new restaurants in a timely
manner without significant construction cost overruns, and attract, train and
retain qualified and experienced personnel and management. The ability of
Houlihan's to operate its existing restaurants profitably and, at the same time,
expand its concepts also will depend upon, among other things, general and local
economic conditions, competition, and the ability of Houlihan's to finance its
expansion from cash flow from operations, or, if necessary, additional
financing. Since December 1992, when Houlihan's emerged from proceedings for
voluntary reorganization under the U.S. Bankruptcy Code, Houlihan's has financed
its expansion from cash flow from operations because certain covenants governing
Houlihan's indebtedness prohibit Houlihan's from incurring new indebtedness and
limit the amount of capital expenditures. Houlihan's expects that its cash flow
from operations will be sufficient in fiscal 1996 to finance the planned opening
of three new Houlihan's restaurants, one Seafood Grill and one specialty
restaurant. However, there can be no assurance the cash flow from operations
will be adequate in future years to continue expansion at the current rate.
Unexpected difficulties encountered during expansion could adversely affect
Houlihan's business, financial condition and results of operations. Houlihan's
plans to increase the number of its franchised restaurants, but there can be no
assurance that it will be able to attract and retain suitable franchisees, or
that it will be successful in achieving its more general expansion objectives.
Franchising
Franchising operations present numerous risks, and Houlihan's faces
vigorous competition from other restaurant chains in attracting and retaining
suitable franchisees. Houlihan's is subject to regulation by the Federal Trade
Commission and must comply with certain state laws that govern the offer, sale
and termination of franchises and the refusal to renew franchises. Houlihan's
has limited experience in franchising restaurants. Franchisees' failure to
maintain Houlihan's high standards could adversely affect customer attitudes
towards Houlihan's restaurants. Granting exclusive territory agreements may also
limit future expansion opportunities for company-owned restaurants. Franchise
developers or franchisees may leave the franchise system at the end of the term
of their development or franchise agreements or may attempt to terminate their
agreements before the end of their terms. While Houlihan's agreements contain
noncompetition and confidentiality covenants, such covenants may not prevent the
loss of royalty revenues. Further, while franchising permits Houlihan's to
increase the geographic coverage of its restaurant system without substantial
investments of capital, it also presents certain other risks that result from
Houlihan's not having direct operational control over franchised Houlihan's
restaurants. See "Houlihan's Business--Business Development" in the accompanying
Annual Report on Form 10-K of Houlihan's for the fiscal year ended December 25,
1995.
Factors Affecting the Restaurant Industry
Houlihan's future performance will be subject to a number of factors that
affect the restaurant industry generally, including (i) the highly competitive
nature of the restaurant industry, (ii) general and local economic conditions,
(iii) changes in tastes and eating and drinking habits, including the trend of
declining alcohol consumption, (iv) changes in tax laws that affect the
deductibility of business-related meals,
21
<PAGE> 27
(v) changes in food costs due to shortages, inflation or other causes, (vi)
population and traffic patterns, (vii) demographic trends, (viii) general
employment and wage and benefit levels in the restaurant industry, which may be
affected by changes in federal and local minimum wage requirements or by
federally or locally mandated health insurance benefits, and (ix) the number of
people willing to work at or near the minimum wage.
The restaurant business is highly competitive and the competition can be
expected to increase. Price, restaurant location, food quality, service and
attractiveness of facilities are important aspects of competition and the
competitive environment is often affected by factors beyond Houlihan's or a
particular restaurant's control. Houlihan's restaurants compete with a wide
variety of restaurants ranging from national and regional restaurant chains
(some of which have substantially greater financial resources than Houlihan's)
to locally-owned restaurants. There is also active competition for liquor
licenses in certain markets and for advantageous commercial real estate sites
suitable for restaurants.
Each of Houlihan's restaurants is subject to state and local laws and
regulations governing health, sanitation and safety and the sale of alcoholic
beverages. The selection of new restaurant sites is affected by federal, state
and local laws and regulations regarding environmental matters, zoning and land
use and the sale of alcoholic beverages. The failure to receive or retain, or a
delay in obtaining, a liquor license in a particular location could adversely
affect or cause Houlihan's to terminate its operations at that location. In the
past, none of these laws and regulations have had a significant negative effect
on operations, nor has Houlihan's experienced any significant difficulties in
obtaining necessary licenses and approvals. More stringent and varied
requirements (particularly at the local level), however, may result in increases
in the cost and time required for opening new restaurants, as well as increases
in the cost of operating restaurants, and difficulties in obtaining necessary
license or permits could result in delays in or cancellations of new restaurant
openings.
UNCERTAINTIES RELATING TO ZAPATA'S BUSINESS
Marine Protein Operations. Zapata's marine protein operations involve the
production and sale of a variety of protein and oil products from menhaden, a
species of fish found in the Gulf of Mexico and along the Atlantic coast.
Because the magnitude of the fish catch depends on the availability of the
natural resource, which is affected by various factors beyond Zapata's control,
and because the prices for its products are established by worldwide supply and
demand relationships over which Zapata has no control, Zapata cannot predict the
profitability of this business segment in any given year.
Zapata's marine protein operations accounted for $95 million, or 92.1%, of
Zapata's revenues during the fiscal year ended September 30, 1995 and for $58.8
million, or 97.5%, of Zapata's revenues during the nine months ended June 30,
1996. Zapata's marine protein operations are subject to significant competition
from other protein sources such as soybean meal and other vegetable or animal
products. In addition, Zapata competes against domestic, privately owned
menhaden fishing companies as well as international producers of fish meal and
fish oil.
Zapata's marine protein operations are also subject to numerous federal,
state and local laws and regulations relating to the location and periods in
which fishing may be conducted, as well as environmental and safety matters.
Bolivian Oil and Gas Operations. Zapata's Bolivian oil and gas operations
accounted for $2.7 million, or 2.6%, of Zapata's revenues during the fiscal year
ended September 30, 1995 and for $1.5 million, or 2.5%, of Zapata's revenues
during the nine months ended June 30, 1996. Zapata's oil and gas operations are
subject to all of the risks and hazards typically associated with the
exploration for, and production of, oil and gas, including blowouts, cratering,
oil spills and fires, each of which could result in damage to or destruction of
oil and gas wells, production facilities or other property or the environment or
injury to persons. Although Zapata maintains customary insurance coverage, it is
not fully insured against such risks, either because such insurance is not
available or because of high premium costs. In addition, Zapata's investment in
its Bolivian oil and gas properties is that of a minority interest owner.
Accordingly, the majority owner has the right to determine the details of any
exploration and development drilling program.
22
<PAGE> 28
Zapata's Bolivian oil and gas operations are also subject to various
political risks. For several decades, Bolivia experienced periods of slow or
negative growth, high inflation, large devaluations of the Bolivian currency and
imposition of exchange controls. Limited availability of foreign exchange
required the Bolivian government to restructure its foreign currency denominated
indebtedness. Since 1985, the Bolivian government has pursued economic
stabilization and reform policies which have significantly reduced inflation and
budget deficits and which have eliminated exchange controls. There are currently
no restrictions on the transfer of funds out of Bolivia. Since 1986, the
exchange rate for Bolivian currency has been relatively stable. A recurrence of
adverse economic conditions, high levels of inflation, the imposition of
exchange controls or restrictions on payments to non-Bolivians could adversely
affect Zapata's Bolivian operations. Foreign operations and investments may also
be subject to laws and policies of the United States affecting foreign trade,
investment and taxation which could affect the conduct or the profitability of
Zapata's Bolivian operations.
Transition to Food Services Business. As a result of Zapata's transitional
status, an investment in Zapata Common Stock is subject to uncertainties
associated with how its business may evolve as it continues its program of
redirecting its business.
In accordance with its plan to redirect its business into the food services
industry, Zapata plans to make future acquisitions. Such acquisitions may
include acquisitions of additional interests in, or a combination with,
Specialty, a company in which members of the Glazer Group own approximately 43%
of the outstanding common stock. The Zapata Special Committee has been
authorized by the Zapata Board of Directors to consider a possible acquisition
of Specialty. In October 1995 Zapata submitted to Specialty a form of
confidentiality agreement to cover the exchange of information in connection
with a possible combination of Zapata and Specialty. Specialty declined to
execute a confidentiality agreement. Zapata may also make purchases of the
common stock of Envirodyne in addition to its existing position or may seek to
acquire Envirodyne in a merger or other business combination transaction. As of
the date of this Joint Proxy Statement/Prospectus, Zapata does not have any
arrangement, understanding or agreement to acquire any other company, nor are
there any ongoing negotiations with respect to any such acquisition. Zapata can
provide no assurance as to whether any such future acquisitions, or acquisitions
of other companies in the food services business, can be accomplished, the
timing or terms thereof (including the amount of cash or stock consideration
that would be involved in any such transaction), or the degree to which other
acquisitions in the food services industry can be successfully integrated with
Zapata's other operations. Because Zapata has not historically had operations in
the food services business, it will, at least initially, be substantially
reliant on management expertise of Houlihan's and other companies it may
acquire.
Zapata has considered from time to time transactions that would involve its
marine protein operations, including the acquisition of related businesses that
would be combined with the marine protein operations and the sale or spin-off to
its stockholders of these operations. R. C. Lassiter, a director of Zapata and
Chairman of the Zapata Special Committee, is Chairman and Chief Executive
Officer of Zapata Protein, Inc. and could leave Zapata and continue with the
marine protein operations in case of their disposition by Zapata.
Zapata is also considering the disposition of its Bolivian oil and gas
operations.
COSTS OF THE TRANSACTION
Zapata and Houlihan's estimate that costs related to the Merger will be
approximately $3,200,000. These transaction costs principally include fees for
financial advisers, accounting and legal services and printing and other related
costs likely to be incurred in connection with combining the operations of the
respective companies. A significant portion of these costs will be incurred
prior to the date of the Zapata Annual Meeting and the Houlihan's Special
Meeting, and will therefore be incurred whether or not the Merger proposal is
approved.
23
<PAGE> 29
DIFFERENT INTERESTS OF GLAZER GROUP AND CERTAIN MEMBERS OF HOULIHAN'S MANAGEMENT
FROM THOSE OF OTHER HOLDERS; OTHER TRANSACTIONS WITH GLAZER GROUP
Malcolm I. Glazer and other members of the Glazer Group currently
beneficially own approximately 35.2% of the outstanding shares of Zapata Common
Stock and approximately 73.3% of the outstanding shares of Houlihan's Common
Stock. Although the Boards of Directors of Zapata and Houlihan's have each
formed a special committee to negotiate and otherwise act in connection with the
Merger, stockholders should be aware that, by virtue of such ownership, Malcolm
I. Glazer and other members of the Glazer Group have interests different from
stockholders of the respective companies generally. Because of the greater
percentage ownership of the Glazer Group in the Houlihan's Common Stock, the
Glazer Group would derive greater benefit from terms of the Merger (including
the consideration to be paid in exchange for Houlihan's Common Stock) considered
to favor Houlihan's than from such terms considered to favor Zapata.
In considering the recommendation of the Houlihan's Special Committee with
respect to the Merger Agreement and the transactions contemplated thereby,
stockholders should also be aware that certain members of the Board of Directors
of Houlihan's and the management of Houlihan's (including members of the
Houlihan's Special Committee) may have interests in the Merger that are in
addition to the interests of stockholders of Houlihan's generally (including,
without limitation, accelerated vesting of options and, in the case of certain
officers, termination benefits triggered by the Merger and, in the case of one
officer, an employment agreement to be entered into with Zapata as a condition
to consummation of the Merger). See "Approval of the Merger and Related
Transactions--Interests of Certain Persons in the Merger."
In August 1995 Zapata purchased 4,189,298 shares of Envirodyne common stock
from the Malcolm Glazer Trust. The consideration for the purchase was a
subordinated promissory note of Zapata in the principal amount of $18.8 million,
bearing interest at prime and maturing August 1997. Zapata subsequently prepaid
the note prior to its stated maturity.
Zapata may in the future pursue an acquisition of an equity interest in, or
a combination with, Specialty, a company in which, as of March 20, 1996, members
of the Glazer Group beneficially owned approximately 8,000,000 shares, or 43%,
of the outstanding common stock. There can be no assurance as to whether, or on
what terms, any such acquisition might be accomplished.
CONTROL BY THE GLAZER GROUP FOLLOWING THE MERGER
Following consummation of the Merger, members of the Glazer Group will
beneficially own between 38.27% and 49.9% of the Zapata Common Stock, assuming a
Market Value of the Zapata Common Stock of $3.625 per share and depending on
elections made by other holders of Houlihan's Common Stock. Accordingly, members
of the Glazer Group will likely continue to be in a position to exercise
effective control of the management of Zapata and to determine the outcome of
decisions requiring stockholder approval. In this connection, however, Zapata
and Malcolm I. Glazer have entered into a Standstill Agreement (the "Standstill
Agreement"), which, among other things, contains certain restrictions on
acquisitions, sales and voting of Zapata Common Stock by members of the Glazer
Group during the term of the Standstill Agreement.
Under the Standstill Agreement, Malcolm I. Glazer has agreed, on behalf of
himself and other members of the Glazer Group, not to increase his beneficial
ownership of voting securities of Zapata beyond 49.9% of Zapata's outstanding
voting securities during the term of such agreement, unless, among other things,
such increases are approved by a majority of the Zapata Board of Directors
(excluding members of the Glazer family) or are made in response to a tender
offer or similar proposal by others to acquire more than 20% of Zapata's
outstanding voting securities. Malcolm I. Glazer may also exceed the 49.9%
limitation if a holder of greater than 5% of Zapata's outstanding voting
securities discloses an intent to acquire control of Zapata.
So long as the Standstill Agreement remains in effect, Malcolm I. Glazer
will have right of first purchase to maintain his proportionate ownership
position in Zapata. Conversely, the Standstill Agreement provides that Zapata
has a right to acquire any voting securities sought to be transferred by the
Glazer Group. Malcolm I. Glazer is permitted under the Standstill Agreement to
sell his voting securities free of Zapata's
24
<PAGE> 30
right of first refusal in a number of circumstances, including sales or
transfers to purchasers that agree to be bound by the terms of the Standstill
Agreement, pursuant to a public distribution, in response to a tender offer by
an unaffiliated third party for at least 14.9% of Zapata's outstanding voting
securities, in connection with certain corporate reorganizations or upon
conversion, exchange or exercise of outstanding securities. The Standstill
Agreement prohibits Zapata from soliciting proposals for the acquisition of
Zapata so long as the Glazer Group holds more than 9.9% of Zapata's outstanding
voting securities; however, Zapata has reserved the right to respond to
unsolicited proposals from other parties.
If the Zapata Board of Directors decides to pursue a combination between
Zapata and any entity in which the Glazer Group owns 15% or more of the voting
equity (such as Houlihan's), the Zapata Board of Directors is required under the
Standstill Agreement to appoint a special committee to negotiate and act in
connection with any such transaction. In the event of a proposed acquisition of
any such Glazer controlled entity, Malcolm I. Glazer has agreed to grant the
special committee an irrevocable proxy to vote all of the Zapata shares owned by
the Glazer Group in such manner as a majority of the committee members may
determine.
The Standstill Agreement terminates upon, among other events, the first to
occur of 18 months after Zapata's acquisition of Houlihan's, Zapata's
announcement that it does not intend to acquire Houlihan's, the acquisition by
another party of securities representing 20% or more of the voting power
attributable to Zapata's outstanding capital stock, a breach of the Standstill
Agreement by Zapata, or Malcolm I. Glazer's acquisition of more than 50% of
Zapata's outstanding voting securities in accordance with the terms of the
Standstill Agreement. In the event that Zapata announces its intention to
acquire another entity controlled by Glazer prior to the expiration of the
Standstill Agreement, the term of the Standstill Agreement will be automatically
extended until the first to occur of 18 months after the acquisition of such
entity or Zapata's announcement that it does not intend to acquire such entity.
LITIGATION
Litigation Challenging Zapata's Redirection into the Food Services Business
and Transactions Involving Malcolm I. Glazer
On August 11, 1995, a purported derivative and class action (the "Harwin
Case") was filed by Elly Harwin against Zapata and its then directors in the
Court of Chancery of the State of Delaware, New Castle County. On January 18,
1996, a second purported derivative action (the "Crandon Case") was filed by
Crandon Capital Partners against Zapata and its directors in the same court. The
complaint filed in the Harwin Case alleges that Zapata's directors engaged in
conduct constituting breach of fiduciary duty and waste of Zapata's assets in
connection with Zapata's investment in Envirodyne. The complaint filed in the
Crandon Case makes similar allegations concerning Zapata's investment in
Envirodyne and makes more general allegations of breach of fiduciary duty and
waste in connection with the decision to shift Zapata's business focus from
energy to food services. Both complaints allege, among other things, that the
purchase of the Envirodyne common stock from Malcolm I. Glazer's affiliate was a
wrongful expenditure of Zapata's funds and was designed to permit Malcolm I.
Glazer to obtain personal financial advantage to the detriment of Zapata. The
complaints also allege that Zapata's Board of Directors is controlled by Malcolm
I. Glazer, and in that connection, one or both complaints variously allege that
Mr. Loar lacks independence from Malcolm I. Glazer because he was employed until
his retirement (which occurred more than five years ago) by a corporation
indirectly controlled by Malcolm I. Glazer, that Mr. Leffler lacks such
independence because of his status as a paid consultant to Malcolm I. Glazer,
that Avram A. Glazer lacks such independence because of familial relationship
and that Mr. Lassiter lacks such independence by reason of an employment or
consulting relationship with Zapata. The complaint filed in the Harwin Case
seeks relief including, among other things, rescission of Zapata's purchase of
the shares of Envirodyne common stock from the trust controlled by Malcolm I.
Glazer, voiding of the election of Messrs. Leffler and Loar as directors at
Zapata's Annual Meeting of Stockholders held on July 27, 1995 and an award of
unspecified compensatory damages and expenses, including attorneys' fees. The
complaint filed in the Crandon Case seeks relief including, among other things,
an accounting from the individual defendants for unspecified damages and profits
and an award of costs and disbursements, including attorneys' fees. Zapata
believes that these complaints and the allegations
25
<PAGE> 31
contained therein are without merit and intends to defend the cases vigorously.
Zapata and the directors have filed motions to dismiss the complaints in the
Harwin Case and the Crandon Case on the basis that the plaintiffs failed to make
the requisite demand on the Board of Directors prior to filing the lawsuits,
that the plaintiffs also failed to allege sufficient grounds for failure to make
a demand, and that the complaints fail to state proper claims for relief.
On May 7, 1996, a third purported derivative action (the "Harwin/Crandon
Case") was filed by Elly Harwin and Crandon Capital Partners against Zapata and
its directors in the Court of Chancery of the State of Delaware, New Castle
County. The complaint alleges that Zapata's directors engaged in conduct
constituting breach of fiduciary duty and waste of Zapata's assets in connection
with Zapata's investments in food and food related businesses and that Zapata's
directors breached their duty of disclosure in connection with the proxy
statement for Zapata's Annual Meeting held on July 27, 1995 that nominated
Messrs. Leffler and Loar for election as directors of Zapata. As with the Harwin
Case and the Crandon Case, the Harwin/Crandon Case complaint also alleges that
Zapata's Board of Directors is controlled by Malcolm I. Glazer and seeks
injunctive relief to enjoin the consummation of the Merger and further
consideration of transactions with food businesses owned by Malcolm I. Glazer,
to void the election of Messrs. Leffler and Loar as directors at Zapata's Annual
Meeting of Stockholders held on July 27, 1995 and to enjoin the submission of
the Merger to the Board of Directors of Zapata until a Zapata Board of Directors
is elected on the basis of a new proxy statement. The complaint also seeks
unspecified damages and an award of costs and expenses, including attorneys'
fees. Zapata believes that the complaint and the allegations contained therein
are without merit and intends to defend the case vigorously.
On May 31, 1996, a fourth purported derivative and class action (the
"Pasternak Case") was filed by Arnold Pasternak against Zapata and its directors
in the Court of Chancery of the State of Delaware, New Castle County. The
complaint alleges that Zapata's directors engaged in conduct constituting breach
of fiduciary duty and waste of Zapata's assets in connection with the Merger.
The complaint further alleges that the Merger consideration is unfair and
excessive and that the Merger will result in voting power dilution, unfairly
benefitting Malcolm I. Glazer. On July 11, 1996, the plaintiff filed an amended
complaint. The amended complaint alleges that the Merger Agreement is in
conflict with Article SEVENTH of Zapata's Restated Certificate of Incorporation,
which provides that an affirmative vote or consent of a supermajority of 80% of
outstanding voting stock is necessary under certain circumstances. The plaintiff
filed a motion for a preliminary injunction requesting that the court
preliminarily enjoin Zapata from consummating the Merger based on the contention
that Article SEVENTH requires an 80% vote of Zapata's stockholders to approve
the Merger. Zapata does not believe that a supermajority vote is required under
the circumstances of the Merger, and its position is supported by an opinion of
Richards, Layton & Finger, special Delaware counsel to Zapata. See "The Zapata
Annual Meeting--Vote Required; Abstentions and Non-Votes." The complaint and
amended complaint in the Pasternak Case seek relief including, among other
things, an injunction to prevent consummation of the Merger, a declaration that
the Merger Agreement and the Merger are invalid, unspecified compensatory
damages, and costs and expenses, including attorneys' fees. Zapata has filed a
motion to dismiss the complaint on the basis that the plaintiff failed to make
the requisite demand on the Zapata Board of Directors prior to filing the
lawsuit, that the plaintiff failed to allege sufficient grounds for failure to
make a demand and that the complaint fails to state proper claims for relief.
Zapata believes that this complaint and the allegations contained therein are
without merit and intends to defend the case vigorously. A hearing concerning
whether Article SEVENTH applies to the Merger Agreement and the Merger is
scheduled in the Court of Chancery for September 6, 1996. Zapata expects that
the ruling of the court on that issue will be received before the vote on the
Merger is taken at the Annual Meeting.
Litigation Involving a Former Director of Zapata
On November 17, 1995, Zapata received a letter dated November 16, 1995 from
Peter M. Holt containing Mr. Holt's resignation from the Zapata Board of
Directors and from all of his management and board positions with affiliates of
Zapata. The letter stated that Mr. Holt was resigning because of a disagreement
with Zapata on matters relating to Zapata's operations, policies and practices.
Specifically, the letter described Mr. Holt's disagreement with Zapata as a
disagreement regarding (i) the characterization of
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certain matters in Zapata's November 13, 1995 proxy statement prepared in
connection with a special meeting of Zapata's stockholders held on December 15,
1995 for the purpose of considering and voting upon the approval of the sale of
Zapata's natural gas compression business conducted by two of its wholly owned
subsidiaries, Energy Industries, Inc. and Zapata Energy Industries, L.P.
(collectively, "Energy Industries") and (ii) Zapata's implementation of its
strategic plan involving repositioning Zapata in the food services business and
exiting the energy business. See "Additional Proposals for a Vote of Zapata
Stockholders--Resignation of Director."
On November 16, 1995, a petition was filed in the 148th Judicial District
Court of Nueces County, Texas by Mr. Holt and certain of his affiliates who sold
their interests in Energy Industries to Zapata in November 1993 (collectively,
with Mr. Holt, the "Holt Affiliates"). The petition lists Zapata, Malcolm I.
Glazer and Avram A. Glazer as defendants and alleges several causes of action
based on alleged misrepresentations on the part of the defendants concerning
Zapata's intent to follow a long-term development strategy focusing its efforts
on the natural gas services business. The petition does not allege a breach of
any provision of the purchase agreement pursuant to which Zapata acquired Energy
Industries from the Holt Affiliates, but alleges that various representatives of
Zapata and Malcolm I. Glazer made representations to Mr. Holt regarding Zapata's
intention to continue in the natural gas services industry. Among the remedies
sought by the petition are the following requests: (i) Zapata's repurchase of
the approximately 2.8 million shares of Zapata Common Stock owned by the Holt
Affiliates for $15.6 million (which relief is no longer possible because the
Holt Affiliates sold most of their Zapata Common Stock in March and April 1996);
(ii) the disgorgement to the Holt Affiliates of Zapata's profit made on the sale
of Energy Industries; or (iii) the money damages based on the alleged lower
value of the Zapata Common Stock had the alleged misrepresentations not been
made. Zapata believes that the petition and the allegations therein are without
merit and intends to defend the case vigorously.
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THE ZAPATA ANNUAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to the
stockholders of Zapata in connection with the solicitation of proxies by the
Zapata Board of Directors for use at the Zapata Annual Meeting to be held on
Friday, September 27, 1996, at 10:00 a.m., New York time, at the offices of
Bloomberg Financial Markets Commodity News, 499 Park Avenue, New York, New York,
and at any adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus, the attached Notice of Meeting and
the accompanying form of proxy are first being mailed to stockholders of Zapata
on or about August , 1996.
MATTERS TO BE CONSIDERED AT THE ZAPATA ANNUAL MEETING
At the Zapata Annual Meeting, including any adjournment or postponement
thereof, the stockholders of Zapata will be asked to consider and vote upon the
Merger Proposal. In addition, at the Zapata Annual Meeting, the stockholders of
Zapata will consider and vote upon the three Additional Proposals. The approval
of any of the Additional Proposals is not conditioned upon the approval of any
other Additional Proposal or the Merger Proposal.
RECORD DATE; OUTSTANDING SHARES; QUORUM
Stockholders of record at the close of business on the Zapata Record Date
are entitled to vote at the meeting and at any adjournment or postponement
thereof. On that date, the issued and outstanding capital stock of Zapata
consisted of [29,548,707] shares of Zapata Common Stock and 2,627 shares of
Zapata $2 Preference Stock, each of which is entitled to one vote. The presence
at the meeting, in person or by proxy, of the holders of a majority of the
outstanding shares of voting stock of Zapata is necessary to constitute a quorum
for the transaction of business at the Zapata Annual Meeting. If there are not
sufficient shares represented in person or by proxy at the meeting to constitute
a quorum, the meeting may be adjourned or postponed in order to permit further
solicitations of proxies by Zapata. Proxies given pursuant to this solicitation
and not revoked will be voted at any adjournment or postponement of the Zapata
Annual Meeting in the manner set forth below.
VOTE REQUIRED; ABSTENTIONS AND NON-VOTES
Two directors to serve in Class I of the Zapata Board of Directors will be
elected by a plurality of the votes cast by the holders of Zapata Common Stock
and Zapata $2 Preference Stock. There will be no cumulative voting in the
election of directors. The Merger Proposal requires the affirmative vote of a
majority of the votes cast on the matter by holders of shares of Zapata Common
Stock and Zapata $2 Preference Stock. The proposal to approve the 1996 Long-Term
Incentive Plan of Zapata and the Stockholder Proposal require the affirmative
vote of holders of a majority of the shares of Zapata Common Stock and Zapata $2
Preference Stock present in person or represented by duly executed proxies at
the Zapata Annual Meeting and entitled to vote on the subject matter.
Under Delaware law and Zapata's Restated Certificate of Incorporation,
abstentions are treated as present and entitled to vote and thus will be counted
in determining whether a quorum is present. Abstentions will have the same
effect as a vote against a matter, except as to the election of directors and
the vote on the Merger Proposal, as to which they will have no effect. A broker
non-vote (i.e., shares held by brokers or nominees as to which instructions have
not been received from the beneficial owners or persons entitled to vote and the
broker or nominee does not have discretionary power to vote on a particular
matter) is counted for purposes of determining the existence of a quorum and
will have no effect on the outcome of the vote on the Merger Proposal or any of
the Additional Proposals.
Article Seventh of Zapata's Restated Certificate of Incorporation contains
a requirement that certain transactions involving Zapata and a beneficial owner
of 5% or more of the outstanding shares of Zapata's
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voting stock are subject to the approval of the holders of 80% of the
outstanding shares of Zapata's voting stock. Among the transactions subject to
this supermajority voting requirement are (i) a merger or consolidation with or
into any other corporation and (ii) any sale or lease to Zapata or any
subsidiary thereof of any assets (with certain exceptions) in exchange for
voting securities of Zapata by any other corporation, person or entity, in
either case if the other corporation, person or entity that is party to such
transaction is the beneficial owner, directly or indirectly, of 5% or more of
the outstanding shares of Zapata's voting stock. Malcolm I. Glazer and
Houlihan's (because of its affiliation with Malcolm I. Glazer) may be deemed to
be beneficial owners of more than 5% of the outstanding shares of Zapata's
voting stock under this provision. Zapata believes that the supermajority
provision does not apply to the Merger, for the reasons, among others, that
insofar as the provision is applicable to mergers, its express language does not
state that it is applicable to mergers of subsidiaries, and insofar as the
provision applies to sales of assets, statutory mergers do not constitute sales
of assets under recognized principles of Delaware law. Zapata has received an
opinion of Richards, Layton & Finger, special Delaware counsel to the Zapata
Special Committee and Zapata, to the effect that although such counsel are aware
of no decision of a Delaware court that directly addresses the question and
consequently the matter is not completely free from doubt, subject to the
qualifications and assumptions set forth in such opinion, the Merger is not
subject to the supermajority vote requirement of Article Seventh. If, contrary
to Zapata's position, the supermajority requirement of Article SEVENTH of
Zapata's Restated Certificate of Incorporation were held to apply to the Merger,
and if the Merger were consummated without the 80% vote specified by the
supermajority provision having been obtained, there would be a risk that the
Merger would be held to be void.
On July 11, 1996, the plaintiff in the Pasternak case (see "Risk
Factors--Litigation") amended his complaint to allege that the Merger would be
in violation of Article Seventh of Zapata's Restated Certificate of
Incorporation and seeking judgment declaring the Merger Agreement and the Merger
invalid and ineffectual. The plaintiff then filed a motion seeking a preliminary
injunction against consummation of the Merger. Discovery has commenced and a
hearing concerning whether Article SEVENTH applies to the Merger Agreement and
the Merger is scheduled in the Court of Chancery for September 6, 1996. Zapata
expects that the ruling of the Court on this issue will be received before the
vote on the Merger is taken at the Annual Meeting.
VOTING OF PROXIES
Shares represented by properly executed proxies will be voted as specified.
If no specifications have been given in a proxy and authority to vote has not
been withheld, the shares represented thereby will be voted: FOR the Merger
Proposal (Proposal 1) (see "Approval of the Merger and Related
Transactions--Zapata's Reasons for the Merger; Recommendation"); FOR the
election of nominees listed herein as directors (Proposal 2); FOR the approval
of the 1996 Long-Term Incentive Plan (Proposal 3); AGAINST the stockholder
proposal to request the Board of Directors to take the steps necessary to
provide for cumulative voting of Zapata Common Stock (Proposal 4); and, in the
discretion of the persons named in the proxy, on any other business that may
properly come before the meeting.
Proxies may be revoked at any time prior to the exercise thereof by filing
with Zapata's Corporate Secretary, at Zapata's principal executive offices, a
written revocation or a duly executed proxy bearing a later date or by appearing
at the meeting and voting in person. The principal executive offices of Zapata
are located at 1717 St James Place, Suite 550, Houston, Texas 77056. The mailing
address of Zapata is P.O. Box 4240, Houston, Texas 77210-4240. For a period of
at least ten days prior to the Zapata Annual Meeting, a complete list of
stockholders entitled to vote at the meeting will be available for inspection by
stockholders of record during ordinary business hours for proper purposes at
Zapata's principal executive offices.
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SOLICITATION OF PROXIES; EXPENSES
Solicitation of proxies by mail is expected to commence on or about August
, 1996, and the cost thereof will be borne by Zapata. In addition to such
solicitation by mail, certain of the directors, officers and regular employees
of Zapata may, without extra compensation, solicit proxies by telephone,
telecopy or personal interview. Arrangements also will be made with certain
brokerage houses, custodians, nominees and other fiduciaries for the forwarding
of solicitation materials to the beneficial owners of Zapata Common Stock and
Zapata $2 Preference Stock held of record by such persons, and such brokers,
custodians, nominees and fiduciaries will be reimbursed by Zapata for reasonable
out-of-pocket expenses incurred by them in connection therewith. Zapata also has
engaged Georgeson & Company, Inc. ("Georgeson") to assist in the solicitation of
proxies and will pay Georgeson for such services a base fee of $7,500 plus a per
phone call solicitation fee which Zapata anticipates will total approximately
$20,000. Zapata also will reimburse Georgeson for out-of-pocket costs and
expenses incurred in connection with its services.
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THE HOULIHAN'S SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to the
stockholders of Houlihan's in connection with the solicitation of proxies by the
Houlihan's Board of Directors for use at the Houlihan's Special Meeting to be
held on Thursday, September 26, 1996, at 10:00 a.m., local time, at Houlihan's
offices located at Two Brush Creek Boulevard, Kansas City, Missouri, and at any
adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus, the attached Notice of Meeting and
the accompanying form of proxy are first being mailed to stockholders of
Houlihan's on or about August , 1996.
MATTERS TO BE CONSIDERED AT THE HOULIHAN'S SPECIAL MEETING
At the Houlihan's Special Meeting, including any adjournment or
postponement thereof, the stockholders of Houlihan's will be asked to consider
and vote upon a proposal to approve and adopt the Merger Agreement, a proposal
to approve the Merger and such other matters as may properly be brought before
such meeting.
NOTIFICATION OF MARKET VALUE
Zapata and Houlihan's anticipate that the final Market Value will be
determined as of the close of business on September 18, 1996. Not later than the
next business day, Zapata and Houlihan's will issue a joint press release to
notify stockholders of the final Market Value. In addition, stockholders may
contact Houlihan's Investor Relations at (816) 756-2200 Ext. 1285 for
information concerning the Market Value.
RECORD DATE; OUTSTANDING SHARES; QUORUM
Stockholders of record at the close of business on the Houlihan's Record
Date are entitled to vote at the Houlihan's Special Meeting and at any
adjournment or postponement thereof. On that date the issued and outstanding
capital stock of Houlihan's consisted of [9,998,012] shares of Houlihan's Common
Stock, each of which is entitled to one vote. The presence at the meeting, in
person or by proxy, of the holders of a majority of the outstanding shares of
the Houlihan's Common Stock is necessary to constitute a quorum for the
transaction of business at the Houlihan's Special Meeting. If there are not
sufficient shares represented in person or by proxy at the meeting to constitute
a quorum, the meeting may be adjourned or postponed in order to permit further
solicitations of proxies by Houlihan's. Proxies given pursuant to this
solicitation and not revoked will be voted at any adjournment or postponement of
the Houlihan's Special Meeting in the manner set forth below.
VOTE REQUIRED; ABSTENTIONS AND NON-VOTES
The approval and adoption of the Merger Agreement and the approval of the
Merger require the affirmative vote of holders of a majority of the outstanding
shares of Houlihan's Common Stock. THE MALCOLM GLAZER TRUST HOLDS SUFFICIENT
SHARES OF HOULIHAN'S COMMON STOCK TO SATISFY THIS REQUIREMENT. MALCOLM I. GLAZER
HAS INDICATED THAT, SUBJECT TO OBTAINING APPROPRIATE CONSENTS FROM BANKS TO
WHICH CERTAIN OF THOSE SHARES ARE PLEDGED, THE MALCOLM GLAZER TRUST WILL VOTE
ITS SHARES IN FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
APPROVAL OF THE MERGER.
Under Delaware law, abstentions and broker non-votes are treated as present
and entitled to vote and thus will be counted in determining whether a quorum is
present. Abstentions and broker non-votes will have the same effect as a vote
against approval and adoption of the Merger Agreement and the approval of the
Merger.
VOTING OF PROXIES
Shares represented by properly executed proxies will be voted as specified.
If no specifications have been given in a proxy and authority to vote has not
been withheld, the shares represented thereby will be voted in favor of the
approval and adoption of the approval of the Merger Agreement and the Merger,
and in the
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discretion of the persons named in the proxy on any other business that may
properly come before the meeting.
Proxies may be revoked at any time prior to the exercise thereof by filing
with Houlihan's Corporate Secretary, at Houlihan's principal executive offices,
a written revocation or a duly executed proxy bearing a later date or by
appearing at the meeting and voting in person. Any written notice of revocation
or subsequent proxy should be sent so as to be delivered to Houlihan's
Restaurant Group, Inc., Two Brush Creek Boulevard, Kansas City, Missouri 64112,
Attention: Corporate Secretary, or hand-delivered to the Corporate Secretary of
Houlihan's before taking the vote at the Houlihan's Special Meeting. Proxies or
notices of revocation also may be sent by facsimile (facsimile no: (816)
561-2842) to the attention of the Corporate Secretary of Houlihan's. For a
period of at least ten days prior to the Houlihan's Special Meeting, a complete
list of stockholders entitled to vote at the meeting will be available for
inspection by stockholders of record during ordinary business hours for proper
purposes at Houlihan's principal executive offices.
SOLICITATION OF PROXIES; EXPENSES
Solicitation of proxies by mail is expected to commence on or about August
, 1996, and the cost thereof will be borne by Houlihan's. In addition to such
solicitation by mail, certain of the directors, officers and regular employees
of Houlihan's may, without extra compensation, solicit proxies by telephone,
telecopy or personal interview. Arrangements also will be made with certain
brokerage houses, custodians, nominees and other fiduciaries for the forwarding
of solicitation materials to the beneficial owners of Houlihan's Common Stock
held of record by such persons, and such brokers, custodians, nominees and
fiduciaries will be reimbursed by Houlihan's for reasonable out-of-pocket
expenses incurred by them in connection therewith.
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APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
(Note: This is PROPOSAL NO. 1 to be considered and voted on by Zapata
stockholders and it is the only proposal to be considered and voted on by
Houlihan's stockholders.)
BACKGROUND OF THE MERGER
Background of Zapata's Entry into the Merger Agreement
In late 1994 and early 1995, members of senior management of Zapata began
to develop a strategic plan for Zapata that involved repositioning Zapata in the
food services business and exiting the energy business in which Zapata had
historically operated. Zapata publicly announced its decision to exit the energy
business in April 1995. At a meeting held in May 1995, there emerged a consensus
among the members of the Zapata Board of Directors to pursue the redirection of
Zapata into the food services industry. Zapata's plan to pursue entry into the
food services business did not result from a comprehensive assessment of all
possible business opportunities, but was developed in the context of Malcolm I.
Glazer's interests in Houlihan's and other businesses in the food services
industry (Specialty and Envirodyne) and with the recognition that companies in
which Malcolm I. Glazer had interests would be considered for acquisition in
connection with the redirection of Zapata's business. As of March 20, 1996, the
Glazer Group beneficially owned approximately 8,000,000 shares, or 43%, of the
outstanding common stock of Specialty.
At the May 30, 1995 meeting of the Zapata Board of Directors, Avram A.
Glazer made a presentation of a plan to reposition Zapata into the food services
industry. As part of that presentation, Avram A. Glazer referred to potential
acquisition candidates, including Houlihan's, Specialty and Envirodyne. At that
meeting, there emerged a consensus among the members of the Zapata Board to
pursue the redirection of Zapata's business into the food services industry. The
proposed new direction for Zapata was also discussed at Zapata's annual meeting
of stockholders held on July 27, 1995.
In August 1995, Zapata acquired 4,189,298 shares of the common stock of
Envirodyne (approximately 31% of the then outstanding common stock) from the
Malcolm Glazer Trust at a price of approximately $4.48 per share.
Avram A. Glazer requested that the agenda for a meeting of the Zapata Board
of Directors to be held on September 20, 1995 include consideration of the
formation of a special committee to consider the legal and financial
considerations applicable to one or more merger or acquisition transactions
involving Houlihan's and Specialty. At the September 20, 1995 meeting, the
Zapata Board of Directors created the Zapata Special Committee and charged it
with determining what further steps, if any, should be taken by Zapata to pursue
any such transactions. On the same date, the Zapata Special Committee engaged CS
First Boston as its financial adviser with respect to the evaluation of one or
more potential merger and acquisition transactions involving Zapata, including
transactions involving Houlihan's, Specialty and/or Envirodyne, and also engaged
independent legal counsel and special Delaware counsel. Legal counsel for the
Zapata Special Committee and representatives of CS First Boston were present for
substantially all the deliberations of the Zapata Special Committee with respect
to the Merger. On October 5, 1995, the Zapata Special Committee met with
representatives of CS First Boston to discuss the engagement and to review
potential acquisition candidates on a preliminary basis. In late October 1995
Zapata submitted to Specialty a form of confidentiality agreement to cover the
exchange of information in connection with a possible business combination
transaction between Zapata and Specialty. Specialty declined to execute such a
confidentiality agreement. Thereafter, the Zapata Special Committee asked CS
First Boston to proceed with a more detailed financial analysis of Houlihan's.
The members of the Zapata Special Committee, Messrs. Lassiter, Leffler and
Loar, previously served as members of a special committee of the Zapata Board of
Directors formed to evaluate and act in connection with Zapata's acquisition
from the Malcolm Glazer Trust of stock of Envirodyne.
The compensation paid by Zapata to the members of the Zapata Special
Committee for their service on that committee in connection with the transaction
with Houlihan's was $20,000 in the case of Mr. Lassiter, the chairman of the
committee, and $15,000 in the case of each of Messrs. Leffler and Loar. Zapata
has also entered into indemnification agreements with the members of the Zapata
Special Committee containing
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provisions for comprehensive indemnification and advancement of expenses to the
fullest extent permitted by applicable law.
Messrs. Lassiter, Leffler and Loar have been named as defendants in
purported derivative actions alleging breaches of fiduciary duty by them and
other directors of Zapata in connection with Zapata's investment in Envirodyne
and in Houlihan's in connection with the Merger. Among other things, the
complaints in these actions allege that the members of the Zapata Special
Committee lack independence from Malcolm I. Glazer. Zapata denies the
substantive allegations of these complaints. See "Risk Factors--Litigation."
Background of Houlihan's Entry into the Merger Agreement
Houlihan's emerged from proceedings for voluntary reorganization under the
U.S. Bankruptcy Code in December 1992. These proceedings, which were filed by a
predecessor of Houlihan's, resulted primarily from substantial indebtedness
incurred by the predecessor in a leveraged buyout transaction in 1989.
Concurrently with the consummation of the plan of reorganization in these
proceedings, Malcolm I. Glazer received 7,154,918 shares of Houlihan's Common
Stock in exchange for subordinated notes in the aggregate principal amount of
$69,975,918 previously issued by the predecessor of Houlihan's. The remainder of
the shares of Houlihan's Common Stock held by Mr. Glazer were acquired in market
transactions. Since 1992, the Houlihan's Board has considered and pursued a
number of transactions intended to increase Houlihan's financial and operational
flexibility, which have been constrained by Houlihan's substantial indebtedness
and the restrictive covenants governing such indebtedness. Houlihan's has been
especially limited in its ability to pursue the expansion of existing and newly
developed restaurant concepts. The transactions pursued have included a proposed
public offering of common stock in early 1994, a proposed public offering of
$125 million senior notes in late 1994 and a proposed public offering of $120
million senior notes and warrants to purchase common stock in the summer of
1995. In addition, the Houlihan's Board has pursued several significant
acquisitions intended to substantially increase Houlihan's size. Due to market
conditions and other factors, Houlihan's was unable to consummate any of the
proposed transactions.
Malcolm I. Glazer and other members of his family serve on both the
Houlihan's Board and the Zapata Board. Accordingly, the Glazer members of the
Houlihan's Board have had knowledge of the strategic plans of Zapata regarding
its entry into the food service business and consideration of an acquisition of
Houlihan's from their inception. The non-Glazer members of the Houlihan's Board
and senior management of Houlihan's became aware of such plans in the fall of
1995. Frederick R. Hipp, Houlihan's President and Chief Executive Officer, and
William W. Moreton, Houlihan's Executive Vice President and Chief Financial
Officer, were approached by Ronald C. Lassiter, Chairman of the Zapata Special
Committee, in November 1995, about developing a proposal for such a merger or
acquisition. Following this contact, on December 12, 1995 the Houlihan's Board
appointed the Houlihan's Special Committee consisting of Mr. Hipp and Warren H.
Gfeller, who are the only members of the Houlihan's Board not affiliated with
Mr. Glazer, and granted it authority to investigate, consider and negotiate
definitive agreements relating to any proposals made by the Zapata Special
Committee and to retain independent financial advisers and legal counsel. The
Houlihan's Special Committee thereafter engaged legal counsel, special Delaware
counsel and DLJ. Legal counsel and representatives of DLJ were present for
substantially all the deliberations of the Houlihan's Special Committee.
The Merger Negotiations
On December 1, a confidentiality agreement relating to the exchange of
information was entered into between Zapata and Houlihan's and, during December
1995 and the spring of 1996, representatives of CS First Boston reviewed
information made available by Houlihan's and visited Houlihan's facilities.
During the same period, representatives of DLJ reviewed information made
available by Zapata and visited Zapata's executive offices in Houston. The
Zapata Special Committee met in person or by telephone four times in January and
February 1996 to consider at various times the business rationale for a
transaction with Houlihan's, valuation issues, the 80% supermajority provision
in Article SEVENTH of Zapata's Restated Certificate of Incorporation, the
appropriate mix of stock and cash to be used as merger consideration and issues
related to ownership by Malcolm I. Glazer of stock of both Zapata and
Houlihan's. At its telephonic
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meeting held on February 22, 1996, the Zapata Special Committee authorized the
submission of an informal proposal to Houlihan's relating to a merger in which
holders of Houlihan's Common Stock would receive a combination of cash and
Zapata Common Stock having a value of $5.75 per share of Houlihan's Common
Stock. Following a meeting of the Houlihan's Special Committee on March 14,
1996, Houlihan's responded to Zapata's proposal with a counter-proposal for all
cash consideration approximately 90% in excess of the value of Zapata's original
proposal. During the next few weeks representatives of the respective financial
advisers exchanged information. On April 9, 1996, the Zapata Special Committee
authorized its Chairman to explore with Houlihan's whether a proposal for a 50%
cash/50% stock transaction valued at $8 per share would be acceptable to
Houlihan's, but noted that any final transaction would be subject to, among
other things, receipt from CS First Boston of a fairness opinion for such a
transaction. The $8 per share proposed amount was determined by the Zapata
Special Committee and reflected a value between the proposals theretofore
presented by each side that the committee believed would be fair to Zapata and
should be acceptable to Houlihan's. In arriving at the $8 per share amount, the
Zapata Special Committee noted that such amount reflected a substantial premium
over current market prices of Houlihan's Common Stock, but did not consider the
market price of the Houlihan's Common Stock as a primary determinant in its
analysis. Between its initial meeting on December 12, 1995 and continuing
through April 12, 1996, the Houlihan's Special Committee held a total of six
meetings and telephone conferences in which it analyzed various aspects of a
possible combination of Zapata and Houlihan's, evaluated several proposals made
by and on behalf of the Zapata Special Committee and formulated its own
counter-proposals.
The Zapata Special Committee held further telephonic meetings on April 16,
1996 and April 30, 1996. At the April 30, 1996 meeting, the Zapata Special
Committee authorized the execution of a letter of intent relating to a merger
transaction with Houlihan's in which the aggregate merger consideration would
consist of $4 in cash and $4 in Zapata Common Stock per share of Houlihan's
Common Stock. On that date, Zapata and Malcolm I. Glazer entered into the
Standstill Agreement which provides, among other things, that the Glazer Group
may not increase its beneficial ownership of voting securities of Zapata beyond
49.9% of Zapata's outstanding voting securities during the term of the
Standstill Agreement. The foregoing proposal from the Zapata Special Committee
was discussed by the Houlihan's Special Committee at meetings on April 18, 1996
and April 26, 1996 and approved by the Houlihan's Special Committee during a
telephone conference held on May 1, 1996. A letter of intent was signed by both
Zapata and Houlihan's and publicly announced on May 1, 1996.
Following the execution of the letter of intent and the announcement of the
transaction, the definitive Merger Agreement was negotiated. The Houlihan's
Special Committee met via telephone on May 31, 1996 to review the state of the
transaction and the most recent available draft of the Merger Agreement and to
receive confirmation from DLJ that it was prepared to issue its formal opinion
subject only to a review of an executed copy of the Merger Agreement. The
Houlihan's Board of Directors also met on May 31, 1996 and, based solely on the
recommendation of the Houlihan's Special Committee, approved the Merger
Agreement subject to certain final changes. The Zapata Special Committee met by
telephone on June 3, 1996 to review a near-final draft of the Merger Agreement
and to review a presentation by CS First Boston relating to the Merger. On June
3, 1996, the Zapata Board of Directors met by telephone to confirm the authority
of the Zapata Special Committee relating to the Merger and to specifically
authorize the Zapata Special Committee to authorize the issuance of Zapata
Common Stock in the Merger. During a telephonic conference on June 4, 1996, the
Zapata Special Committee again reviewed the status of the transaction, received
the oral fairness opinion of CS First Boston (subsequently confirmed in writing
as of such date) and approved the Merger Agreement and related matters. The
Merger Agreement was signed, and the execution of the Merger Agreement was
announced on June 5, 1996.
ZAPATA'S REASONS FOR THE MERGER; RECOMMENDATION
The Zapata Special Committee has approved the Merger Agreement and the
Merger Proposal as being in the best interests of Zapata and its stockholders
(other than the Malcolm Glazer Trust, as to which it expressed no judgment). In
reaching this determination, the Zapata Special Committee consulted with its
financial adviser and legal counsel and considered, among other factors, the
matters discussed below.
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Prior to formation of the Zapata Special Committee, Zapata's management and
board of directors developed a consensus to pursue the redirection of Zapata's
business into the food services industry. The proposed redirection resulted from
the perception of management and the Zapata Board of Directors that prospects
for growth and increased profitability in the gas services industry were limited
and that the food services industry included undervalued companies with good
growth potential. Zapata's plan to pursue entry into the food services business
did not result from a comprehensive assessment of all possible business
opportunities, but was developed in the context of Malcolm I. Glazer's interests
in Houlihan's and other businesses in the food services industry and with the
recognition that companies in which Malcolm I. Glazer had interests would be
considered for acquisition in connection with the redirection of Zapata's
business.
Houlihan's was considered by the Zapata Special Committee to have the
advantages of a strong franchise successfully refined to focus, in the case of
Houlihan's restaurants, on a strong appeal to adult casual dining guests,
favorable locations in densely populated and upscale markets and well-developed
expansion plans. The Darryl's, Seafood Grills and specialty restaurants were
considered to add benefits of diversification and strength in different markets.
The Zapata Special Committee also considered the need for Zapata to redeploy the
proceeds from the transactions by which it had effected its departure from the
energy business into operating assets. In this connection, the Zapata Special
Committee believed that the Zapata Common Stock was trading near the company's
liquidation value in light of the percentage of cash assets and lack of a
sufficiently clear corporate focus. The Zapata Special Committee believed that a
combination with Houlihan's would be a good use of a portion of Zapata's cash
assets and, conversely, would provide Houlihan's with greater financial strength
and means for financing future growth. The Zapata Special Committee also took
into account the expectation that the combination would be accretive to Zapata's
estimated earnings per share for the 1996 and 1997 fiscal years.
In reaching its determination, the Zapata Special Committee also
considered, among other things, (i) information concerning the results of
operations, performance, financial condition, markets and prospects of Zapata
and Houlihan's on a company-by-company basis and on a combined basis, (ii)
information with respect to recent and historical trading prices and trading
multiples of Zapata Common Stock and Houlihan's Common Stock and (iii) current
economic, industry and market conditions affecting Zapata and Houlihan's.
The Zapata Special Committee also considered (i) the terms of the Merger
Agreement, the Standstill Agreement and the other agreements contemplated
thereby, including the irrevocable proxy to be granted by Malcolm I. Glazer to
the members of the Zapata Special Committee, (ii) the structure of the Merger,
(iii) the tax consequences of the Merger, and (iv) the presentation by, and the
opinion of, CS First Boston as described below.
The foregoing discussion of the information and factors considered and
given weight by the Zapata Special Committee is not intended to be exhaustive
but is believed to include all material factors. In reaching its determination
to approve and recommend the Merger, the Zapata Special Committee did not assign
any relative or specific weights to the foregoing factors that were considered,
and individual directors may have given differing weights to different factors.
THE ZAPATA SPECIAL COMMITTEE, HOWEVER, UNANIMOUSLY RECOMMENDS THAT ZAPATA
STOCKHOLDERS VOTE TO APPROVE THE MERGER PROPOSAL. ZAPATA'S STOCKHOLDERS ARE
URGED TO CAREFULLY REVIEW THE FACTORS DISCUSSED IN "RISK FACTORS--UNCERTAINTIES
RELATING TO HOULIHAN'S BUSINESS" AND "--CONTROL BY THE GLAZER GROUP FOLLOWING
THE MERGER" IN CONNECTION WITH EVALUATING AND VOTING ON THE MERGER PROPOSAL.
HOULIHAN'S REASONS FOR THE MERGER; RECOMMENDATION
In reaching its determination to approve the Merger Agreement and the
Merger, the Houlihan's Special Committee consulted with Houlihan's management,
as well as its legal counsel and financial advisers, and considered many
factors, including, without limitation, the following:
1. DLJ rendered an opinion to the Houlihan's Special Committee that
the Merger Consideration to be received by the holders of Houlihan's Common
Stock other than the Glazer Group is fair to such stockholders from a
financial point of view. In addition, the Houlihan's Special Committee
believed that it was unlikely that another buyer would offer the holders of
Houlihan's Common Stock a higher price for
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their shares based upon recent market conditions for sales of restaurant
companies comparable to Houlihan's and the reaction of the market within
the one-month period following public announcement of the Merger and
preceding the execution of the Merger Agreement.
2. The Houlihan's Special Committee believed that the Merger was
structured in an attractive manner to stockholders of Houlihan's because of
the availability of an option to elect to receive all cash in the Merger,
and thereby receive cash for their shares of Houlihan's Common Stock in an
amount that would substantially exceed current market prices, or
alternatively to elect to receive shares of Zapata Common Stock which the
Houlihan's Special Committee believed would have greater liquidity than
shares of Houlihan's Common Stock because of the greater public float of
Zapata Common Stock compared with Houlihan's Common Stock and because of
the listing of the Zapata Common Stock on the NYSE.
3. Following the Merger, Houlihan's will become part of a larger
company which the Houlihan's Special Committee believed offered greater
financial resources and flexibility, competitive strengths and business
opportunities than would be possible for Houlihan's alone. The Houlihan's
Special Committee thus believed the Merger provided the holders of
Houlihan's Common Stock electing to receive shares of Zapata Common Stock
better long-term prospects than if they continued to hold their shares of
Houlihan's Common Stock. In reaching this conclusion, the Houlihan's
Special Committee believed that the benefits of the Merger outweighed risks
associated with Zapata's lack of experience in the food services industry
based in part on the capabilities of Houlihan's management, which is
expected to remain in place following the Merger.
4. In connection with the Merger, Houlihan's existing credit facility
will be refinanced. The Houlihan's Special Committee believed that
Houlihan's would benefit from new financing which it expected would
increase the ability of Houlihan's to pursue future growth through the
expansion of existing restaurant concepts and the development of new or
complementary restaurant concepts and businesses. The Houlihan's Special
Committee also believed that the holders of Houlihan's Common Stock
benefitted from the elimination, as a result of the Merger, of risks
associated with the refinancing of Houlihan's existing credit facility, a
substantial portion of which matures within one year.
5. Based upon assessments by Houlihan's management and the Houlihan's
Special Committee's advisers of other strategic alternatives available to
Houlihan's, such as debt and equity offerings in the capital markets and
acquisitions, and Houlihan's prior lack of success in pursuing such
alternatives, the Houlihan's Special Committee believed that the Merger was
the best strategic alternative currently available to maximize the return
to Houlihan's stockholders.
In approving the Merger and the Merger Agreement, the Houlihan's Special
Committee did not specifically identify any one factor or group of factors as
being more significant than any other factor in the decision-making process,
although individual directors may have given one or more factors more weight
than other factors.
THE HOULIHAN'S SPECIAL COMMITTEE HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF
HOULIHAN'S VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL
OF THE MERGER.
OPINION OF CS FIRST BOSTON
CS First Boston has acted as exclusive financial adviser to the Zapata
Special Committee in connection with the Merger and has assisted the Zapata
Special Committee in its examination of the fairness, from a financial point of
view, of the Merger Consideration to be paid by Zapata.
On June 4, 1996, CS First Boston delivered its oral opinion to the Zapata
Special Committee (subsequently confirmed in writing as of such date) to the
effect that as of such date and based upon and subject to certain matters stated
therein, the consideration to be paid by Zapata in the Merger is fair to Zapata
from a financial point of view. The full text of CS First Boston's written
opinion dated June 4, 1996, which sets
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forth the assumptions made, matters considered and limitations on review
undertaken, is attached as Appendix B to this Joint Proxy Statement/Prospectus
and is incorporated herein by reference. CS First Boston's opinion is directed
to the Zapata Special Committee and the fairness of the consideration to be paid
by Zapata in the Merger from a financial point of view and does not address any
other aspect of the Merger or any related transaction and does not constitute a
recommendation to any stockholder as to how such stockholder should vote at the
Zapata Annual Meeting. The summary of the opinion of CS First Boston set forth
in this Joint Proxy Statement/Prospectus is qualified in its entirety by
reference to the full text of such opinion.
In connection with its opinion, CS First Boston reviewed the Merger
Agreement and certain publicly available business and financial information
relating to Zapata and Houlihan's. CS First Boston also reviewed certain other
information, including financial forecasts, provided to CS First Boston by
Zapata and Houlihan's and met with the respective managements of Zapata and
Houlihan's to discuss the businesses and prospects of Zapata and Houlihan's. CS
First Boston also considered certain financial and stock market data of Zapata
and Houlihan's and compared that data with similar data for other publicly held
companies in businesses similar to those of Zapata and Houlihan's and
considered, to the extent publicly available, the financial terms of certain
other business combinations that have recently been effected. CS First Boston
also considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria that CS First Boston
deemed relevant.
In connection with its review, CS First Boston did not assume any
responsibility for independent verification of any of the information provided
to or otherwise reviewed by CS First Boston and relied upon its being complete
and accurate in all material respects. With respect to the financial forecasts,
CS First Boston assumed that such forecasts were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
managements of Zapata and Houlihan's as to the future financial performance of
Zapata and Houlihan's. In addition, CS First Boston did not make an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of Zapata or Houlihan's, nor was CS First Boston furnished with any such
evaluations or appraisals. CS First Boston's opinion was necessarily based on
information available to it and financial, stock market and other conditions as
they existed and could be evaluated on the date of its opinion. CS First Boston
expressed no opinion as to what the value of the Zapata Common Stock actually
would be when issued to Houlihan's stockholders pursuant to the Merger or the
prices at which the Zapata Common Stock would trade subsequent to the Merger.
Although CS First Boston evaluated the Merger Consideration from a financial
point of view, CS First Boston was not requested to, and did not, recommend the
specific consideration payable in the Merger. No other limitations were imposed
by the Zapata Special Committee on CS First Boston with respect to the
investigations made or procedures followed by CS First Boston in rendering its
opinion.
In preparing its opinion for the Zapata Special Committee, CS First Boston
performed a variety of financial and comparative analyses, including those
described below. The summary of CS First Boston's analyses set forth below does
not purport to be a complete description of the analyses underlying CS First
Boston's opinion. The preparation of a fairness opinion is a complex analytic
process involving various determinations as to the most appropriate and relevant
methods of financial analyses and the application of those methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description.
In arriving at its opinion, CS First Boston made qualitative judgments as
to the significance and relevance of each analysis and factor considered by it.
Accordingly, CS First Boston believes that its analyses must be considered as a
whole and that selecting portions of its analyses and factors, without
considering all analyses and factors, could create an incomplete view of the
processes underlying such analyses and its opinion. In its analyses, CS First
Boston made numerous assumptions with respect to Zapata, Houlihan's, industry
performance, regulatory, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Zapata and
Houlihan's. No company, transaction or business used in such analyses as a
comparison is identical to Zapata, Houlihan's or the Merger, nor is an
evaluation of the results of such analyses entirely mathematical; rather, it
involves complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or
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other values of the companies, business segments or transactions being analyzed.
The estimates contained in such analyses and the ranges of valuations resulting
from any particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by such analyses. In addition, analyses relating
to the value of businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty.
The following is a summary of the material analyses performed by CS First
Boston and presented to the Zapata Special Committee:
Comparable Company Analysis. CS First Boston reviewed and compared certain
actual and forecasted financial, operating and stock market information of
Houlihan's to selected publicly traded casual dining restaurant companies
considered by CS First Boston to be reasonably comparable to Houlihan's. These
companies included Applebee's International Inc., Brinker International Inc.,
Chart House Enterprises, Inc., Darden Restaurants Inc., Outback Steakhouse Inc.,
and Ruby Tuesday Inc. (collectively the "Comparable Companies"). CS First Boston
calculated a range of market multiples for the Comparable Companies by dividing
the market capitalization (total common shares outstanding plus "in the money"
exercisable options multiplied by the closing market price per share on May 17,
1996 plus latest reported total debt, capitalized leases, preferred stock and
minority interest, minus cash and cash equivalents and option proceeds, the
"Market Capitalization") of each of the Comparable Companies by such company's
sales, earnings before interest, taxes, depreciation and amortization ("EBITDA")
and earnings before interest and taxes ("EBIT"). In addition, CS First Boston
derived multiples of equity value relative to net income and book value. Such
multiples were calculated for the latest four quarters ("LTM") as reported in
publicly available information and the 1996 fiscal year on the basis of
estimates of selected investment banking firms. This analysis indicated that the
median LTM multiples of sales, EBITDA, EBIT, net income and book value for the
Comparable Companies were 1.0x, 7.2x, 14.8x, 20.4x and 1.9x, respectively, and
the median fiscal 1996 multiples of sales, EBITDA, EBIT, net income and book
value for the Comparable Companies were 0.7x, 6.0x, 11.8x, 17.7x and 1.0x,
respectively. CS First Boston subsequently derived the appropriate multiple
range for Houlihan's by comparing Houlihan's business and performance to those
of the Comparable Companies (specifically considering operating performance,
dining concept and growth profile). CS First Boston determined that the relevant
ranges of multiples for the 1996 fiscal year derived from the Comparable
Companies were: (i) sales: 0.4x -- 0.5x; (ii) EBITDA: 4.0x -- 5.0x; (iii) EBIT:
7.5x -- 9.5x; (iv) net income: 10.0x -- 14.0x; and (v) book value: 0.8x -- 1.1x.
CS First Boston then calculated an imputed valuation range of Houlihan's by
applying results for Houlihan's for fiscal year 1996 to the multiples derived
from its analysis of the Comparable Companies. This analysis resulted in an
enterprise value reference range for Houlihan's of $137.5 million to $157.5
million. This reference range was then adjusted for non-operating assets and
liabilities including (i) total debt of $88.9 million as of March 25, 1996; (ii)
cash and cash equivalents of $15.6 million as of March 25, 1996; and (iii)
proceeds of $0.7 million from the assumed exercise of the options outstanding as
of March 25, 1996 (collectively, the "Corporate Adjustments") to yield an equity
value reference range that was then divided by 10,116,012 fully diluted shares
of Houlihan's Common Stock (including 118,000 shares issuable upon exercise of
options) outstanding as of March 25, 1996 to yield an equity value reference
range for Houlihan's of $6.41 to $8.38 per share.
Comparable Transaction Analysis. Using publicly available information, CS
First Boston analyzed the purchase prices and multiples paid or proposed to be
paid in selected merger or acquisition transactions in the restaurant industry
that occurred between 1986 and 1996 including: Family Restaurant, Inc./Flagstar
Companies, Inc.; Restaurant Enterprises Group, Inc./Investor Group; Sizzler
Restaurants Inc./Collins Foods International; Foodmaker Inc./Investor Group;
Rusty Pelican Restaurants, Inc./Paragon Restaurant Group Inc.; Restaurant
Enterprises Group, Inc./Investor Group; and Ponderosa Inc./ Investor Group (the
"Comparable Transactions"). CS First Boston selected these acquisitions based on
the comparability of businesses conducted by the acquired company to that of
Houlihan's. CS First Boston calculated the adjusted purchase price (purchase
price plus total assumed debt less acquired cash) as a multiple of sales, EBITDA
and EBIT. In addition, CS First Boston calculated the equity value as a multiple
of net income and book value. Such multiples were calculated for the four
quarters immediately preceding the announcement of the acquisition of
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such company. CS First Boston determined that the relevant ranges of multiples
derived from the Comparable Transactions were (i) sales: 0.6x -- 0.7x; (ii)
EBITDA: 5.0x -- 6.0x; (iii) EBIT: 10.0x -- 12.0x; (iv) net income:
16.0x -- 19.0x; and (v) book value: 1.1x -- 1.3x. CS First Boston then
calculated an imputed valuation range of Houlihan's by applying historical
results for the four quarters immediately preceding the announcement of the
transaction to the multiples derived from its analysis of the Comparable
Transactions. Using such information, CS First Boston derived an enterprise
value reference range for Houlihan's of $145.0 million to $165.0 million. This
reference range was then adjusted for the Corporate Adjustments and then divided
by 10,116,012 fully diluted shares of Houlihan's Common Stock (including 118,000
shares issuable upon exercise of options) outstanding as of March 25, 1996 to
yield an equity value reference range for Houlihan's of $7.15 to $9.12 per
share.
Discounted Cash Flow Analysis. CS First Boston performed a discounted cash
flow analysis of the projected cash flows of Houlihan's for the periods 1996
through 2005 based in part upon certain operating and financial assumptions,
forecasts and other information provided by management of Houlihan's. Using the
financial information set forth by management, CS First Boston calculated
estimated free cash flows based on forecasted unleveraged net income (earnings
before interest and after taxes) adjusted for: (i) certain forecasted non-cash
items (i.e., depreciation and amortization); (ii) forecasted capital
expenditures; and (iii) forecasted non-cash working capital investment. CS First
Boston subsequently discounted the stream of free cash flows provided in such
forecast back to January 1, 1996 using discount rates ranging from 12.5% to
13.5%. To estimate the residual value of Houlihan's at the end of the forecast
period, CS First Boston applied a range of terminal multiples of 5.0x to 5.5x to
the forecasted fiscal year 2005 EBITDA and discounted such value estimates back
to January 1, 1996 using discount rates ranging from 12.5% to 13.5%. The range
of discount rates was selected based on a variety of factors, including analysis
of the estimated cost of capital and capital structures for companies operating
in businesses similar to that in which Houlihan's operates, and the range of
terminal year multiples was selected based on the trading multiples for such
companies. CS First Boston then summed the present values of the free cash flows
and the present values of the residual value to derive an enterprise value
reference range for Houlihan's of approximately $137.5 million to $157.5
million. This reference range was then adjusted for the Corporate Adjustments
and then divided by 10,116,012 fully diluted shares of Houlihan's Common Stock
(including 118,000 shares issuable upon exercise of options) outstanding as of
March 25, 1996 to yield an equity value reference range for Houlihan's of $6.41
to $8.38 per share.
Relative Contribution Analysis. CS First Boston analyzed the contribution
of Houlihan's to the sales, EBITDA, EBIT, net income, enterprise value and
equity value of Zapata following the Merger and compared it to the contribution
of Zapata as currently constituted. This analysis was based upon historical
results of Houlihan's and Zapata for their respective latest four quarters and
financial forecasts for Houlihan's 1996 fiscal year provided by the management
of Houlihan's and for Zapata's 1996 fiscal year provided by the management of
Zapata. The enterprise value of Houlihan's was assumed to be equal to the number
of Houlihan's shares outstanding multiplied by $8.00, increased by the Corporate
Adjustments. The equity value of Houlihan's was assumed to be equal to the
number of Houlihan's shares outstanding multiplied by $8.00. This analysis
indicated that, for Zapata's latest four quarters and 1996 fiscal year,
Houlihan's would make a contribution in excess of Houlihan's relative enterprise
value and equity value.
Pro Forma Effect on Zapata Earnings Per Share. CS First Boston also
analyzed certain pro forma effects resulting from the Merger on the forecasted
earnings per share ("EPS") of Zapata for its 1996 and 1997 fiscal years, based
on financial forecasts provided by Houlihan's management for Houlihan's 1996 and
1997 fiscal years and financial forecasts provided by Zapata's management for
Zapata's 1996 and 1997 fiscal years. CS First Boston was advised by the
management of Zapata that the Merger will be accounted for as a "purchase" under
generally accepted accounting principles. This analysis indicated that the
Merger would be accretive to the EPS of Zapata for its 1996 and 1997 fiscal
years.
Other Factors and Analyses. In the course of preparing its opinion, CS
First Boston performed certain other analyses and reviewed certain other
matters, including, among other things, (i) trading characteristics of
Houlihan's and Zapata, (ii) financing considerations relating to the Merger and
(iii) pro forma capitalization of the combined company.
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CS First Boston is an internationally recognized investment banking firm
and, as a part of its investment banking business, CS First Boston is regularly
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements and valuations for estate, corporate
and other purposes. The Zapata Special Committee selected CS First Boston as its
financial adviser because of CS First Boston's experience and expertise.
Pursuant to the terms of CS First Boston's engagement, Zapata has agreed to
pay CS First Boston for its services in connection with the Merger fees payable
as follows: (i) a financial advisory fee of $300,000, payable upon delivery by
CS First Boston of a presentation to the Zapata Special Committee; and (ii) an
opinion fee of $700,000, payable upon delivery of the opinion. Zapata also has
agreed to reimburse CS First Boston for its out-of-pocket expenses, including
the fees and expenses of legal counsel and any other adviser retained by CS
First Boston, and to indemnify CS First Boston and certain related entities
against certain liabilities, including liabilities under the federal securities
laws.
In the ordinary course of business, CS First Boston and its affiliates may
actively trade the equity securities of Zapata and Houlihan's for their own
account and for accounts of customers and, accordingly, may at any time hold a
long or short position in such securities. CS First Boston may in the future
provide financial advisory services to Zapata unrelated to the proposed Merger,
for which services CS First Boston will receive compensation.
A COPY OF THE WRITTEN OPINION OF CS FIRST BOSTON, DATED JUNE 4, 1996, IS
ATTACHED HERETO AS APPENDIX B. ZAPATA'S STOCKHOLDERS ARE URGED TO READ THE CS
FIRST BOSTON OPINION CAREFULLY IN ITS ENTIRETY FOR ASSUMPTIONS MADE, MATTERS
CONSIDERED, SCOPE AND LIMITS OF THE REVIEW AND PROCEDURES FOLLOWED BY CS FIRST
BOSTON IN CONNECTION WITH SUCH OPINION.
OPINION OF DLJ
In its role as financial adviser to Houlihan's Special Committee, DLJ was
asked to render an opinion to the Houlihan's Special Committee as to the
fairness, from a financial point of view, of the consideration to be received by
the stockholders of Houlihan's other than Malcolm I. Glazer and persons
affiliated with Malcolm I. Glazer ("minority stockholders"), pursuant to the
Merger. On June 4, 1996, DLJ issued to the Houlihan's Special Committee its
written opinion (the "DLJ Opinion") that, based upon and subject to the
provisions set forth in such opinion, the consideration to be received by the
minority stockholders pursuant to the Merger is fair to the minority
stockholders from a financial point of view.
A COPY OF THE WRITTEN DLJ OPINION IS ATTACHED HERETO AS APPENDIX C.
HOULIHAN'S STOCKHOLDERS ARE URGED TO READ THE DLJ OPINION CAREFULLY IN ITS
ENTIRETY FOR ASSUMPTIONS MADE, OTHER MATTERS CONSIDERED AND LIMITS OF THE REVIEW
BY DLJ IN CONNECTION WITH SUCH OPINION.
The Houlihan's Special Committee selected DLJ as its financial adviser
because DLJ is a nationally recognized investment banking firm that has
substantial experience in the restaurant industry and is familiar with
Houlihan's and its business. In addition, DLJ, as part of its investment banking
services, is regularly engaged in the valuation of businesses and securities in
connection with mergers, acquisitions, underwritings, sales and distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes.
The DLJ Opinion was prepared for the Houlihan's Special Committee and is
directed only to the fairness of the consideration to be received by the
minority stockholders from a financial point of view. The DLJ Opinion does not
constitute a recommendation to any stockholder as to how such stockholder should
vote at the Houlihan's Special Meeting nor does it constitute an opinion as to
the price at which the Zapata Common Stock or Houlihan's Common Stock will
actually trade at any time. The Merger was negotiated at arm's-length by the
Houlihan's Special Committee and the Zapata Special Committee. No restrictions
or limitations were imposed by Houlihan's upon DLJ with respect to the
investigations made or the procedures
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followed by DLJ in rendering the DLJ Opinion. The Houlihan's Special Committee
requested that DLJ not solicit, and DLJ did not solicit, the interest of any
other party.
In arriving at its opinion, DLJ reviewed the Merger Agreement. DLJ also
reviewed financial and other information that was publicly available or
furnished to it by or on behalf of Houlihan's and Zapata, including information
provided during discussions with their respective managements, and (i)
consolidated financial statements and other information of Houlihan's for the
fiscal years 1991 through 1995 and (ii) consolidated financial statements and
other information of Zapata for the fiscal years 1993 through 1995. Included in
the information provided were certain financial projections for Houlihan's for
the years 1996 to 2001 prepared by the management of Houlihan's. In addition,
DLJ compared certain financial and securities data of Houlihan's with selected
companies whose securities are traded in public markets; reviewed the historical
stock prices and trading volumes of Houlihan's Common Stock and Zapata Common
Stock; reviewed prices and premiums paid in certain other selected business
combinations; and performed a discounted cash flow analysis of Houlihan's and
Zapata's continuing operations. DLJ also reviewed with the managements of
Houlihan's and Zapata the assumptions on which its analyses were based and other
factors, including historical and projected financial results of such companies.
DLJ also conducted such other financial studies, analyses and investigations as
DLJ deemed appropriate for purposes of rendering its opinion.
In rendering the DLJ Opinion, DLJ relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that was
available to it from public sources, and that was provided to it by Houlihan's
and Zapata or their respective representatives, or that was otherwise reviewed
by it. With respect to the financial projections supplied to DLJ, it assumed
that they had been reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the management of Houlihan's as to the
future operating and financial performance of Houlihan's. DLJ has not assumed
any responsibility for making any independent evaluation of Houlihan's assets or
liabilities or for making an independent verification of any of the information
reviewed by DLJ. DLJ has relied as to various legal matters on advice of counsel
to Houlihan's and the Houlihan's Special Committee.
The DLJ Opinion is necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to
DLJ as of, the date of the DLJ Opinion. It should be understood that, although
subsequent developments may affect its opinions, DLJ has not updated, reviewed
or reaffirmed, and has no obligation to update, review or reaffirm, the DLJ
Opinion.
The following is a summary of factors considered and financial analyses
performed that were included in a presentation to the Houlihan's Special
Committee.
Analysis of Certain Other Publicly Traded Companies. DLJ compared selected
historical share prices, earnings, and operating and financial ratios for
Houlihan's to the corresponding data and ratios of certain other companies whose
securities are publicly traded, which companies were selected for comparison
because as a group they possess business, operating and financial
characteristics that are generally representative of companies in the industry
in which Houlihan's operates. The selected companies were: Applebee's
International, Inc.; Brinker International, Inc.; Chart House Enterprises, Inc.;
Darden Restaurants, Inc.; Ground Round Restaurants, Inc.; Lone Star Steakhouse &
Saloon, Inc.; Ruby Tuesday, Inc.; Sizzler International, Inc. and Vicorp
Restaurants, Inc. (the "Public Comparables"). Such data and ratios included
Enterprise Value (defined as the product of the stock price and total shares
outstanding plus Net Debt (debt and preferred stock less cash and cash
equivalents)) as a multiple of gross revenue, EBITDA for the latest reported
twelve months ("LTM"), and as a multiple of projected EBITDA for 1996, and the
growth rates of revenues, net income and earnings per share for the three most
recent fiscal years and operating margins for the latest reported twelve months.
Additional ratios examined included the ratios of current stock prices to LTM
net income and projected calendar year 1996 net income (determined on the basis
of estimates provided by selected investment banking firms). This analysis
indicated that the average multiples of Enterprise Value to LTM Revenues, LTM
EBITDA and projected calendar year 1996 EBITDA were 1.0x, 9.0x and 7.9x,
respectively. The average multiples of equity value to LTM net income and
projected calendar year 1996 net income were 20.1x and 17.1x, respectively. DLJ
derived the valuation range for Houlihan's by concentrating on net income
multiples, which DLJ determined to be the most relevant basis for valuing
publicly traded
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restaurant companies, and by comparing Houlihan's businesses and performance to
the Public Comparables (with particular emphasis on recent historical results of
operations and margins, age and viability of underlying restaurant concepts and
prospects for future growth). DLJ determined that the relevant range of
projected calendar year 1996 net income multiples was 8.6x to 17.1x. DLJ then
calculated the imputed valuation ranges for Houlihan's by applying these
multiples to Houlihan's projected calendar year 1996 net income, which yielded a
range of equity values for Houlihan's of $4.74 to $9.42 per share.
Control Premium Analysis. DLJ also prepared a comparison of the value per
share of Houlihan's Common Stock to be received in the Merger of $8.00 to the
implied price per share of Houlihan's Common Stock based on a per share price of
Houlihan's Common Stock of $5.00 and the LTM high and low prices per share of
$10.00 and $3.75, and assumed control premiums of 25%, 35% and 45%. By
multiplying the price per share times the applicable control premium, DLJ
arrived at a range of implied prices of $6.25 to $7.25 based on a price per
share of $5.00, a range of implied prices of $12.50 to $14.50 based on the LTM
high price per share of $10.00, and a range of implied prices of $4.69 to $5.44
based on the LTM low price per share.
Transaction Analysis. DLJ reviewed publicly available information for
selected transactions completed since February 1988 involving the combination of
restaurant companies. The comparative transactions reviewed (the "Comparative
Transactions") included 30 transactions that were proposed or completed during
the period. The Comparative Transactions selected are not intended to represent
a complete list of restaurant company transactions that have occurred during the
last nine years; rather, they include only transactions involving combinations
of companies with operating size or financial performance characteristics
believed to be comparable to Houlihan's characteristics. DLJ reviewed the
consideration paid in such transactions in terms of the Equity Purchase Price
(offer price per share multiplied by total common shares outstanding) plus total
debt less cash and cash equivalents ("Adjusted Purchase Price") as a multiple of
gross revenue, EBITDA and EBIT. For the Comparative Transactions, the average
ratios of Adjusted Purchase Price to LTM revenues, LTM EBITDA and LTM EBIT were
1.0x, 7.4x and 14.2x, respectively, while the average ratio of Equity Purchase
Price to LTM net income was 25.0x. DLJ determined that multiples of LTM EBITDA
provided the most relevant measure for evaluating the Comparative Transactions.
DLJ concluded that the relevant range of LTM EBITDA multiples was 5.2x to 5.8x.
DLJ then calculated the imputed valuation ranges for Houlihan's by applying its
LTM EBITDA to the relevant multiple ranges. This analysis yielded a range of
Enterprise Values for Houlihan's of $160.9 to $179.5 million, which results in
an equity value range of $8.72 to $10.58 per share after subtracting
approximately $73.7 million in net debt.
Discounted Cash Flow Analysis. DLJ also performed a discounted cash flow
analysis of Houlihan's using a weighted average cost of capital approach and an
internal rate of return approach. In conducting this analysis, DLJ relied on
certain assumptions, financial forecasts and other information provided by
Houlihan's management. Using the information set forth in the Houlihan's
forecast, DLJ calculated the estimated "Free Cash Flow" based on projected
unleveraged operating income adjusted for: (i) taxes; (ii) certain projected
non-cash items (e.g., depreciation and amortization); (iii) projected changes in
non-cash working capital; and (iv) projected capital expenditures.
Using the weighted average cost of capital approach, DLJ analyzed
Houlihan's forecast and discounted the stream of free cash flows from fiscal
year 1996 to fiscal year 2000 provided in such projections back to January 1,
1996 using discount rates ranging from 11% to 15%. To estimate the residual
value of Houlihan's at the end of the forecast period, DLJ applied terminal
multiples of 4.5x to 6.0x to the projected fiscal year 2000 EBITDA and
discounted such value back to January 1, 1996 using discount rates ranging from
11% to 15%. DLJ then summed the present value of the free cash flows and the
present value of the residual value to derive a range of implied enterprise
values for Houlihan's of $134.5 million to $191.1 million. The range of implied
enterprise values of Houlihan's was then adjusted for debt (net of cash and cash
equivalents of $10.3 million) by deducting $73.7 million from implied Enterprise
Value to yield an implied equity value of Houlihan's of $60.9 million to $117.5
million, which equates to an equity value of $7.10 to $10.33 per share (assuming
a midpoint weighted average cost of capital of 13% and exit multiples ranging
from 4.5x to 6.0x).
Using the internal rate of return approach, DLJ assumed a buyer purchased
Houlihan's for $6 to $10 per share, financing the transaction with $120 million
of debt and the remainder in the form of new equity and the
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assumption of certain liabilities. To estimate the terminal value of Houlihan's
at the end of fiscal year 2000, DLJ applied exit multiples of 4.5x to 6.0x
Houlihan's projected fiscal year 2000 EBITDA. This analysis resulted in an
implied internal rate of return to the buyer in a range from 10.6% to 53.0%. DLJ
did not attribute to the results of this methodology a meaningful degree of
importance because consummating a $120 million financing on favorable terms
would be difficult in light of the current financing environment for leveraged
purchases of restaurant companies.
Zapata Analysis. DLJ prepared a summary valuation of Zapata Common Stock.
The valuation was based on a discounted cash flow analysis for Zapata Protein
and a liquidation methodology for Zapata's remaining assets. The valuation
indicated an equity value range for Zapata Common Stock of $4.03 to $5.99 per
share.
The summary set forth above does not purport to be a complete description
of the analyses performed by DLJ. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Accordingly, notwithstanding the separate factors
summarized above, DLJ believes that its analyses must be considered as a whole
and that selecting portions of its analyses and the factors considered by it,
without considering all analyses and factors, could create an inadequate view of
the evaluation process underlying its opinion. In performing the analyses, DLJ
made numerous assumptions with respect to industry performance, business and
economic conditions and other markets. The analyses performed by DLJ are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
Pursuant to the terms of an engagement letter dated December 1, 1995,
Houlihan's has agreed to pay DLJ a retainer of $100,000, a fee of $400,000 upon
the delivery of the DLJ Opinion and an additional fee to be paid upon
consummation of the Merger equal to 0.55% of the total consideration to be paid
by Zapata in connection with the acquisition of Houlihan's (including the
assumption or refinancing of any debt), less the amounts paid with respect to
the retainer and fairness opinion fees. Houlihan's has also agreed to reimburse
DLJ promptly for all out-of-pocket expenses (including the reasonable fees and
out-of-pocket expenses of counsel) incurred by DLJ in connection with its
engagement, and to indemnify DLJ and certain related persons against certain
liabilities in connection with its engagement, including liabilities under the
federal securities laws.
In the ordinary course of business, DLJ actively trades public securities,
which may include both Houlihan's and Zapata's securities, for its own account
and for the accounts of its customers and, accordingly, may at any time hold a
long or short position in such securities.
OPERATIONS FOLLOWING THE MERGER
Zapata expects that, following the Merger, Houlihan's will be operated as a
subsidiary managed substantially independently of Zapata's other operations. Its
headquarters are expected to remain in Kansas City, Missouri. Upon the
effectiveness of the Merger, it is expected that the present management of
Houlihan's will continue as management of the Zapata subsidiary that will be the
surviving corporation in the Merger.
Zapata intends to continue to pursue future acquisition opportunities in
the food services business. It expects to retain its corporate headquarters in
Houston, Texas following the Merger, but may consider relocating its
headquarters at a later date depending on the course of future development of
Zapata's business.
Two members of the Board of Directors of Houlihan's, Frederick R. Hipp and
Warren Gfeller, will be added to the Zapata Board of Directors upon the
effectiveness of the Merger, and William W. Moreton, currently Executive Vice
President and Chief Financial Officer of Houlihan's, will be appointed as an
Executive Vice President and the Chief Financial Officer of Zapata.
Following consummation of the Merger, Zapata expects to evaluate whether to
engage Coopers & Lybrand L.L.P., the firm of independent public accountants that
currently audits Zapata's consolidated financial statements, or some other firm
to report on its consolidated financial statements for the year ended September
30, 1996. Accordingly, no proposal for ratification of a firm of independent
accountants to act in
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such capacity is being presented at the Zapata Annual Meeting. Zapata has not
had any disagreements with Coopers & Lybrand L.L.P. on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure. Representatives of Coopers & Lybrand L.L.P. are expected to be
present at the Zapata Annual Meeting and will have the opportunity to make a
statement if they desire to do so and to respond to appropriate questions.
As a result of Zapata's transitional status, an investment in Zapata Common
Stock is subject to uncertainties associated with how its business may evolve as
it continues its program of redirecting its business.
In accordance with its plan to redirect its business into the food services
industry, Zapata plans to make future acquisitions. Such acquisitions may
include acquisitions of additional interests in, or a combination with,
Specialty, a company in which members of the Glazer Group own approximately 45%
of the outstanding common stock. Zapata may also make purchases of the common
stock of Envirodyne in addition to its existing position or may seek to acquire
Envirodyne in a merger or other business combination transaction. Zapata can
provide no assurance as to whether any such future acquisitions, or acquisitions
of other companies in the food services business, can be accomplished, the
timing or terms thereof (including the amount of cash or stock consideration
that would be involved in any such transaction), or the degree to which other
acquisitions in the food services industry can be successfully integrated with
Zapata's other operations. Because Zapata has not historically had operations in
the food services business, it will, at least initially, be substantially
reliant on management expertise of Houlihan's and other companies it may
acquire.
Zapata has considered from time to time transactions that would involve its
marine protein operations, including the acquisition of related businesses that
would be combined with the marine protein operations and the sale or spin-off to
its stockholders of these operations. R. C. Lassiter, a director of Zapata and
Chairman of the Zapata Special Committee, is Chairman and Chief Executive
Officer of Zapata Protein, Inc. and could leave Zapata and continue with the
marine protein operations in case of their disposition by Zapata.
Zapata is also considering the disposition of its Bolivian oil and gas
operations.
The percentage of the outstanding Zapata Common Stock owned by members of
the Glazer Group will increase as a result of the Merger to as much as 49.9%.
See "The Merger Agreement--Merger Consideration." An increase in the Glazer
Group's ownership percentage of Zapata Common Stock to, or near to, 49.9% as a
result of the Merger will in all likelihood cause Zapata to meet the stock
ownership requirement for being subject to the personal holding company tax
under Sections 541-47 of the Code. That requirement is met if, at any time
during the last half of a taxable year of Zapata, more than 50% in value of its
outstanding stock is owned, directly or indirectly, by five or fewer
individuals. The personal holding company tax is a tax equal to 39.6% of the
"undistributed personal holding company income" of either (i) an affiliated
group of corporations calculated on a consolidated basis or (ii) in certain
circumstances, each corporation in the group calculated on a separate company
basis. Personal holding company income subject to the tax includes generally
passive types of income, such as dividends, interest, rents and certain
royalties. Such income is subject to the personal holding company tax only if
60% or more of the "adjusted ordinary gross income" (as defined in Section
543(b)(2) of the Code) of the affiliated group or separate member, as the case
may be, is personal holding company income. Zapata believes that the latter
requirement for taxability will not be met because of the character and amounts
of the income expected to be earned and of the expenses expected to be incurred
by the members of the Zapata affiliated group, and that liability for the
personal holding company tax will thus be avoided entirely or limited to amounts
that are not material.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Scope and Limitations.
The following is a summary description of the material federal income tax
consequences of the Merger that should be considered by Houlihan's stockholders
in voting on the Merger and making the elections offered by the Agreement, but
does not discuss the tax consequences, if any, to Houlihan's, Sub, Zapata
stockholders or Zapata. Moreover, it does not describe the actual tax effect
that any of such matters will have
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on a particular stockholder in light of his tax status and his other income,
deductions and credits. In addition, no information is provided herein with
respect to the tax consequences of the Merger under applicable foreign, state or
local laws. Consequently, each Houlihan's stockholder is advised to consult a
tax adviser as to the specific tax consequences of the Merger.
Neither Houlihan's nor Zapata has requested or will request an advance
ruling from the Internal Revenue Service as to the tax consequences of the
Merger. Zapata has received an opinion from Baker & Botts, L.L.P., counsel for
Zapata, as to certain material federal income tax consequences of the Merger to
holders of the Houlihan's stock based upon certain customary factual
representations made by both Zapata and Houlihan's, which are to be reaffirmed
at the time of the Merger. The discussion set forth below is included for the
general information of the Houlihan's stockholders only and is based upon that
opinion and on the Code, as in effect on the date of this Joint Proxy
Statement/Prospectus, without consideration of particular facts or circumstances
of any holder of Houlihan's stock. The discussion may not be applicable with
respect to shares acquired pursuant to the exercise of stock options or
otherwise received as compensation. Such counsel's opinions are not binding on
either the Internal Revenue Service (the "IRS") or any stockholder.
Merger as a Reorganization.
Based upon the factual representations of Houlihan's and Zapata, the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code. The federal income tax consequences of the Merger to the Houlihan's
stockholders will depend in part on the form of consideration they receive as
described below.
Stock Election -- Stock for Stock Only.
A Houlihan's stockholder who receives only Zapata Common Stock in exchange
for all shares of Houlihan's Common Stock actually owned by him will not
recognize any gain or loss upon such exchange for federal income tax purposes.
The tax basis in the shares of Zapata Common Stock received in such exchange
will be equal to the basis he had in the shares of Houlihan's Common Stock
surrendered therefor. The holding period of each share of Zapata Common Stock
will include the holding period of the shares of the Houlihan's Common Stock
surrendered therefor, provided that the Houlihan's Common Stock surrendered was
held as a capital asset at the time of the exchange. See the discussion below
for the tax consequences of the receipt of cash in lieu of fractional share
interests of Houlihan's Common Stock.
Default Consideration, Residual Election or Cash Election -- Stock for Stock
and Cash.
A Houlihan's stockholder who makes no election (and therefore receives the
Default Consideration) or a Residual Election, or a Houlihan's stockholder who
makes a Cash Election which is reduced pro rata to prevent the Glazer Group's
stock ownership in Zapata from exceeding 49.9%, will receive both shares of
Zapata Common Stock and cash in the Merger. In any such case, if such
stockholder's adjusted basis in the shares of Houlihan's Common Stock
surrendered in the transaction is less than the value, at the Effective Time, of
the Zapata Common Stock plus the amount of cash received, such stockholder will
recognize a gain on the transaction equal to the excess, if any, of the value,
as of the Effective Time, of the Zapata Common Stock plus the amount of cash
received over the adjusted basis of the shares of Houlihan's Common Stock
surrendered in the transaction, but not in excess of the amount of cash
received. No loss will be recognized by holders of Houlihan's Common Stock who
receive both cash and Zapata Common Stock in the Merger. The basis of the Zapata
Common Stock received in the exchange generally will be the same as the adjusted
basis of the Houlihan's Common Stock surrendered, decreased by the amount of
cash received and increased by the amount of gain or dividend income recognized,
and the holding period of such Zapata Common Stock will include the period
during which the Houlihan's Common Stock surrendered was held, assuming such
Houlihan's Common Stock constituted a capital asset in the hands of the holder.
In general, the determination of whether any gain recognized by a holder of
Houlihan's Common Stock as a result of the Merger will constitute capital gain
or dividend income will be made by reference to the rules set forth in Sections
356(a)(2) and 302 of the Code. Under Section 356(a)(2) of the Code, the Merger
will
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be viewed as if all holders of Houlihan's Common Stock had received only Zapata
Common Stock in the Merger and as if a portion of that stock had been
immediately redeemed for the cash received in the Merger. Under Section 302 of
the Code, all of the cash representing gain recognized to a holder of Houlihan's
Common Stock on the exchange will be taxed as capital gain if the deemed
redemption from such holder is a "substantially disproportionate redemption" of
the stock with respect to the holder or is "not essentially equivalent to a
dividend." These determinations will be made by taking into account the stock
ownership attribution rules of Section 318 of the Code. If neither of the
redemption tests described above is satisfied, a Houlihan's stockholder
generally will be treated as having received a dividend equal to the lesser of
the amount of such stockholder's recognized gain or his ratable share of the
accumulated earnings and profits of Houlihan's. The Internal Revenue Service
could assert, however, that such stockholder should be treated as having
received a dividend equal to the lesser of the stockholder's recognized gain or
his ratable share of the combined accumulated earnings and profits of Zapata and
Houlihan's. Because the determination of whether a payment will be treated as
having the effect of a distribution of a dividend will generally depend upon the
facts and circumstances of each Houlihan's stockholder, the Houlihan's
stockholders are strongly advised to consult their own tax advisers regarding
the tax treatment of cash received in the Merger.
Cash Election or Exercise of Dissenters' Rights -- Stock for Cash Only.
A Houlihan's stockholder who receives only cash pursuant to a Cash Election
that is not reduced pro rata to prevent the Glazer Group's stock ownership in
Zapata from exceeding 49.9%, or pursuant to the exercise of dissenter's rights,
for his shares of Houlihan's Common Stock will recognize capital gain or loss as
to each share measured by the difference between his tax basis in such share and
the amount of cash received in exchange therefor, provided that the Houlihan's
Common Stock was a capital asset in his hands, and provided that he does not own
any Zapata Common Stock immediately after the Merger actually or constructively.
If a former holder of Houlihan's Common Stock does own shares of Zapata Common
Stock, actually or constructively, immediately after the Merger, then such
holder may be subject to the deemed redemption rules described above in the
preceding section, and may be required to recognize all or some portion of the
cash received to be taxable as a dividend and, if a loss is incurred on such
exchange, such holder may be unable to recognize such loss.
Cash Received for Fractional Shares.
No fractional shares of Zapata Common Stock will be issued pursuant to the
Merger. A stockholder who receives cash in lieu of a fractional share of Zapata
Common Stock will be treated as having received such fractional share and then
as having received cash in redemption of the fractional interest, subject to the
provisions of Section 302 of the Code pursuant to which the holder generally
will recognize capital gain or loss equal to the difference between the basis
for the fractional share of Zapata Common Stock and the cash received on its
sale.
Backup Withholding.
Houlihan's stockholders will be required properly to provide, as described
in the Form of Election and Letter of Transmittal, their social security number
or other taxpayer identification number, or in some instances certain other
information, to the Exchange Agent in order to avoid the "backup withholding"
requirements that might otherwise apply.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Malcolm I. Glazer and other members of the Glazer Group own beneficially
10,395,384 shares of Zapata Common Stock (approximately 35.2% of the outstanding
shares) and 7,325,815 shares of Houlihan's Common Stock (approximately 73.3% of
the outstanding shares). Malcolm I. Glazer and members of his family occupy two
of the five positions on the Zapata Board of Directors and five of the seven
positions of the Board of Directors of Houlihan's. Although the Boards of
Directors of Zapata and Houlihan's have each formed a special committee to
negotiate and otherwise act in connection with the Merger, stockholders should
be aware that, by virtue of such ownership, Malcolm I. Glazer and other members
of the Glazer Group have
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interests different from stockholders of the respective companies generally.
Because of the greater percentage ownership of the Glazer Group in the
Houlihan's Common Stock than in the Zapata Common Stock, the Glazer Group would
derive greater benefit from terms of the Merger (including the consideration to
be paid in exchange for Houlihan's Common Stock) considered to favor Houlihan's
than from such terms considered to favor Zapata. The Standstill Agreement
provides for certain restrictions on the acquisition, disposition and voting of,
and other matters relating to, Zapata Common Stock by Malcolm I. Glazer and
other members of the Glazer Group, which restrictions are not applicable to
other holders of Zapata Common Stock.
In considering the recommendation of the Houlihan's Special Committee with
respect to the Merger Agreement and the transactions contemplated thereby,
stockholders should also be aware that certain members of the Board of Directors
of Houlihan's and the management of Houlihan's (including members of the
Houlihan's Special Committee) may have interests in the Merger that are in
addition to the interests of stockholders of Houlihan's generally (including,
without limitation, accelerated vesting of options and, in the case of certain
officers, termination benefits triggered by the Merger and, in the case of one
officer, an employment agreement to be entered into with Zapata as a condition
to consummation of the Merger). The Houlihan's Special Committee was aware of
these interests and considered them, among other factors, in approving the
Merger.
IRREVOCABLE PROXY AND STANDSTILL AGREEMENT
Irrevocable Proxy
In accordance with the terms of the Standstill Agreement, Malcolm I. Glazer
has delivered to the members of the Zapata Special Committee an irrevocable
proxy dated June 4, 1996 ("Irrevocable Proxy"). Under the terms of the
Irrevocable Proxy, the members of the Zapata Special Committee are authorized to
vote all of the shares of Zapata Common Stock held by him individually and as
trustee of the Malcolm Glazer Trust with respect to the issuance of Zapata
Common Stock in connection with the Merger. The Irrevocable Proxy is valid until
the first to occur of (i) the adjournment of the Zapata Annual Meeting at which
the Merger Proposal is considered by the stockholders of Zapata or (ii) Zapata's
publicly announced abandonment of the Merger.
On June 13, 1996, a majority of the members of the Zapata Special Committee
met and determined to vote the shares of Zapata Common Stock subject to the
Irrevocable Proxy in accordance with the vote of a majority of Zapata
stockholders present and voting at the meeting (other than shares held by the
Glazer Group) such that (i) if a majority of the shares present and voting at
the Zapata Annual Meeting (other than shares held by the Glazer Group) are voted
in favor of the Merger Proposal, all shares subject to the Irrevocable Proxy
will be voted in favor of the Merger Proposal, and (ii) if a majority of the
shares present and voting at the Zapata Annual Meeting (other than shares held
by the Glazer Group) are voted in opposition to the Merger Proposal, all shares
subject to the Irrevocable Proxy will be voted in opposition to the Merger
Proposal.
Standstill Agreement
On April 30, 1996, Zapata and Malcolm I. Glazer entered into the Standstill
Agreement, which, among other things, contains certain restrictions on
acquisitions, sales and voting of Zapata Common Stock by members of the Glazer
Group during the term of the Standstill Agreement.
Under the Standstill Agreement, Malcolm I. Glazer has agreed, on behalf of
himself and other members of the Glazer Group, not to increase his beneficial
ownership of voting securities of Zapata beyond 49.9% of Zapata's outstanding
voting securities, unless, among other things, such increases are approved by a
majority of the Zapata Board of Directors (excluding members of the Glazer
family) or are made in response to a tender offer or similar proposal by others
to acquire more than 20% of Zapata's outstanding voting securities. Malcolm I.
Glazer may also exceed the 49.9% limitation if a holder of greater than 5% of
Zapata's outstanding voting securities discloses an intent to acquire control of
Zapata.
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Pursuant to the terms of the Standstill Agreement, Malcolm I. Glazer has
agreed that, so long as the Standstill Agreement remains in effect, he will
take, and he will cause the other members of the Glazer Group to take, such
action as may be necessary to assure that at all times (i) at least three
members of the Zapata Board of Directors are not members of the Glazer family
and (ii) a majority of the members of the Zapata Board of Directors are not
members of the Glazer family.
In addition, so long as the Standstill Agreement remains in effect, Malcolm
I. Glazer will have a right of first purchase to maintain his proportionate
ownership position in Zapata. Conversely, the Standstill Agreement provides that
Zapata has a right to acquire any voting securities sought to be transferred by
the Glazer Group. Malcolm I. Glazer is permitted under the Standstill Agreement
to sell his voting securities free of Zapata's right of first refusal in a
number of circumstances, including sales or transfers to purchasers that agree
to be bound by the terms of the Standstill Agreement, pursuant to a public
distribution, in response to a tender offer by an unaffiliated third party for
at least 14.9% of Zapata's outstanding voting securities, in connection with
certain corporate reorganizations or upon conversion, exchange or exercise of
outstanding securities. The Standstill Agreement prohibits Zapata from
soliciting proposals for the acquisition of Zapata so long as the Glazer Group
holds more than 9.9% of Zapata's outstanding voting securities; however, Zapata
has reserved the right to respond to unsolicited proposals from other parties.
If the Zapata Board of Directors decides to pursue a combination between
Zapata and any entity in which the Glazer Group owns 15% or more of the voting
equity (such as Houlihan's), the Zapata Board of Directors is required under the
Standstill Agreement to appoint a special committee to negotiate and approve the
transaction. In the event of a proposed acquisition of any such entity
controlled by Malcolm I. Glazer, Malcolm I. Glazer has agreed to grant to the
members of the special committee an irrevocable proxy to vote all of Glazer's
Zapata shares in such manner as a majority of the committee members may
determine.
The Standstill Agreement terminates upon, among other events, the first to
occur of 18 months after Zapata's acquisition of Houlihan's, Zapata's
announcement that it does not intend to acquire Houlihan's, the acquisition by
another party of securities representing 20% or more of the voting power
attributable to Zapata's outstanding capital stock, a breach of the Standstill
Agreement by Zapata, or Malcolm I. Glazer's acquisition of more than 50% of
Zapata's outstanding voting securities in accordance with the terms of the
Standstill Agreement. In the event that Zapata announces its intention to
acquire another entity controlled by Malcolm I. Glazer prior to the expiration
of the Standstill Agreement, the Standstill Agreement's term will be
automatically extended until the first to occur of 18 months after the
acquisition of such entity or Zapata's announcement that it does not intend to
acquire such entity.
REGULATORY APPROVALS
Under the HSR Act, and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division"), and specified waiting period requirements have been satisfied. On
June 21, 1996, each of Zapata and Malcolm I. Glazer filed a premerger
notification and report form with the FTC and the Antitrust Division, and, on
June 28, 1996, the FTC granted Zapata's request for early termination of the
waiting period under the HSR Act.
At any time before or after the Effective Time, the Antitrust Division, the
FTC or a private person or entity could seek under the antitrust laws, among
other things, to enjoin the Merger or to cause Zapata to divest itself, in whole
or in part, of Houlihan's or of other businesses conducted by Zapata. There can
be no assurance that a challenge to the Merger will not be made or that, if such
a challenge is made, Zapata will prevail. The obligations of Zapata and
Houlihan's to consummate the Merger are subject to the condition that there be
no temporary restraining order, preliminary or permanent injunction or other
order by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger. Each party has agreed to
use its best efforts to have any such injunction or order lifted. See "The
Merger Agreement--Conditions to the Merger" and "--Amendment, Waiver and
Termination."
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Except for approvals of liquor licensing authorities in certain
jurisdictions in which Houlihan's operates, Zapata and Houlihan's are not aware
of any license or regulatory permit that is material to the businesses of Zapata
or Houlihan's and that is likely to be adversely affected by consummation of the
Merger or of any approval or other action by any state, federal or foreign
government or governmental agency (other than routine re-licensing procedures)
that would be required prior to the Merger.
ACCOUNTING TREATMENT
For accounting and financial reporting purposes, the Merger will be
accounted for using the purchase method under generally accepted accounting
principles.
RESTRICTIONS ON SALES OF STOCK
Shares of Zapata Common Stock to be received in connection with the Merger
by Houlihan's stockholders who are deemed to be "affiliates" (as such term is
defined in Rule 144 under the Securities Act) of Houlihan's ("Houlihan's
Affiliates") prior to the Merger (the "Restricted Securities") may be resold by
them only pursuant to an effective registration statement under the Securities
Act covering such securities or in transactions permitted by the resale
provisions of Rule 145(d) under the Securities Act or as otherwise permitted
under the Securities Act. Under Rule 144 under the Securities Act, an affiliate
is a person who directly or indirectly controls or is controlled by or is under
common control with Houlihan's and may include certain officers and directors of
Houlihan's, principal shareholders of Houlihan's and certain other shareholders
with special relationships with Houlihan's. This Joint Proxy
Statement/Prospectus may not be used by such affiliates in connection with any
resale of their Restricted Securities.
Rule 145 requires that, in a resale of their Restricted Securities,
Houlihan's Affiliates comply with a volume restriction and other restrictions on
the manner of sale and that certain information about Zapata be currently
available to the public. The volume restriction limits the number of shares that
an affiliate may transfer, in the aggregate, within any three-month period to
the greater of (i) one percent of the outstanding Zapata Common Stock or (ii)
the average weekly reported trading volume in the Zapata Common Stock during the
preceding four calendar weeks. A Houlihan's Affiliate may sell its shares of
Zapata Common Stock without regard to the volume restrictions and restrictions
on the manner of sale if it has owned the shares for at least two years, certain
information about Zapata is currently available to the public and the Houlihan's
Affiliate is not then an affiliate of Zapata. A Houlihan's Affiliate may also
sell its shares of Zapata Common Stock without regard to the foregoing
restrictions (including the requirement that certain information about Zapata is
currently available to the public) if it has held its shares of Zapata Common
Stock for a period of at least three years and such person has not been an
affiliate of Zapata for at least three months. A Houlihan's Affiliate who is
also an affiliate of Zapata may sell its shares of Zapata Common Stock, subject
to the volume restrictions and restrictions on the manner of sale, if it has
held the shares of Zapata Common Stock for a period of at least two years and
certain information about Zapata is currently available to the public.
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<PAGE> 56
THE MERGER AGREEMENT
The following paragraphs summarize, among other things, the material
provisions of the Merger Agreement, which is attached to this Joint Proxy
Statement/Prospectus as Appendix A and incorporated herein by reference.
Stockholders are urged to read Appendix A in its entirety.
MERGER CONSIDERATION
Under the Merger Agreement, the merger consideration to be provided to
holders of Houlihan's Common Stock will be valued at $8.00 per share of
Houlihan's Common Stock. Fifty percent of the total consideration payable to all
Houlihan's stockholders as a group will be cash and the balance will be Zapata
Common Stock valued at its Market Value. For purposes of valuing the Zapata
Common Stock to be issued as merger consideration, "Market Value" means the
average closing price of Zapata Common Stock as reported on the New York Stock
Exchange Composite Tape for the 20 trading days immediately preceding the fifth
trading day prior to the date of the Houlihan's Special Meeting. Houlihan's
stockholders will be afforded several election alternatives as to the allocation
of the cash and Zapata Common Stock among themselves, including, among others,
an election to receive all cash and an election to receive all shares of Zapata
Common Stock. The elections will affect the consideration received by particular
holders, but not the total amount of cash and Market Value of Zapata Common
Stock issuable in the Merger. The ability of Zapata to satisfy requests to
receive the merger consideration entirely in cash is dependent upon several
factors, including the number of stockholders electing that option and the
Market Value of the Zapata Common Stock. In addition, as discussed below,
stockholders exercising the election to receive all cash may nevertheless be
required to accept a portion of their consideration in Market Value of Zapata
Common Stock to the extent required to assure that the Glazer Group does not own
more than 49.9% of the outstanding Zapata Common Stock following the Merger.
Absent the timely exercise of an election to receive a different mix of
consideration in the Merger, each holder of Houlihan's Common Stock will receive
$4.00 in cash, without interest, and $4.00 in Market Value of Zapata Common
Stock (the "Default Consideration"). Under the Merger Agreement and in lieu of
receiving the Default Consideration, holders of Houlihan's Common Stock may
elect to receive (i) $8.00 in Market Value of Zapata Common Stock (the "Stock
Election"), (ii) $8.00 in cash, without interest, subject to adjustment as
discussed below (the "Cash Election") or (iii) a residual combination of cash
and Market Value of Zapata Common Stock (totaling $8.00) determined so that the
aggregate merger consideration to all Houlihan's stockholders is equally divided
between cash and (on a Market Value basis) Zapata Common Stock (the "Residual
Election"). The equal division of the aggregate merger consideration between
stock and Market Value of Zapata Common Stock that is the basis for determining
the consideration payable to holders making the Residual Election assumes that
any Houlihan's stockholders who exercise their right to dissent from the Merger
under the Delaware General Corporation Law (the "DGCL") receive $8.00 per share
in cash.
Malcolm I. Glazer has agreed to exercise, and to the extent within his
actual control cause all other members of the Glazer Group to exercise, the
Residual Election with respect to shares of Houlihan's Common Stock owned by him
and other members of the Glazer Group. If, as a result of Cash Elections made by
others, members of the Glazer Group would own more than 49.9% of the outstanding
Zapata Common Stock following the Merger, the cash received by holders making
Cash Elections will be reduced on a pro rata basis (and Zapata Common Stock
having a Market Value equal to the amount of the reduction will be delivered to
them in lieu thereof) so that the amount of Zapata Common Stock deliverable
under the Residual Election is reduced to the extent necessary to prevent the
49.9% ownership threshold applicable to the Glazer Group from being exceeded.
The Merger Agreement provides that the Merger will not be consummated if
the application of the 49.9% ownership threshold applicable to the Glazer Group
would result in the receipt by holders making Cash Elections of cash in an
amount less than $4.00 per share. This would occur only if the Market Value were
below $2.15, assuming all holders of Houlihan's Common Stock other than members
of the Glazer Group make Cash Elections (or below amounts less than $2.15, to
the extent such holders make other than Cash
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Elections). Accordingly, based on recent market prices of the Zapata Common
Stock, the provisions for termination of the Merger Agreement in these
circumstances would not be expected to operate.
Holders of Houlihan's Common Stock making the Stock Election will receive
$8.00 in Market Value of Zapata Common Stock without regard to the elections
made by other holders. Likewise, holders of Houlihan's Common Stock exercising
no election will receive $4.00 in cash and $4.00 in Market Value of Zapata
Common Stock without regard to the elections made by other holders.
Holders of Houlihan's Common Stock making the Cash Election would receive
$8.00 per share in cash only if no reduction in the cash to be received by them
(and corresponding reallocation to them of Zapata Common Stock) is necessary to
prevent the Glazer Group from owning more than 49.9% of the outstanding Zapata
Common Stock following the Merger. If all holders of Houlihan's Common Stock
other than members of the Glazer Group exercise the Cash Election, the full
$8.00 per share cash amount would be received only if the Market Value of the
Zapata Common Stock exceeds approximately $4.61 per share, which is
substantially in excess of current market prices. To the extent less than all
holders of Houlihan's Common Stock other than members of the Glazer Group
exercise the Cash Election, the minimum Market Value of the Zapata Common Stock
that would be required to avoid a proration of cash would be reduced. For
example, if the holders of 75% of the shares of Houlihan's Common Stock other
than members of the Glazer Group exercise the Cash Election and the remaining
25% exercise no election and therefore are entitled to receive the Default
Consideration, the Market Value of the Zapata Common Stock above which no
proration would be required would be $3.99 per share. If the Market Value were
equal to $3.625 per share (the closing sales price of the Zapata Common Stock on
the NYSE on August 9, 1996), and if all holders of Houlihan's Common Stock other
than members of the Glazer Group exercised Cash Elections, such holders would
receive approximately $6.40 per share in cash and $1.60 per share in Market
Value of Zapata Common Stock by reason of proration under the 49.9% ownership
limitation. The following table illustrates the per share consideration that
would be received in the merger if all holders of Houlihan's Common Stock other
than members of the Glazer Group made the Cash Election, at differing Market
Value amounts for the Zapata Common Stock.
<TABLE>
<CAPTION>
Market Value of Zapata Common Stock
-------------------------------------------------------
$3.00 $3.25 $3.50 $3.75 $4.00 $4.25
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Non-Glazer Holders
Cash..................................... $5.39 $5.79 $6.20 $6.61 $7.01 $7.42
Market Value of Zapata Common Stock...... 2.61 2.21 1.80 1.39 0.99 0.58
Glazer Group
Cash..................................... 3.49 3.35 3.20 3.05 2.90 2.75
Market Value of Zapata Common Stock...... 4.51 4.65 4.80 4.95 5.10 5.25
</TABLE>
Members of the Glazer Group and any other holders of Houlihan's Common
Stock exercising the Residual Election will receive a combination of cash and
Zapata Common Stock (totaling $8.00 in value with Zapata Common Stock valued on
a Market Value basis) determined so that the aggregate merger consideration to
all Houlihan's stockholders is equally divided between cash and (on a Market
Value basis) Zapata Common Stock. The minimum cash deliverable under the
Residual Election would result if all holders of Houlihan's Common Stock other
than members of the Glazer Group made the Cash Election and the Market Value of
the Zapata Common Stock was sufficiently high so that no proration under the
49.9% ownership limitation applicable to members of the Glazer Group applied. In
that case, holders exercising the Residual Election would receive $2.54 per
share in cash and $5.46 per share in Market Value of Zapata Common Stock. The
maximum cash deliverable under the Residual Election would result if all holders
of Houlihan's Common Stock other than members of the Glazer Group made the Stock
Election, in which case holders making the Residual Election would receive $5.46
per share in cash and $2.54 per share in Market Value of Zapata Common Stock.
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Zapata and Houlihan's anticipate that the final Market Value will be
determined as of the close of business on September , 1996. Not later than the
next business day, Zapata and Houlihan's will issue a joint press release to
notify stockholders of the final Market Value. In addition, stockholders may
contact Houlihan's Investor Relations at (816) 756-2200 Ext. 1285 for
information concerning the Market Value. See "The Houlihan's Special
Meeting--Notification of Market Value."
On May 1, 1996, the last full trading day before the public announcement of
Zapata's and Houlihan's intention to effect the Merger, the closing sales price
per share of Houlihan's Common Stock was $5.31 on the over-the-counter market
("OTC"). On August , 1996, the latest practicable trading day before printing
of this Joint Proxy Statement/Prospectus, the closing sales price per share of
Houlihan's Common Stock was $ on the OTC. See "--Comparative Market
Price Data and Dividend Policy--Market Price Data" for other recent market
prices for Houlihan's Common Stock.
Based upon the capitalization of Zapata and Houlihan's as of August 9,
1996, and assuming a Market Value for the Zapata Common Stock of $3.625 per
share, stockholders of Houlihan's, as such, prior to the Effective Time will
hold approximately 27.2% of the outstanding Zapata Common Stock immediately
after the Effective Time.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
The conversion of Houlihan's Common Stock into cash and Zapata Common Stock
will occur automatically at the Effective Time.
Included with the proxy materials mailed to Houlihan's stockholders is a
Form of Election on which each Houlihan's stockholder of record can specify the
number of shares of Houlihan's Common Stock for which it chooses to make a Cash
Election, Stock Election or Residual Election. Houlihan's stockholders who do
not make an election will receive the Default Consideration upon consummation of
the Merger. HOULIHAN'S STOCKHOLDERS WHO DO NOT INTEND TO VOTE IN FAVOR OF THE
MERGER SHOULD NEVERTHELESS CONSIDER FILING A FORM OF ELECTION IN ORDER TO AVOID
BEING TREATED AS NON-ELECTING STOCKHOLDERS IN THE EVENT THE MERGER IS APPROVED
AND CONSUMMATED. The filing of a Form of Election will not constitute a waiver
of a stockholder's dissenters' rights. However, Houlihan's stockholders who
withdraw or fail to perfect dissenters' rights will be deemed to have made no
election and will therefore receive the Default Consideration with respect to
their shares for which demands for appraisal were made, notwithstanding anything
to the contrary indicated on a Form of Election. See "--Appraisal Rights."
In order to be valid, a Form of Election must be completed in accordance
with the instructions contained therein and received by American Stock Transfer
& Trust Company (the "Exchange Agent") by 5:00 p.m., Houston time, on the date
one calendar day prior to the date of the Houlihan's Special Meeting (the
"Election Deadline"). Any record holder of Houlihan's Common Stock may at any
time prior to the Election Deadline change a previously made election by written
notice to the Exchange Agent accompanied by a properly completed, later-dated
Form of Election.
As soon as practicable after the Effective Time, the Exchange Agent will
send a transmittal form to each Houlihan's stockholder. The transmittal form
will contain instructions with respect to the surrender of certificates
representing Houlihan's Common Stock to be exchanged for cash and certificates
representing Zapata Common Stock based upon the election (if any) made by such
Houlihan's stockholder.
All cash paid and shares of Zapata Common Stock issued upon conversion of
shares of Houlihan's Common Stock will be deemed to have been paid and issued in
full satisfaction of all rights pertaining to such shares of Houlihan's Common
Stock.
NO FRACTIONAL SHARES OF ZAPATA COMMON STOCK WILL BE ISSUED TO ANY
HOULIHAN'S STOCKHOLDER UPON CONSUMMATION OF THE MERGER. FOR EACH FRACTIONAL
SHARE THAT WOULD OTHERWISE BE ISSUED, ZAPATA WILL PAY AN AMOUNT IN CASH (WITHOUT
INTEREST), ROUNDED TO THE NEAREST CENT, DETERMINED BY MULTIPLYING THE MARKET
VALUE BY THE FRACTIONAL INTEREST TO WHICH SUCH HOLDER WOULD OTHERWISE BE
ENTITLED (AFTER TAKING INTO ACCOUNT ALL SHARES OF HOULIHAN'S COMMON STOCK THEN
HELD OF RECORD BY SUCH HOLDER).
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APPRAISAL RIGHTS
Section 262 of the DGCL (a copy of which is attached as Appendix D)
entitles any stockholder of record of Houlihan's who objects to the Merger and
who follows the procedures prescribed by Section 262 to receive, in lieu of
receiving the consideration proposed under the Merger Agreement, cash equal to
the fair value of such stockholder's shares as determined by appraisal. Set
forth below is a summary of the procedures relating to the exercise of appraisal
rights. Houlihan's stockholders are urged to read Appendix D hereto for a
complete statement of the provisions of Section 262.
Houlihan's stockholders who follow the procedures set forth in Section 262
may receive a cash payment equal to the fair value of their shares of Houlihan's
Common Stock upon consummation of the Merger, exclusive of any appreciation or
depreciation in value arising from the anticipation or consummation of the
Merger. Houlihan's does not intend to waive compliance with any statutory
procedures. Unless all of the procedures as set out in Section 262 are followed
by a stockholder who wishes to exercise appraisal rights, such stockholder will
be bound by the terms of the Merger Agreement.
Each Houlihan's stockholder of record who desires to exercise appraisal
rights must satisfy the following conditions and otherwise comply with the
provisions of Section 262:
(i) A separate written demand for appraisal of shares of Houlihan's
Common Stock must be delivered to Houlihan's before the taking of the vote
on the Merger. This written demand must reasonably inform Houlihan's of the
identity of the stockholder and that such stockholder thereby demands
appraisal of its shares. A proxy or vote abstaining from voting, or voting
against the Merger, or a failure to vote on the Merger, does not constitute
such a demand for appraisal within the meaning of Section 262. Houlihan's
will treat only those written demands that are actually received by it
before the taking of the vote on the Merger as being timely.
(ii) A stockholder wishing to exercise his or her appraisal rights
under Section 262 must not vote for or consent to the approval and adoption
of the Merger Agreement or approval of the Merger. If a stockholder returns
a signed proxy failing to specify either (a) a vote against the approval
and adoption of the Merger Agreement and approval of the Merger or (b) a
direction to abstain from voting on the approval and adoption of the Merger
Agreement and approval of the Merger, the proxy will be voted for the
approval and adoption of the Merger Agreement and approval of the Merger,
which will have the effect of waiving that stockholder's appraisal rights
and nullifying any previously filed written demand for appraisal.
A demand for appraisal must be made by or for and in the name of the
stockholder of record, fully and correctly, as such stockholder's name appears
on the Houlihan's Common Stock certificates. Such demand cannot be made by the
beneficial owner if he does not also hold the shares of record. If the
Houlihan's Common Stock is owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, such demand must be executed by the fiduciary.
If the Houlihan's Common Stock is owned of record by more than one person, as in
a joint tenancy or tenancy in common, such demand must be executed by all joint
owners. An authorized agent, including an agent for two or more joint owners,
may execute the demand for appraisal for a stockholder of record; however, the
agent must identify the record owner and expressly disclose the fact that, in
exercising the demand, it is acting as agent for the record owner.
A record owner, such as a broker, who holds Houlihan's Common Stock as a
nominee for others may exercise its right of appraisal with respect to the
shares held for all or less than all beneficial owners of shares as to which it
is the record owner. In such case, the written demand must set forth the number
of shares as to which appraisal is sought. If the number of shares as to which
appraisal is sought is not expressly mentioned, the demand will be presumed to
cover all shares of Houlihan's Common Stock outstanding in the name of such
record owner. Persons whose shares are held by brokers or other nominees and who
desire to exercise dissenters' rights of appraisal should consider either (i)
arranging to have their shares transferred into their own names of record and
making the necessary written demand for appraisal or (ii) arranging to have
their broker or other nominee, as the case may be, take all of the steps
necessary to comply with Section 262.
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All written demands for appraisal, and any other written communications
which may be required to be given pursuant to the exercise of appraisal rights,
should be addressed and delivered to Corporate Secretary, Houlihan's Restaurant
Group, Inc., Two Brush Creek Boulevard, P.O. Box 16000, Kansas City, Missouri
64112, before the taking of the vote on the Merger Agreement and Merger. In
addition to informing Houlihan's of the identity of the stockholder and its
demand for appraisal of its shares, such demand should also specify the mailing
address of the stockholder and the number of shares of Houlihan's Common Stock
owned by the stockholder.
Within ten days after the Effective Date of the Merger, Sub, as the
surviving corporation in the Merger, must provide notice of the Effective Date
of the Merger to all stockholders who have complied with Section 262 and have
not voted for or consented to adoption of the Merger. At any time within 60 days
after the Effective Date of the Merger, any stockholder may withdraw its demand
for appraisal and accept the terms offered in the Merger Agreement; after this
60-day period, the stockholder may withdraw its demand for appraisal only with
the consent of Sub. In either event, the right of such stockholder to appraisal
ceases upon such withdrawal of demand.
Within 120 days after the Effective Date, either Sub, as the surviving
corporation in the Merger, or any stockholder who has complied with the
provisions of Section 262, as described above, may file a petition in the
Delaware Court of Chancery demanding a determination of the fair value of the
stock of all stockholders entitled to appraisal. If no petition for appraisal is
filed with the Court of Chancery within 120 days after the Effective Date,
stockholders' rights to appraisal will cease, and stockholders will become
entitled to receive the Default Consideration with respect to shares for which
demands for appraisal had theretofore been made.
If a petition for appraisal is timely filed and a copy thereof served upon
Sub, as the surviving corporation in the Merger, after a hearing on such
petition the Delaware Court of Chancery will determine which stockholders are
entitled to appraisal rights and will appraise the shares of Houlihan's Common
Stock owned by such stockholders, determining the fair value of such shares
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest to be paid, if any, upon
the amount determined to be the fair value.
In determining the fair value, the Delaware court will take into account
all relevant factors. In Weinberger v. UOP, Inc. et al., decided February 1,
1983, the Delaware Supreme Court expanded the factors that could be considered
in determining fair value in an appraisal proceeding, stating that "proof of
value by any techniques or methods which are generally considered acceptable in
the financial community and otherwise admissible in court" should be considered,
and that "fair price obviously requires consideration of all relevant factors
involving the value of a company . . . ." The Delaware Supreme Court stated that
in making this determination of fair value, the court must consider market
value, asset value, dividends, earnings prospects, the nature of the enterprise
and any other facts that could be ascertained as of the date of the merger that
throw any light on future prospects of the merged corporation. Section 262
provides that fair value is to be "exclusive of any element of value arising
from the accomplishment or expectation of the merger." In Weinberger, the
Delaware Supreme Court held that "elements of future value, including the nature
of the enterprise, which are known or susceptible of proof as of the date of the
merger and not the product of speculation, may be considered." Stockholders
considering seeking appraisal should be aware that the fair value of their
shares determined under Section 262 could be more, the same or less than the
consideration offered in the Merger and that investment banking opinions as to
fairness from a financial point of view are not necessarily opinions as to fair
value under Section 262.
The cost of the appraisal proceeding may be determined by the Court of
Chancery and assessed against the parties as the Court deems equitable under the
circumstances. Upon application of a dissenting stockholder, the Court may order
that all or a portion of expenses incurred by a dissenting stockholder in
connection with the appraisal proceeding, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts, be charged pro
rata against the value of all shares of Houlihan's Common Stock entitled to
appraisal.
Any stockholder who has duly demanded appraisal in compliance with Section
262 will not, after the Effective Date, be entitled to vote for any purpose the
shares of Houlihan's Common Stock subject to such
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demand or to receive payment of dividends or other distributions with respect to
the shares held by such holder, except for dividends or distribution payable to
stockholders of record at a date prior to the Effective Date.
A VOTE AGAINST THE APPROVAL OF ADOPTION OF THE MERGER AGREEMENT AND
APPROVAL OF THE MERGER WILL NOT BE DEEMED TO SATISFY THE REQUIREMENTS FOR A
WRITTEN DEMAND FOR PAYMENT OF THE FAIR VALUE OF THE SHARES OWNED BY A DISSENTING
HOULIHAN'S STOCKHOLDER.
TREATMENT OF STOCK OPTIONS
At the Effective Time, Houlihan's obligations with respect to each
Houlihan's Option under the Houlihan's Stock Option Plans, whether vested or
unvested, will be assumed by Zapata. Each Houlihan's Option so assumed by Zapata
shall continue to have, and be subject to, the same terms and conditions set
forth in the Houlihan's Stock Option Plan and agreement pursuant to which such
Houlihan's Option was issued as in effect immediately prior to the Effective
Time, except that (i) each Houlihan's Option granted under any Houlihan's Stock
Option Plan shall become fully vested and exercisable, (ii) each Houlihan's
Option shall be exercisable for that number of whole shares of Zapata Common
Stock equal to the product of the number of shares of Houlihan's Common Stock
covered by the Houlihan's Option immediately prior to the Effective Time
multiplied by the Exchange Ratio, rounded up to the nearest whole number of
shares of Zapata Common Stock and (iii) the per share exercise price for the
shares of Zapata Common Stock issuable upon the exercise of such Houlihan's
Option shall be equal to the quotient determined by dividing the exercise price
per share of Houlihan's Common Stock specified for such Houlihan's Option under
the applicable Houlihan's Stock Option Plan or agreement immediately prior to
the Effective Time by the Exchange Ratio, rounding the resulting exercise price
down to the nearest whole cent.
CONDITIONS TO THE MERGER
Conditions to Obligations of Each Party to Effect the Merger
The respective obligations of each party to effect the Merger are subject
to the satisfaction prior to the closing of the Merger (the "Closing") of the
following conditions:
Houlihan's Stockholder Approval. The Merger Agreement and the Merger shall
have been approved and adopted by the affirmative vote of the holders of a
majority of the outstanding shares of Houlihan's Common Stock entitled to vote
thereon.
Zapata Stockholder Approval. The Merger Proposal shall have been approved
by the affirmative vote of a majority of the combined votes of the outstanding
shares of Zapata Common Stock and Zapata $2 Preference Stock entitled to vote
and voting on the matter, voting together as a single class. Malcolm I. Glazer,
individually and as trustee of the Malcolm Glazer Trust, who beneficially owns
an aggregate of 10,395,384 shares, or approximately 35.2%, of outstanding Zapata
Common Stock (excluding 20,000 shares that may be acquired upon exercise of
options exercisable within 60 days of the Zapata Record Date), has granted the
Irrevocable Proxy to members of the Zapata Special Committee to vote all such
shares in connection with the Merger Proposal. The Zapata Special Committee has
determined to vote the shares of Zapata Common Stock subject to the Irrevocable
Proxy in the following manner:
(i) if a majority of the shares present and voting at the meeting
(other than shares owned by members of the Glazer Group) are voted in favor
of the Merger Proposal, all shares subject to the Irrevocable Proxy will be
voted in favor of the Merger Proposal; and
(ii) if a majority of the shares present and voting at the meeting
(other than shares owned by members of the Glazer Group) are voted in
opposition to the Merger Proposal, all shares subject to the Irrevocable
Proxy will be voted against the Merger Proposal.
See "Approval of the Merger and Related Transactions--Irrevocable Proxy and
Standstill Agreement."
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<PAGE> 62
Government Approvals. The waiting period applicable to the consummation of
the Merger under the HSR Act must have expired or been terminated, the
registration statement of which this Joint Proxy Statement/Prospectus is a part,
must have become effective under the Securities Act and must not be the subject
of any stop order or proceeding seeking a stop order, and Zapata must have
received all material securities or blue sky permits and other authorizations
necessary to issue the shares of Zapata Common Stock pursuant to the Merger
Agreement. See "Approval of the Merger and Related Transactions--Regulatory
Approvals."
Absence of Restraints. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Merger may be in effect at the Effective Time.
Listing of Zapata Common Stock. The shares of Zapata Common Stock issuable
to Houlihan's stockholders pursuant to the Merger Agreement shall have been
approved for listing on the NYSE, subject to official notice of issuance.
Credit Facility Resolution. The indebtedness outstanding under Houlihan's
credit facility (approximately $80.6 million at April 30, 1996) shall have been
refinanced or otherwise repaid. In connection with the refinancing of this
indebtedness, Houlihan's has received a proposal from a bank to provide up to
$50 million of a total $90 million in senior secured facilities, contingent upon
receiving commitments from financial institutions for the remaining $40 million.
The proposed new senior secured facilities would consist of a $50 million
revolving credit facility with a five-year availability period for purposes of
refinancing outstanding debt and providing working capital and a $40 million
term loan with a 2.9-year average life and five-year final maturity to refinance
outstanding indebtedness. The proposed facilities would have financial and other
covenants similar to those of Houlihan's existing credit facility. Under the
proposal, Zapata would be required to guarantee the facility and could also be
required to comply with financial covenants to be agreed upon.
Baker & Botts, L.L.P. Opinion. Zapata and Houlihan's shall have received
the legal opinion of Baker & Botts, L.L.P., dated the date of the Closing,
reasonably satisfactory in form and substance to Houlihan's and its counsel and
to Zapata, to the effect that the Merger will be treated for federal income tax
purposes as a reorganization qualifying under the provisions of Section 368(a)
of the Code. See "Approval of the Merger and Related Transactions--Certain
Federal Income Tax Consequences."
Additional Conditions to Obligations of Zapata and Sub
The obligations of Zapata and Sub to effect the Merger are subject to the
satisfaction of certain other conditions, including Houlihan's having obtained
all material consents, waivers, approvals, authorizations or orders required to
be obtained by Houlihan's for the consummation of the Merger.
Additional Conditions to Obligations of Houlihan's
The obligations of Houlihan's to effect the Merger are subject to the
satisfaction of certain other conditions, including (i) that Zapata shall have
taken action, effective immediately after the Effective Time, to appoint
Frederick R. Hipp and Warren H. Gfeller (or substitute designees by Houlihan's)
to Zapata's Board of Directors and (ii) Zapata's having offered employment to
William W. Moreton as Executive Vice President and Chief Financial Officer of
Zapata pursuant to the terms of an employment agreement. See "--Certain
Employment and Indemnification Arrangements."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties by
each of Zapata, Sub and Houlihan's relating to, among other things, (i) the
organization and foreign qualification of it and certain of its subsidiaries,
(ii) its capital structure, (iii) authorization, execution, delivery,
performance and enforceability of the Merger Agreement and related matters, and
the absence of conflicts, violations of or defaults or accelerations under its
governing documents and material agreements, (iv) the absence of any material
adverse change or undisclosed material liabilities, (v) compliance with certain
laws, (vi) truth and correctness
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<PAGE> 63
of documents and reports filed with the Commission and (vii) with respect to
Sub, the absence of interim operations of Sub.
CERTAIN COVENANTS; CONDUCT OF BUSINESS
During the period from the date of the Merger Agreement and continuing
until the Effective Time, each of Zapata and Houlihan's has agreed as to itself
and its subsidiaries that it will: (i) carry on its business in the ordinary
course of business consistent with past practice; (ii) not adopt any amendment
to its charter or bylaws; (iii) not issue, reissue, sell or pledge or authorize
or propose the issuance, reissuance, sale or pledge of shares of capital stock,
or securities convertible into capital stock, or any rights, warrants or options
to acquire any convertible securities or capital stock, other than issuances of
shares of capital stock upon the exercise or conversion of securities
outstanding on the date of the Merger Agreement and certain issuances involving
subsidiaries; (iv) not declare, set aside or pay any dividends on or make other
distributions in respect of any of its capital stock, except for certain
permitted intercompany transactions; (v) not adjust, split, combine, subdivide,
reclassify or redeem, purchase or otherwise acquire, or propose to redeem or
purchase or otherwise acquire, any shares of capital stock; (vi) not incur,
assume or pre-pay any debt, except as previously disclosed, or assume, guarantee
or otherwise become liable for the obligations of another person, or make any
loans, advances or capital contributions to, or investments in, any other
person, except in the ordinary course of business; (vii) not settle or
compromise any pending or threatened suit or claim relating to the transactions
contemplated by the Merger Agreement or involving the payment of more than
$500,000 in cash or property; (viii) not grant any increases in the compensation
of any of its employees, except increases to non-executive officer employees in
the ordinary course of business consistent with past practice, or establish,
enter into, terminate or amend any employee benefit plan, except to the extent
required by law; (ix) not acquire, sell, lease or dispose of any material
assets; (x) not modify, amend, terminate, release or assign any material
agreement other than in the ordinary course consistent with past practice; (xi)
not make any material tax election not required by law or settle or compromise
any material tax liability, except as previously disclosed; and (xii) not change
any material accounting principle or practice except as required by the
Commission and the Financial Accounting Standards Board.
CERTAIN EMPLOYMENT AND INDEMNIFICATION ARRANGEMENTS
The Merger Agreement provides that as a condition to Houlihan's obligation
to consummate the Merger, Zapata offer to employ William W. Moreton, currently
Executive Vice President and Chief Financial Officer of Houlihan's, as Executive
Vice President and Chief Financial Officer of Zapata on terms providing
generally for a minimum annual salary of $250,000 (to be reviewed annually), an
annual bonus and for indemnification by Zapata of Mr. Moreton to the fullest
extent permitted by law for all losses, costs, damages and expenses incurred by
Mr. Moreton in connection with his service as an executive officer of Zapata.
Zapata has agreed that immediately following the Merger, Warren H. Gfeller,
currently a director of Houlihan's, and Frederick R. Hipp, currently the
President and Chief Executive Officer of Houlihan's, will be added to the Zapata
Board of Directors.
The Merger Agreement also generally requires Zapata to continue or
otherwise maintain, for two years after the Merger, certain employee benefit
plans of Houlihan's on terms no less favorable, in the aggregate, than the most
favorable of (i) those applicable to Zapata's employees, (ii) those applicable
to Houlihan's employees on the date of the Merger Agreement and (iii) plans
reasonably competitive in the industry. In addition, Zapata has agreed to (a)
honor all of Houlihan's existing employment, severance, termination and
indemnification agreements in accordance with their terms, (b) for a period of
two years after the Merger, honor all of Houlihan's severance plans and
policies, (c) waive any pre-existing condition limitations with respect to
employees of Houlihan's as of the Effective Time, (d) treat employees of
Houlihan's as of the Effective Time as similarly situated employees of Zapata
with respect to post-retirement plans and policies and (e) treat service with
Houlihan's as service with Zapata for purposes of employee benefit plans. The
Merger Agreement also provides that at the Effective Time, each share of
Houlihan's Common Stock subject to restrictions on transfer will become fully
vested and freely transferrable and will be exchanged for unrestricted shares of
Zapata Common Stock.
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<PAGE> 64
With respect to indemnification, the Merger Agreement provides that
following the Merger, Zapata will cause Sub to maintain for a period of six
years from the Effective Time the provisions contained in Houlihan's Restated
Certificate of Incorporation relating to indemnification with respect to
directors and officers of Houlihan's as of the Effective Time. Zapata has also
agreed to provide directors' and officers' liability insurance with comparable
coverage (with respect to occurrences prior to the Effective Time) as that
maintained by Houlihan's as of the date of the Merger Agreement for a period of
six years after the Effective Time, and to indemnify officers and directors of
Houlihan's serving as of the Effective Time against all losses, claims and
expenses arising out of each such officer's or director's service to Houlihan's
at or prior to the Effective Time, to the fullest extent allowed by law.
ADDITIONAL AGREEMENTS
Pursuant to the Merger Agreement, Zapata and Houlihan's have agreed that
(i) Zapata will use its reasonable best efforts to (a) have the Registration
Statement declared effective as promptly as practicable and (b) obtain all
necessary state securities laws or "blue sky" permits, approvals and
registrations; (ii) each will use its reasonable best efforts to have timely
delivered to the other "comfort" letters from its independent public
accountants; (iii) each will each afford to the other access to its respective
officers, properties and other information as the other party may reasonably
request; (iv) each will call a meeting of its stockholders to be held as
promptly as practicable; (v) each will comply with all legal requirements
imposed on it with respect to the Merger and furnish information to the other in
connection with such legal requirements; (vi) Zapata will take all corporate
action necessary to permit it to issue shares of Zapata Common Stock pursuant to
the Merger Agreement and will use all reasonable efforts to have such shares
approved for listing on the NYSE, subject to official notice of issuance; (vii)
each agrees to certain employee benefit matters; (viii) Zapata will assume the
Houlihan's Options; (ix) Zapata will, subject to certain limitations, maintain
indemnification for directors and officers of Houlihan's; (x) each will
cooperate and consult with the other regarding press releases and other
announcements regarding the Merger; and (xi) neither will take nor omit to take
any action that would affect the qualification of the Merger as a reorganization
described in Section 368(a) of the Code.
EXPENSES AND TERMINATION FEE
Except for Compensable Expenses (as defined below), whether or not the
Merger is consummated, all costs and expenses incurred in connection with the
Merger Agreement and the transactions contemplated thereby will be paid by the
party incurring such expenses.
The Merger Agreement also provides that Houlihan's will reimburse Zapata
for its reasonable and documented expenses incurred in connection with pursuing
the transactions contemplated by the Merger Agreement ("Compensable Expenses")
(not to exceed $2,000,000) if (i) Houlihan's accepts a proposal for or otherwise
engages in a merger, acquisition or other change in control transaction with a
person other than Zapata or Sub or (ii) Houlihan's Board of Directors or the
Houlihan's Special Committee shall have withdrawn or modified, in any manner
adverse to Zapata, its recommendation for approval of the Merger Agreement and
the Merger.
AMENDMENT, WAIVER AND TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, whether before or after approval of the
matters presented in connection with the Merger by the stockholders of Zapata
and Houlihan's:
(i) by mutual written consent of Zapata and Houlihan's by action of
their respective Boards of Directors or special committees thereof;
(ii) by either Zapata or Houlihan's if the Merger shall not have been
consummated by October 1, 1996 (provided that the right to terminate the
Merger Agreement shall not be available to any party whose failure to
fulfill any obligation under the Merger Agreement has been the cause of or
resulted in the failure of the Merger to occur and such failure constitutes
a breach under the Merger Agreement);
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<PAGE> 65
(iii) by either Zapata or Houlihan's if a court of competent
jurisdiction shall have issued an injunction permanently restraining,
enjoining or otherwise prohibiting consummation of the Merger, which
injunction has become final and non-appealable;
(iv) by Houlihan's if it accepts an acquisition proposal from another
person and reimburses Zapata for its Compensable Expenses;
(v) by Zapata if Houlihan's Board of Directors or the Houlihan's
Special Committee thereof shall have withdrawn or modified, in a manner
adverse to Zapata, its recommendation for approval of the Merger Agreement
and the Merger;
(vi) by Houlihan's if the Zapata Special Committee shall have
withdrawn or modified, in a manner adverse to Houlihan's, its
recommendation for approval of the Merger Proposal;
(vii) by either Zapata or Houlihan's if any of the conditions to their
respective obligations to consummate the Merger have not been satisfied; or
(viii) by Zapata if more than 1,000,000 shares of Houlihan's Common
Stock have dissented from the Merger as of the Closing.
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<PAGE> 66
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed balance sheet and
unaudited pro forma combined condensed income statements (collectively, the "Pro
Forma Financial Statements") give effect to (i) the Merger under the purchase
method of accounting and (ii) the Envirodyne Stock Purchases. The pro forma
combined condensed balance sheet of Zapata at June 30, 1996 sets forth the
historical financial position of Zapata and Houlihan's as if the Merger and the
Third Envirodyne Stock Purchase had been consummated on June 30, 1996. The pro
forma combined condensed income statements of Zapata for the nine months ended
June 30, 1996 and June 30, 1995 and for the twelve months ended September 30,
1995 reflect the historical results of Zapata and of Houlihan's for such periods
as if the Merger and the Envirodyne Stock Purchases had been consummated on
October 1, 1994. Houlihan's historical balance sheet is as of June 24, 1996 and
its historical income statements are for the nine months ended June 24, 1996 and
June 26, 1995, and the twelve months ended September 25, 1995. The Pro Forma
Financial Statements should be read in conjunction with the historical
consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contained in
Zapata's and Houlihan's Annual Reports on Form 10-K for the years ended
September 30, 1995 and December 25, 1995, respectively, which are incorporated
by reference in this Joint Proxy Statement/Prospectus.
The Pro Forma Financial Statements set forth below may not be indicative of
what the actual results of operations would have been had the transaction
occurred on the date indicated or that may be obtained in the future. Zapata has
not completed the appraisals and evaluation necessary for the final purchase
price allocation related to the Merger; accordingly, actual adjustments that
reflect appraisals and other evaluations of the purchased assets and assumed
liabilities may differ from the pro forma adjustments. The results of Houlihan's
will be included with Zapata's results from the closing date of the Merger.
61
<PAGE> 67
ZAPATA CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA PRO FORMA
ZAPATA ENVIRODYNE TOTAL BEFORE HISTORICAL MERGER PRO FORMA
CORPORATION STOCK PURCHASE THE MERGER HOULIHAN'S ADJUSTMENTS TOTAL
----------- -------------- ------------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents... $ 103,378 $ (3,589)(1) $ 99,789 $ 11,600 $ (39,992)(2) $ 68,877
(2,520)(2)
Other current assets........ 44,391 -- 44,391 7,112 (680)(2) 50,823
-------- -------- -------- -------- -------- --------
Total current
assets.............. 147,769 (3,589) 144,180 18,712 (43,192) 119,700
-------- -------- -------- -------- -------- --------
Investments and other
assets...................... 45,595 3,589 (1) 49,184 65,949 71,767 (3) 124,279
(60,283)(3)
(2,338)(2)
Property and equipment, net... 41,443 -- 41,443 105,667 147,110
-------- -------- -------- -------- -------- --------
Total assets.......... $ 234,807 $ -- $234,807 $190,328 $ (34,046) $391,089
======== ======== ======== ======== ======== ========
Current liabilities:
Current maturities of
long-term debt............ $ 22,602 $ -- $ 22,602 $ 57,216 $ (53,500)(4) $ 26,318
Accounts payable and accrued
liabilities............... 19,513 -- 19,513 20,802 -- 40,315
-------- -------- -------- -------- -------- --------
Total current
liabilities......... 42,115 -- 42,115 78,018 (53,500) 66,633
-------- -------- -------- -------- -------- --------
Long-term debt................ 18,283 -- 18,283 26,168 53,500 (4) 97,951
-------- -------- -------- -------- -------- --------
Deferred income taxes and
other liabilities........... 17,649 -- 17,649 14,242 (2,338)(2) 29,753
200 (3)
-------- -------- -------- -------- -------- --------
Stockholders' equity:
Preference stock............ 3 -- 3 -- -- 3
Common stock................ 7,387 -- 7,387 100 (100)(2) 10,145
2,758 (2)
Capital in excess of par
value..................... 131,963 -- 131,963 59,900 (59,900)(2) 169,197
37,234 (2)
Reinvested earnings......... 17,407 -- 17,407 11,900 (11,900)(2) 17,407
-------- -------- -------- -------- -------- --------
156,760 -- 156,760 71,900 (31,908) 196,752
-------- -------- -------- -------- -------- --------
Total liabilities and
stockholders'
equity.............. $ 234,807 $ -- $234,807 $190,328 $ (34,046) $391,089
======== ======== ======== ======== ======== ========
</TABLE>
(The accompanying notes are an integral part of the Pro Forma Financial
Statements.)
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<PAGE> 68
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
The following notes set forth the assumptions used in preparing the
unaudited pro forma combined condensed balance sheet as of June 30, 1996.
(1) To record the Third Envirodyne Stock Purchase for a total purchase
price of $3,589,000.
(2) To record (i) the Merger for consideration consisting of
$39,992,000 cash and 11,032,289 shares of Zapata Common Stock at a market
value of $3.625 per share as of August 9, 1996 (the actual number of shares
of Zapata Common Stock issued in connection with the Merger will be
calculated based on the average of the closing price per share of Zapata
Common Stock on the NYSE for the 20 trading days immediately preceding the
fifth trading day prior to the date of the Houlihan's Special Meeting),
(ii) the reclassification to goodwill of $680,000 of advisory and other
fees associated with the Merger ("Merger Fees"), (iii) additional cash
consideration of $2,520,000 for additional estimated Merger Fees and (iv)
the reclassification of Zapata's tax asset of $2,338,000 to reduce
Houlihan's deferred tax liability.
(3) To record an estimated excess purchase price over net assets
acquired of $71,767,000 and to eliminate a $60,283,000 balance for the
reorganization value in excess of amounts allocable to identifiable assets
recorded on Houlihan's historical balance sheet. Based on a preliminary
review of the assets to be acquired and the liabilities to be assumed, the
fair market value of such assets and liabilities approximate historical
recorded values.
(4) Prior to or concurrent with the consummation of the Merger, the
Houlihan's bank credit facility is expected to be refinanced. The
adjustment reflects the anticipated current and long-term portion of the
new bank credit facility, as well as existing capitalized lease
obligations.
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<PAGE> 69
ZAPATA CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
NINE MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA PRO FORMA
ZAPATA ENVIRODYNE TOTAL BEFORE HISTORICAL MERGER PRO FORMA
CORPORATION STOCK PURCHASES THE MERGER HOULIHAN'S ADJUSTMENTS TOTAL
----------- --------------- ------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................. $60,273 $ -- $60,273 $ 202,071 $ -- $ 262,344
------- -------- ------- --------
Expenses:
Operating............... 45,336 -- 45,336 168,425 -- 213,761
Depreciation, depletion
and amortization..... 2,442 -- 2,442 11,424 2,690 (2) 13,817
-- (2,739)(2)
Selling, general and
administrative....... 5,232 -- 5,232 13,089 -- 18,321
------- -------- ------- --------
53,010 -- 53,010 192,938 (49) 245,899
------- -------- ------- --------
Operating income.......... 7,263 -- 7,263 9,133 49 16,445
------- -------- ------- --------
Other income (expense):
Interest expense, net... 138 -- 138 (4,927) -- (4,789)
Equity in loss of
unconsolidated
affiliate............ (2,841) (2,434)(1) (5,275) -- -- (5,275)
Other................... (613) -- (613) 2,129 584 (2) 2,100
------- -------- ------- --------
(3,316) (2,434) (5,750) (2,798) 584 (7,964)
------- -------- ------- --------
Income (loss) from
continuing operations
before taxes............ 3,947 (2,434) 1,513 6,335 633 8,481
------- -------- ------- --------
Provision (benefit) for
income taxes............ 1,554 (852)(1) 702 3,235 -- 3,937
------- -------- ------- --------
Income (loss) from
continuing operations... $ 2,393 $(1,582) $ 811 $ 3,100 $ 633 $ 4,544
======= ======== ======= ========
Per share data:
Income (loss) from
continuing
operations........... $ 0.08 $ (0.05) $ 0.03 $ 0.31 $ 0.11
======= ======== ======= ========
Average common and common
equivalent shares
outstanding............. 29,562 29,562 29,562 10,049 40,809(3)
======= ======== ======= ========
</TABLE>
(The accompanying notes are an integral part of the Pro Forma Financial
Statements.)
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<PAGE> 70
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
The following notes set forth the assumptions used in preparing the
unaudited pro forma combined condensed income statement for the nine months
ended June 30, 1996.
(1) To record additional equity interest in the results of operations
of Envirodyne as a result of the Envirodyne Stock Purchases. Zapata's
investment is accounted for under the equity method of accounting. Because
Envirodyne's financial statements are not available to Zapata on a timely
basis (primarily as a result of the different fiscal years of Zapata and
Envirodyne), Zapata reports its equity in Envirodyne's results of
operations on a three-month delayed basis.
(2) To record amortization of the purchase price in excess of net
assets acquired for the nine months ended June 30, 1996 totaling $2,690,000
related to the Merger, to reverse Houlihan's historical amortization
totaling $2,739,000 related to the reorganization value in excess of
amounts allocable to identifiable assets and to eliminate non-recurring
merger expenses of $584,000 incurred by Houlihan's prior to the Merger.
(3) Assumes the issuance of 11,032,289 shares of Zapata Common Stock
in connection with the Merger. The actual number of shares of Zapata Common
Stock issued in connection with the Merger will be calculated based on the
average of the closing price per share of Zapata Common Stock on the NYSE
for the 20 trading days immediately preceding the fifth trading day prior
to the date of the Houlihan's Special Meeting. Also includes 215,000 common
equivalent shares associated with Zapata's assumption of Houlihan's
obligations under Houlihan's Common Stock Option Plans in connection with
the Merger.
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<PAGE> 71
ZAPATA CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
NINE MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
HISTORICAL ENVIRODYNE PRO FORMA PRO FORMA
ZAPATA STOCK TOTAL BEFORE HISTORICAL MERGER PRO FORMA
CORPORATION PURCHASES THE MERGER HOULIHAN'S ADJUSTMENTS TOTAL
----------- ----------- ------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $68,793 $ -- $68,793 $ 202,204 $ -- $ 270,997
----------- ----------- ------------- ---------- ----------- ---------
Expenses:
Operating................. 56,391 -- 56,391 166,215 -- 222,606
Provision for asset
write-down............. 12,607 -- 12,607 -- -- 12,607
Depreciation, depletion
and amortization....... 4,978 -- 4,978 10,918 2,690 (2) 15,847
(2,739)(2)
Selling, general and
administrative......... 5,837 -- 5,837 12,583 -- 18,420
----------- ----------- ------------- ---------- ----------- ---------
79,813 -- 79,813 189,716 (49) 269,480
----------- ----------- ------------- ---------- ----------- ---------
Operating income (loss)..... (11,020) -- (11,020) 12,488 49 1,517
----------- ----------- ------------- ---------- ----------- ---------
Other income (expense):
Interest expense, net..... (1,067) -- (1,067) (5,745) -- (6,812)
Gain on sale of Tidewater
common stock........... 4,811 -- 4,811 -- -- 4,811
Equity in loss of
unconsolidated
affiliate.............. -- (1,281)(1) (1,281) -- -- (1,281)
Other..................... 453 -- 453 1,495 -- 1,948
----------- ----------- ------------- ---------- ----------- ---------
4,197 (1,281) 2,916 (4,250) -- (1,334)
----------- ----------- ------------- ---------- ----------- ---------
Income (loss) from
continuing operations
before taxes.............. (6,823) (1,281) (8,104) 8,238 49 183
----------- ----------- ------------- ---------- ----------- ---------
Provision (benefit) for
income taxes.............. (2,265) (448)(1) (2,713) 3,626 -- 913
----------- ----------- ------------- ---------- ----------- ---------
Income (loss) from
continuing operations..... $(4,558) $ (833) $(5,391) $ 4,612 $ 49 $ (730)
========= ========= ========= ======== ========= ========
Per share data:
Income (loss) from
continuing
operations............. $ (0.15) $ (0.02) $ (0.17) $ 0.46 $ (0.02)
========= ========= ========= ======== ========
Average common and common
equivalent shares
outstanding............... 31,120 31,120 31,120 9,998 42,379(3)
========= ========= ========= ======== ========
</TABLE>
(The accompanying notes are an integral part of the Pro Forma Financial
Statements.)
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<PAGE> 72
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
The following notes set forth the assumptions used in preparing the
unaudited pro forma combined condensed income statement for the nine months
ended June 30, 1995.
(1) To record the acquisition of an equity interest in the results of
operations of Envirodyne as a result of the Envirodyne Stock Purchases.
Because Envirodyne's financial statements are not available to Zapata on a
timely basis (primarily as a result of the different fiscal years of Zapata
and Envirodyne), Zapata reports its equity in Envirodyne's results of
operations on a three-month delayed basis.
(2) To record amortization of the purchase price in excess of net
assets acquired for the nine months ended June 30, 1995 totaling $2,690,000
related to the Merger and to reverse Houlihan's historical amortization
totaling $2,739,000 related to the reorganization value in excess of
amounts allocable to identifiable assets.
(3) Assumes the issuance of 11,032,289 shares of Zapata Common Stock
in connection with the Merger. The actual number of shares of Zapata Common
Stock issued in connection with the Merger will be calculated based on the
average of the closing price per share of Zapata Common Stock on the NYSE
for the 20 trading days immediately preceding the fifth trading day prior
to the date of the Houlihan's Special Meeting. Also includes 227,000 common
equivalent shares associated with Zapata's assumption of Houlihan's
obligation under Houlihan's Stock Option Plans in connection with the
Merger.
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ZAPATA CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
TWELVE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
HISTORICAL ENVIRODYNE PRO FORMA PRO FORMA PRO
ZAPATA STOCK TOTAL BEFORE HISTORICAL MERGER FORMA
CORPORATION PURCHASES THE MERGER HOULIHAN'S ADJUSTMENTS TOTAL
----------- ---------- ----------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues................. $ 103,068 $ -- $ 103,068 $268,534 $ -- $371,602
-------- -------- -------- ------- ------- --------
Expenses:
Operating.............. 86,739 -- 86,739 222,148 -- 308,887
Provisions for asset
write-downs......... 12,341 -- 12,341 -- -- 12,341
Depreciation, depletion
and amortization.... 5,607 -- 5,607 14,710 3,587 (2) 20,253
(3,651)(2)
Selling, general and
administrative...... 7,601 -- 7,601 16,912 -- 24,513
-------- -------- -------- ------- ------- --------
112,288 -- 112,288 253,770 (64) 365,994
-------- -------- -------- ------- ------- --------
Operating income
(loss)................. (9,220) -- (9,220) 14,764 64 5,608
-------- -------- -------- ------- ------- --------
Other income (expense):
Interest expense,
net................. (1,789) -- (1,789) (7,535) -- (9,324)
Gain on sale of
Tidewater common
stock............... 4,811 -- 4,811 -- -- 4,811
Equity in loss of
unconsolidated
affiliate........... (719) (1,498)(1) (2,217) -- -- (2,217)
Other.................. (2,106) -- (2,106) 1,963 -- (143)
-------- -------- -------- ------- ------- --------
197 (1,498) (1,301) (5,572) -- (6,873)
-------- -------- -------- ------- ------- --------
Income (loss) from
continuing operations
before taxes........... (9,023) (1,498) (10,521) 9,192 64 (1,265)
-------- -------- -------- ------- ------- --------
Provision (benefit) for
income taxes........... (3,179) (524)(1) (3,703) 4,123 -- 420
-------- -------- -------- ------- ------- --------
Income (loss) from
continuing
operations............. $ (5,844) $ (974) $ (6,818) $ 5,069 $ 64 $ (1,685)
======== ======== ======== ======= ======= ========
Per share data:
Income (loss) from
continuing
operations.......... $ (0.19) $ (0.03) $ (0.22) $ 0.51 $ (0.04)
======== ======== ======== ======= ========
Average common and common
equivalent shares
outstanding............ 30,706 30,706 30,706 9,998 41,966(3)
======== ======== ======== ======= ========
</TABLE>
(The accompanying notes are an integral part of the Pro Forma Financial
Statements.)
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<PAGE> 74
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
The following notes set forth the assumptions used in preparing the
unaudited pro forma combined condensed income statement for the twelve months
ended September 30, 1995.
(1) To record the acquisition of an equity interest in the results of
operations of Envirodyne as a result of the Envirodyne Stock Purchases.
Zapata's investment is accounted for under the equity method of accounting.
Because Envirodyne's financial statements are not available to Zapata on a
timely basis (primarily as a result of the different fiscal years of Zapata
and Envirodyne), Zapata reports its equity in Envirodyne's results of
operations on a three-month delayed basis.
(2) To record amortization of the purchase price in excess of net
assets acquired for fiscal 1995 totaling $3,587,000 related to the Merger
and to reverse Houlihan's historical amortization totaling $3,651,000
related to the reorganization value in excess of amounts allocable to
identifiable assets.
(3) Assumes the issuance of 11,032,289 shares of Zapata Common Stock
in connection with the Merger. The actual number of shares of Zapata Common
Stock issued in connection with the Merger will be calculated based on the
average of the closing price per share of Zapata Common Stock on the NYSE
for the 20 trading days immediately preceding the fifth trading day prior
to the date of the Houlihan's Special Meeting. Also includes 227,000 common
equivalent shares associated with Zapata's assumption of Houlihan's
obligations under Houlihan's Stock Option Plans in connection with the
Merger.
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<PAGE> 75
DESCRIPTION OF ZAPATA CAPITAL STOCK
The following is a description of the capital stock of Zapata as set forth
in the Zapata Restated Certificate of Incorporation.
The authorized capital stock of Zapata consists of 165,000,000 shares of
Zapata Common Stock, 2,000,000 shares of Preferred Stock and 18,000,000 shares
of Preference Stock, of which the Zapata $2 Preference Stock is the only series
outstanding. As of June 30, 1996, 29,548,707 shares of Zapata Common Stock, no
shares of Preferred Stock and 2,627 shares of Zapata $2 Preference Stock were
outstanding. The following description of the capital stock of Zapata does not
purport to be complete and is subject to the more complete descriptions thereof
set forth in Zapata's Restated Certificate of Incorporation and By-laws.
COMMON STOCK
The holders of Zapata Common Stock are entitled to one vote per share,
voting with the holders of any other class of stock entitled to vote, without
regard to class, on all matters to be voted on by the stockholders of Zapata,
including the election of directors. All issued and outstanding shares of Zapata
Common Stock are fully paid and nonassessable. The Zapata Common Stock currently
is listed on the NYSE.
Subject to the prior and superior rights of any series of the Preferred
Stock or the Preference Stock, the holders of Zapata Common Stock are entitled
to receive dividends when, as and if declared by the Zapata Board of Directors
from funds legally available therefor. So long as any shares of Preferred Stock
or Preference Stock are outstanding, Zapata may not pay or declare any
dividends, whether in cash, stock or otherwise, or make any distribution on the
Zapata Common Stock, unless (i) all dividends on the Preferred Stock of all
series for all past quarterly dividend periods shall have been paid or declared
and a sum sufficient for the payment thereof set apart and the full dividends
for the then-current quarterly dividend period have been paid or declared and
(ii) all dividends on the Preference Stock of all series for all past dividend
periods and the then-current quarterly dividend period shall have been paid or
declared and a sum sufficient for the payment thereof set apart if and to the
extent that the Zapata Restated Certificate of Incorporation or a designating
resolution adopted by the Zapata Board of Directors (a "Designation Resolution")
grants such series preferential dividend rights with respect to the Zapata
Common Stock. The Zapata $2 Preference Stock has such rights that are prior and
superior to the Zapata Common Stock only with respect to the then-current
quarterly dividend period.
In the event of any liquidation, dissolution or winding up of the affairs
of Zapata, the holders of Zapata Common Stock are entitled to receive, pro rata,
any assets of Zapata remaining after payment has been made in full (i) to the
holders of the Preferred Stock of the liquidation price established for such
stock, plus an amount equal to any dividends accrued thereon and paid to the
payment date and (ii) to the holders of the Preference Stock of each series of
the liquidation price, if any, established for such series, plus, if so provided
in the Zapata Restated Certificate of Incorporation or the applicable
Designation Resolution, an amount equal to any dividends accrued thereon and
unpaid to the payment date for which the holders of stock of such series shall
have rights that are in such instances prior and superior to those of the
holders of Zapata Common Stock. The holders of the Zapata $2 Preference Stock
are entitled to receive only the liquidation price established therefor prior to
such a distribution to the holders of Zapata Common Stock.
PREFERRED STOCK
The Preferred Stock may be issued in one or more series as may be
established and designated from time to time by the Zapata Board of Directors.
Zapata's Restated Certificate of Incorporation authorizes the Zapata Board of
Directors to establish and designate any unissued shares of Preferred Stock as a
new series of such stock with such rights and preferences as are provided in
Zapata's Restated Certificate of Incorporation or, to the extent not stated
therein, adopted by resolution of the Zapata Board of Directors in a Designation
Resolution. If any such Preferred Stock were issued, it would rank senior to the
Zapata Common Stock and the Preference Stock with respect to dividends and
liquidation rights and would rank on a parity with each other share of Preferred
Stock.
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No dividends may be declared or paid or set apart for payment for the
Preferred Stock of any series unless at the same time a dividend in like
proportion to the accrued and unpaid dividends upon the Preferred Stock of each
other series is declared or paid or set apart for payment, as the case may be,
on Preferred Stock of each other series then outstanding. So long as any shares
of Preferred Stock are outstanding, Zapata may not pay or declare any dividends,
whether in cash, stock or otherwise, on, or make any distribution of assets upon
liquidation in respect of, or purchase or retire or otherwise acquire for a
consideration, any shares of stock ranking junior to the Preferred Stock in
respect of dividends or assets, unless all dividends on the Preferred Stock of
all series for all past quarterly dividend periods shall have been paid or
declared and a sum sufficient for the payment thereof set apart, and the full
dividends thereon for the then-current quarterly dividend period shall have been
paid or declared.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of Zapata, holders of Preferred Stock are entitled to
receive the liquidation price established for such stock, plus an amount equal
to any accrued and unpaid dividends to the payment date, before any distribution
is made to the holders of Preference Stock or Zapata Common Stock. The holders
of all series of Preferred Stock are entitled to share ratably, in accordance
with the respective amounts payable thereon, in any such distribution which is
not sufficient to pay in full the aggregate of the amounts payable thereon.
The holders of Preferred Stock are entitled to such voting rights as may be
provided by the Zapata Board of Directors in a Designation Resolution. The
holders of Preferred Stock have special voting rights with respect to certain
matters affecting the powers, preferences and privileges of the Preferred Stock
of each respective series.
PREFERENCE STOCK
The Preference Stock may be issued in one or more series, consisting of (i)
the Zapata $2 Preference Stock and (ii) such other series as may be established
and designated from time to time by the Zapata Board of Directors. The rights
and preferences of the Zapata $2 Preference Stock are fixed and determined by
the Zapata Restated Certificate of Incorporation. The Zapata Board of Directors
is authorized to establish and designate any unissued shares of Preference Stock
as additional shares of any existing series of such stock or as a new series of
such stock with such voting, dividend, redemption, conversion, liquidation and
other provisions as are provided in the Zapata Restated Certificate of
Incorporation or, to the extent not stated therein, adopted by the Zapata Board
of Directors in a Designation Resolution. As of July 17, 1996, 2,627 shares of
Zapata $2 Preference Stock were outstanding. No other shares of Preference Stock
were outstanding as of that date.
Subject to the prior rights of the holders of any outstanding Preferred
Stock, the holders of the Preference Stock of each series shall be entitled to
receive dividends, when, as and if declared by the Zapata Board of Directors,
out of any funds legally available therefor. Zapata, at the option of the Zapata
Board of Directors, may redeem the Preference Stock of any series, at the time
or times and at the price or prices fixed for such series, upon notice duly
given as provided in the Zapata Restated Certificate of Incorporation.
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of Zapata, holders of Preference Stock are entitled to receive such
rights as may be fixed for the series. The holders of all series of Preference
Stock are entitled to share ratably, in accordance with the respective amounts
payable thereon, in any such distribution which is not sufficient to pay in full
the aggregate of the amounts payable thereon. The holders of Preference Stock
have special voting rights with respect to certain matters affecting the powers,
preferences and privileges of the Preference Stock of each respective series.
$2 Preference Stock
The Zapata $2 Preference Stock ranks senior to Zapata Common Stock and
junior to Preferred Stock with respect to dividends and liquidation rights.
Subject to the prior and superior rights of the Preferred Stock, the holders of
the Zapata $2 Preference Stock are entitled to receive, when, as and if declared
by the Zapata Board of Directors, noncumulative cash dividends payable quarterly
on the first day of January, April, July and October at the annual rate of $2.00
per share from funds legally available therefor. So long as any Zapata $2
Preference Stock remains outstanding, no dividend may be declared or paid upon
or set apart for any class of
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<PAGE> 77
stock or series thereof ranking junior to the Zapata $2 Preference Stock in the
payment of dividends, nor may any shares of any class of stock or series thereof
ranking junior to the Zapata $2 Preference Stock in payment of dividends be
redeemed or purchased by Zapata or any subsidiary thereof, nor may any moneys be
paid to or made available for a sinking fund for the redemption or purchase of
any shares of any class of stock or series thereof ranking junior to the Zapata
$2 Preference Stock in payment of dividends, unless in each instance dividends
on all outstanding shares of Zapata $2 Preference Stock for the then-current
quarterly dividend period have been paid or declared and sufficient funds set
aside for the payment thereof.
No dividend may be declared on any share or shares of any other series of
Preference Stock or any other class of stock or series thereof ranking on a
parity with the Zapata $2 Preference Stock in respect of payment of dividends
unless there has been declared on all shares then outstanding of the Zapata $2
Preference Stock, for the same dividend period, or for the dividend period of
the Zapata $2 Preference Stock terminating within the dividend period of such
parity stock, like proportionate dividends, ratably, in proportion to the Zapata
$2 Preference Stock and such parity stock. No shares of any other series of
Preference Stock or of any such other class or series ranking on a parity with
the Zapata $2 Preference Stock in respect of payment of dividends may be
redeemed or purchased by Zapata or any subsidiary thereof nor may any moneys be
paid to or made available for a sinking fund for any such redemption or purchase
unless dividends at the rate fixed for the Zapata $2 Preference Stock for the
then current dividend period have been paid or declared and sufficient funds set
aside for payment thereof.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of Zapata, after payment of the debts and other liabilities of Zapata
and any preferential amounts due to holders of Preferred Stock, the holders of
Zapata $2 Preference Stock are entitled to receive a liquidation price of $30
per share before any distribution may be made to the holders of Zapata Common
Stock or any other class of stock or series thereof ranking junior to the Zapata
$2 Preference Stock with respect to the distribution of assets.
In addition to their right to vote with the holders of any other class of
stock entitled to vote, without regard to class, on all matters to be voted on
by the stockholders of Zapata, including the election of directors, the holders
of the Zapata $2 Preference Stock have special voting rights with respect to
certain matters affecting the powers, preferences and privileges of such stock.
The Zapata Restated Certificate of Incorporation provides that the number of
directors constituting the Zapata Board of Directors will be increased by two,
and the holders of the Zapata $2 Preference Stock will have, in addition to
their other voting rights, the exclusive right, voting separately as one class,
to elect two directors to fill such newly created directorships if at any time
the equivalent of six or more full quarterly dividends (whether or not
consecutive) payable on such stock is in default. This right remains vested
until dividends on the Zapata $2 Preference Stock have been paid for at least
four consecutive quarters since the vesting of such right, at which time it will
terminate, subject to revesting. Beginning with the dividend payable for the
first quarter of fiscal year 1995 and on each succeeding quarterly dividend
payment date thereafter, Zapata did not pay dividends then due on the Zapata $2
Preference Stock. Consequently, on April 1, 1996, the right of the holders of
Zapata $2 Preference Stock to elect two directors vested. As of the date of this
Joint Proxy Statement/Prospectus, the holders of the Zapata $2 Preference Stock
had not exercised such right.
Each share of the Zapata $2 Preference Stock is currently convertible into
2.1 shares of Common Stock upon the terms and conditions specified in the Zapata
Restated Certificate of Incorporation. Subject to the prior rights of the
holders of any outstanding Preferred Stock, Zapata has the right, at its option,
to redeem at any time all or part of the shares of the Zapata $2 Preference
Stock outstanding, upon payment in cash of $80 per share.
CERTAIN PROVISIONS OF THE ZAPATA RESTATED CERTIFICATE OF INCORPORATION AND
BY-LAWS
No stockholder of Zapata has any preemptive or preferential right to
purchase or subscribe to any shares of any class of Zapata by reason of his
holding shares of any class. Cumulative voting in the election of directors is
not permitted. The Zapata Restated Certificate of Incorporation divides the
Board of Directors of Zapata into three classes as nearly equal in number as
possible, with one class of directors to be elected each year for a term ending
with the third succeeding annual meeting of stockholders. Zapata's By-laws
provide
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that the number of directors shall be fixed from time to time by a majority of
the members of the Zapata Board of Directors. The Zapata By-laws may be amended
by the affirmative vote of the holders of at least 80% of Zapata's outstanding
voting stock or by a vote of all of the members of the Zapata Board of
Directors.
Zapata's Restated Certificate of Incorporation requires the affirmative
vote of the holders of at least 80% of the outstanding voting stock of Zapata
entitled to vote in elections of directors to approve any of the following
transactions involving Zapata and any entity that beneficially owns at least
five percent of Zapata's voting stock (a "Five Percent Owner"): (a) a merger or
consolidation of Zapata, (b) any sale or lease of all or any substantial part of
the assets of Zapata or (c) any sale or lease to Zapata or any subsidiary
thereof of any assets having an aggregate fair market value of at least $2
million in exchange for voting securities (or securities convertible into voting
securities) of Zapata or any of its subsidiaries. The foregoing requirements do
not apply if the Zapata Board of Directors has approved a memorandum of
understanding with respect to such transaction before the time that the Five
Percent Owner acquired his 5% interest or if the transaction is between Zapata
and a subsidiary. See "The Zapata Annual Meeting--Vote Required; Abstentions and
Non-Votes" for information concerning this provision in connection with the
Merger.
The foregoing provisions respecting transactions with Five Percent Owners,
the classification of directors and voting requirements for an amendment to the
By-laws may not be amended without the affirmative vote of the holders of 80% of
the outstanding voting stock of Zapata. These provisions may deter any potential
unfriendly offers or other efforts to obtain control of Zapata that are not
approved by the Zapata Board of Directors and could thereby deprive the
stockholders of opportunities to realize a premium on their stock and could make
the removal of management more difficult. On the other hand, these provisions
may induce any persons seeking control of Zapata or a business combination with
Zapata to negotiate terms acceptable to the Zapata Board of Directors.
Prior to giving effect to the shares issuable in the Merger, Zapata has
approximately 135,023,532 authorized shares of Zapata Common Stock unreserved
and available for issuance. Except for the shares of Zapata Common Stock to be
issued in the Merger or pursuant to Zapata's employee benefit plans and
arrangements, there are no present arrangements, understandings or plans
regarding the issuance of shares of Zapata Common Stock, Preferred Stock or
Preference Stock. Under certain circumstances, any authorized shares that are
not issued or reserved for issuance could be used to create voting impediments
or to frustrate persons seeking to effect a takeover or otherwise gain control
of Zapata. Such shares could be privately placed with purchasers who might side
with the Zapata Board of Directors of Zapata in opposing a hostile takeover bid.
Furthermore, allowing for authorized but unissued shares might be considered as
having the effect of discouraging an attempt by another person or entity,
through the acquisition of a substantial number of shares, to acquire control of
Zapata with a view to imposing a merger, sale of all or any part of Zapata's
assets or a similar transaction, because the issuance of new shares could be
used to dilute the stock ownership of a person or entity seeking to obtain
control of Zapata.
Zapata's Restated Certificate of Incorporation limits the liability of
directors of Zapata (in their capacity as directors but not in their capacity as
officers) to Zapata or its stockholders to the fullest extent permitted by
Delaware law. Specifically, directors of Zapata will not be personally liable
for monetary damages for breach of a director's fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
Zapata or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, which relates to unlawful payments of dividends or
unlawful stock repurchases or redemptions, or (iv) for any transaction from
which the director derived an improper personal benefit.
Zapata's By-laws provide that any stockholder who intends to nominate any
person for election as a director at a meeting of Zapata's stockholders held for
such purpose must provide Zapata with advance notice of such intent. Such
stockholder must also provide information with respect to the nominee which is
required by the Commission to be included in proxy solicitations, as well as
information as to the stockholder's record ownership of Zapata Common Stock.
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DELAWARE GENERAL CORPORATION LAW
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, a corporation will not engage in any business combination
with any "interested stockholder" for a three-year period following the time
that such stockholder becomes an interested stockholder unless (i) prior to such
time, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder, (ii) upon consummation of the transaction that resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers and shares subject to employee stock purchase
plans in which employee participants do not have the right to determine
confidentially whether plan shares will be tendered in a tender or exchange
offer), or (iii) at or subsequent to such time, the business combination is
approved by the board of directors of the corporation and by the affirmative
vote at an annual meeting, and not by written consent, of at least 66 2/3% of
the outstanding voting stock which is not owned by the interested stockholder.
Except as specified in Section 203 of the DGCL, an interested stockholder is
defined to include (a) any person that is the owner of 15% or more of the
outstanding voting stock of the corporation or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation, at any time within three years immediately prior to the
relevant date and (b) the affiliates and associates of any such person.
Under certain circumstances, Section 203 of the DGCL may make it more
difficult for a person who would be an "interested stockholder" to effect
various business combinations with a corporation for a three-year period,
although the corporation's certificate of incorporation or stockholders may
elect to exclude a corporation from the restrictions imposed thereunder. The
Zapata Restated Certificate of Incorporation does not exclude Zapata from the
restrictions imposed under Section 203 of the DGCL. Because Malcolm I. Glazer
was an interested stockholder of Zapata more than three years prior to the date
of the Merger Agreement, the prohibitions of Section 203 of the DGCL are not
applicable to the participation by Zapata or Sub in the Merger.
COMPARATIVE RIGHTS OF STOCKHOLDERS
GENERAL
As a result of the Merger, holders of Houlihan's Common Stock will become
stockholders of Zapata and the rights of all such former Houlihan's stockholders
will thereafter be governed by the Zapata Restated Certificate of Incorporation,
the Zapata By-laws and the DGCL. The rights of the holders of Houlihan's Common
Stock are currently governed by the Houlihan's Restated Certificate of
Incorporation, the Houlihan's By-laws and the DGCL. The following summary, which
does not purport to be a complete statement of the general differences among the
rights of the stockholders of Zapata and Houlihan's, sets forth certain
differences between the Zapata Restated Certificate of Incorporation and the
Houlihan's Restated Certificate of Incorporation, the Zapata By-laws and the
Houlihan's By-laws. This summary is subject to the full text of each of such
documents and the DGCL. For information as to how such documents may be
obtained, see "Available Information."
INTERESTED STOCKHOLDER TRANSACTIONS
As described above, Section 203 of the DGCL governs business combinations
with "interested stockholders." Although the Zapata Restated Certificate of
Incorporation does not exclude Zapata from the restrictions imposed by Section
203, the Houlihan's Restated Certificate of Incorporation expressly provides
that Houlihan's shall not be governed by Section 203.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Delaware law provides that an amendment to a corporation's certificate of
incorporation must be approved by the board of directors and by the affirmative
vote of the holders of a majority of the outstanding
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stock entitled to vote. The Zapata Restated Certificate of Incorporation
provides that amendments to certain provisions (classification of directors,
amendment of by-laws and certain supermajority voting provisions) must be
approved by the affirmative vote of the holders of 80% of Zapata stock entitled
to vote generally in the election of directors.
AMENDMENT OF BY-LAWS
The Zapata By-laws provide that such By-laws may be altered or repealed,
and new by-laws adopted, either by the affirmative vote of the holders of record
of 80% or more of the issued and outstanding stock of Zapata entitled to vote
generally in the election of directors or by a vote of all of Zapata's
directors, subject to alteration or repeal by the stockholders. The Houlihan's
By-laws provide that such By-laws may be amended or repealed by the board at any
meeting or by the stockholders at any meeting so long as the By-laws do not
contain any provision inconsistent with the Houlihan's Restated Certificate of
Incorporation or the DGCL.
SPECIAL MEETINGS OF STOCKHOLDERS
The Zapata By-laws provide that a special meeting of stockholders may be
called at any time by Zapata's Chairman of the Board or by order of the Zapata
Board of Directors and shall be called by the Chairman of the Board or the Board
of Directors upon written request of stockholders holding at least 80% of the
outstanding shares entitled to vote at such meeting. The Houlihan's By-laws
provide that special meetings of stockholders may be called by the President or
by the Board of Directors of Houlihan's pursuant to a resolution adopted by a
majority of the entire Board or by the President at the request in writing of
stockholders owning more than 50% of the entire capital stock of Houlihan's
entitled to vote generally in the election of directors.
SPECIAL MEETINGS OF DIRECTORS
The Zapata By-laws provide that special meetings of the Zapata Board of
Directors may be held at any time upon the call of the Chairman of the Board and
Chief Executive Officer, the Secretary or any two directors of Zapata. The
Houlihan's By-laws provide that special meetings of the Houlihan's Board may be
called by one-third of the directors then in office (rounded up to the nearest
whole number) or by the President of Houlihan's.
NUMBER OF DIRECTORS
The Zapata By-laws provide that the number of directors on the Zapata Board
of Directors shall be fixed from time to time by a majority of the members of
the Zapata Board of Directors. The Zapata Restated Certificate of Incorporation
provides that Zapata's directors shall be divided into three classes serving
staggered three-year terms. In connection with the Merger, it is expected that
the size of the Zapata Board of Directors will be increased from five to seven
directors to permit the addition of two designees of Houlihan's as directors of
Zapata. See "Approval of the Merger and Related Transactions--Operations
Following the Merger" and "The Merger Agreement--Certain Employment and
Indemnification Arrangements." The Houlihan's By-laws provide that the
Houlihan's Board of Directors shall consist of seven members, with directors
serving concurrent terms of one year.
QUORUM
The Zapata By-laws provide that a majority of the directors in office
present at any regular or special meeting shall constitute a quorum, provided
that a quorum may not be less than one-third of the total number of directors
authorized. In general, a majority of the directors present at any meeting in
which there is a quorum shall be the valid act of the Zapata Board of Directors.
The Houlihan's By-laws provide that five directors shall constitute a quorum for
all purposes.
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REMOVAL OF DIRECTORS
Houlihan's Restated Certificate of Incorporation provides that Houlihan's
stockholders have the right to remove any director or the entire Houlihan's
Board of Directors at any time, with or without cause, upon the approval of a
majority of Houlihan's Common Stock outstanding. Zapata's Restated Certificate
of Incorporation provides that Zapata stockholders may remove one or more
members of the Zapata Board of Directors only for cause.
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<PAGE> 82
ADDITIONAL INFORMATION CONCERNING HOULIHAN'S
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 11, 1995, Houlihan's entered into an option agreement with First
Allied Tampa, which granted Houlihan's the exclusive right to operate a casual
dining restaurant in the existing Tampa Bay Buccaneers Football Stadium or in a
new Tampa Bay Stadium, if built. First Allied Tampa is wholly owned by the
Glazer Group, owners of 73% of Houlihan's stock on a fully diluted basis. After
performing due diligence, Houlihan's and First Allied Tampa mutually agreed to
terminate the option on February 6, 1995. Full return of all consideration paid
under the agreement occurred on April 28, 1995.
On October 13, 1995, Houlihan's entered into an Advertising and Sponsorship
Agreement (the "Advertising Agreement") with the Buccaneers Limited Partnership
for the exclusive naming rights to the Tampa Bay Buccaneers Football Stadium
(the "Stadium"). The Buccaneers Limited Partnership is 100% controlled by the
Glazer Group. The Advertising Agreement provides Houlihan's with the right to
name the Stadium "Houlihan's Stadium." Additionally, the Advertising Agreement
provides Houlihan's with advertising rights inside the Stadium and in Tampa Bay
Buccaneers programs and brochures. The Advertising Agreement is for a ten-year
period at a total cost of $10,000,000. The payment terms are $2,000,000 per year
for the first five years of the Advertising Agreement. Houlihan's made the first
payment under the Advertising Agreement on December 5, 1995. If the Tampa Bay
Buccaneers move to a new stadium and the Buccaneers Limited Partnership retains
the naming rights, the Advertising Agreement will continue. If the Buccaneers
Limited Partnership loses the naming rights, the Advertising Agreement will be
terminated and the monies paid by Houlihan's for future years will be refunded.
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<PAGE> 83
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF HOULIHAN'S
The following table indicates the number of shares of Houlihan's Common
Stock owned beneficially as of June 15, 1996 by (i) each person known to
Houlihan's to beneficially own more than 5% of the outstanding shares of
Houlihan's Common Stock, (ii) each Houlihan's director, (iii) the Chief
Executive Officer of Houlihan's and the other four most highly compensated
executive officers of Houlihan's and (iv) all directors and executive officers
of Houlihan's as a group. The following table also presents pro forma
information with respect to the Glazer Group's beneficial ownership of Zapata
Common Stock as a result of the Merger, assuming that the Market Value of the
Zapata Common Stock is $3.625 per share (the closing sales price on the NYSE on
August 9, 1996), resulting in the issuance of 11,032,289 shares of Zapata Common
Stock in the Merger.
<TABLE>
<CAPTION>
AMOUNT OF SHARES BENEFICIALLY OWNED
--------------------------------------------------------------------------------
PRO FORMA ZAPATA(1)
----------------------------------------------------
HOULIHAN'S MINIMUM(2) MAXIMUM(3)
------------------------ ------------------------ ------------------------
PERCENTAGE PERCENTAGE PERCENTAGE
BENEFICIAL OWNER(4) SHARES OF CLASS(5) SHARES OF CLASS SHARES OF CLASS
- -------------------------- --------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Glazer Group(6)........... 7,325,815 73.27% 15,530,411 38.27% 20,249,917 49.9%
1482 S. Ocean Blvd.
Palm Beach, FL 33480
Merrill Lynch & Co.,
Inc.(7)................. 1,154,769 11.55
World Financial Center, N.
Tower
250 Vesey Street
New York, NY 10281
Euram Management, Inc..... 502,596 5.03
One EAB Plaza
Uniondale, NY 11555
Warren H. Gfeller......... -- --
Frederick R. Hipp(8)...... 56,129 *
William W. Moreton(8)..... -- --
Henry C. Miller(8)........ -- --
Andrew C. Gunkler(8)...... -- --
Mark T. Walker(8)......... 1,000 *
All directors and officers
as a group (11
persons)................ 7,212,042 72.13
</TABLE>
- ---------------
* Less than 1% of outstanding Common Stock.
(1) For the Glazer Group, the number of shares of Zapata Common Stock and
percentage of class owned following the Merger will vary depending on the
Consideration Elections of Houlihan's stockholders other than the Glazer
Group. These figures represent the minimum and maximum number of shares of
Zapata Common Stock and percentage of class, respectively, that will be
owned by the Glazer Group following the Merger based on a Market Value of
$3.625 per share of Zapata Common Stock.
(2) Assumes all stockholders of Houlihan's other than members of the Glazer
Group exercise the Stock Election.
(3) Assumes all stockholders of Houlihan's other than members of the Glazer
Group exercise the Cash Election.
(4) Because Houlihan's is not subject to the provisions of Section 13(d) of the
Exchange Act, Houlihan's is unable to ascertain beneficial ownership based
on statements filed with the Commission pursuant to Section 13(d) or 13(g)
of the Exchange Act.
(5) Based on 9,998,012 shares of Houlihan's Common Stock outstanding.
(6) Includes Malcolm I. Glazer, Chairman of the Board of Directors, and his
sons, Avram A. Glazer, Kevin E. Glazer, Bryan G. Glazer and Joel M. Glazer,
each a director.
(7) Based on information contained in a Schedule 13G dated as of January 18,
1996.
(8) Excludes 300,000, 90,000, 82,000, 32,000 and 31,000 shares of Houlihan's
Common Stock subject to outstanding options granted to Messrs. Hipp,
Moreton, Miller, Gunkler and Walker, respectively.
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<PAGE> 84
ADDITIONAL PROPOSALS FOR A VOTE OF ZAPATA STOCKHOLDERS
PROPOSAL NO. 2
ELECTION OF DIRECTORS
Zapata's Restated Certificate of Incorporation, as amended, provides for
the classification of the Zapata Board of Directors into three classes (Class I,
Class II and Class III), having staggered terms of three years each. The current
term of office of directors in Class I expires at the Zapata Annual Meeting. The
terms of office of the directors in Classes II and III will expire at the annual
meetings of stockholders to be held in 1997 and 1998, respectively. At the
Zapata Annual Meeting, two Class I directors will be elected to serve for
three-year terms expiring at the 1999 annual meeting of stockholders.
It is the intention of the persons designated as proxies in the enclosed
proxy card, unless the proxy is marked with contrary instructions, to vote for
the election of Messrs. Malcolm I. Glazer and R. C. Lassiter as Class I
directors to serve until the 1999 annual meeting of stockholders and until their
successors have been duly elected and qualified. If either of these nominees
becomes unavailable for any reason, shares represented by such proxies will be
voted for such person or persons, if any, as may be designated by the Zapata
Board of Directors. At present, it is not anticipated that any nominee will be
unable to serve. Directors will be elected by a plurality of the votes cast.
THE ZAPATA BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED
BELOW.
NOMINEES
The following sets forth certain information with respect to the business
experience of each nominee during the past five years.
MALCOLM I. GLAZER, age 67, has been a director of Zapata since July 1993.
Mr. Glazer has served as Chairman of the Board of Directors of Zapata since July
1994, and served as President and Chief Executive Officer of Zapata from August
1994 until March 1995. Mr. Glazer has been a self-employed, private investor
whose diversified portfolio consists of investments in television broadcasting,
restaurants, restaurant equipment, food services equipment, health care,
banking, real estate, stocks, government securities and corporate bonds, for
more than the past five years. He is also the owner of the Tampa Bay Buccaneers,
a National Football League franchise. He is a director and Chairman of the Board
of Houlihan's and also is a director of Specialty and Envirodyne. Malcolm I.
Glazer is the father of Avram A. Glazer.
RONALD C. LASSITER, age 64, has been a director of Zapata since 1974. Mr.
Lassiter served as Acting Chief Operating Officer of Zapata from December 1994
to March 1995. He served as Chairman of the Board of Directors of Zapata from
December 1985 to July 1994, and Chief Executive Officer from January 1983 to
July 1994. From July 1994 until December 1994, he was Chairman and Chief
Executive Officer of Zapata Protein, Inc. In December 1994, Mr. Lassiter
withdrew from an active management role with Zapata Protein, Inc. as a result of
his participation in a group seeking to acquire that subsidiary. That proposed
acquisition was not consummated, and Mr. Lassiter resumed his active management
role as Chairman and Chief Executive Officer of Zapata Protein, Inc. pursuant to
the consulting agreement described under "Employment Agreements and Other
Incentive Plans." He has served in various positions with Zapata since 1970, and
he served as a director of Zapata Gulf Marine Corporation from November 1984 to
January 1992. In addition, Mr. Lassiter serves as Chairman of Daniel Industries,
Inc.
CONTINUING DIRECTORS
The following sets forth certain information with respect to all members of
the Zapata Board of Directors whose current terms will continue after the Zapata
Annual Meeting. Information is provided concerning the business experience of
each continuing director during the past five years and the other directorships
held by each continuing director. Unless otherwise indicated, each person has
had the same occupation for at least five years.
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<PAGE> 85
CLASS II DIRECTOR -- TERM EXPIRING 1997
AVRAM A. GLAZER, age 35, has been a director of Zapata since July 1993. Mr.
Glazer has served as President and Chief Executive Officer of Zapata since March
1995. Prior to that time, he was employed by, and worked on behalf of, Malcolm
I. Glazer and a number of entities owned and controlled by Malcolm I. Glazer,
including Florida Management Office, TV Management Office, Farmington Mobile
Home Park, Inc., Century Development Corporation d/b/a KGNS Laredo, and
Canandaigua Mobile Park. He also serves as a director of Houlihan's, Speciality,
and Envirodyne. Avram A. Glazer is a son of Malcolm I. Glazer.
CLASS III DIRECTORS -- TERM EXPIRING 1998
ROBERT V. LEFFLER, JR., age 50, has served as a director of Zapata since
May 1995. Mr. Leffler also has served as owner of the Leffler Agency, an
advertising and marketing/public relations firm based in Baltimore, Maryland
that specializes in sports, rental real estate and medical areas, for more than
the past five years. Among the clients of the Leffler Agency are the Tampa Bay
Buccaneers, owned by Malcolm I. Glazer.
W. GEORGE LOAR, age 73, has been a director of Zapata since May 1995. Mr.
Loar has been retired for the past six years from his position as Vice President
and General Manager of KQTV, a St. Joseph, Missouri ABC-affiliated television
station controlled by Malcolm I. Glazer.
ACTIONS IN CONNECTION WITH MERGER
The Merger Agreement provides that if the Merger is consummated, Warren H.
Gfeller, currently a director of Houlihan's, and Frederick R. Hipp, currently
the President and Chief Executive Officer of Houlihan's, will be appointed to
the Zapata Board of Directors. They will serve in Class II and Class III,
respectively. The following sets forth certain information with respect to the
business experience of Messrs. Gfeller and Hipp during the past five years.
WARREN H. GFELLER, age 43, has been a director of Houlihan's since
September 16, 1992. Mr. Gfeller is the owner of Clayton-Hamilton Equities and
was the President, Chief Executive Officer and a director of Ferrellgas, Inc. in
Liberty, Missouri from 1983 through 1991. He is also a director of Synergy Gas
Corp., the Kansas Wildscape Foundation, House Specialties Corporation, Gardner
Bancshares, Inc., and Stranger Valley Land Company.
FREDERICK R. HIPP, age 46, has been the President, Chief Executive Officer,
and a director of Houlihan's since August 1988. He has served as
President/Casual Dining Division of Houlihan's from June 1985 to August 1988 and
as Executive Vice President of Houlihan's from May 1980 to June 1985. Prior to
joining Houlihan's, Mr. Hipp served as President of Restaurant Data Systems,
Inc. from 1978 to 1980 and served in a number of operations and support
positions with the Steak & Ale Corporation from 1973 to 1978.
COMMITTEES OF THE ZAPATA BOARD OF DIRECTORS; ATTENDANCE AT MEETINGS
During fiscal 1995, the Zapata Board of Directors held eleven meetings.
During fiscal 1995, Committees of Zapata's Board of Directors included a
Compensation Committee, Nominating Committee, Executive Committee and Audit
Committee to oversee specific matters affecting Zapata and the Zapata Special
Committee and its predecessor special committee which acted in connection with
Zapata's acquisition of its investment in Envirodyne. The Zapata Board of
Directors elected to assume the responsibilities of the Executive Committee
effective December 15, 1995, and elected to assume the responsibilities of the
Compensation and Nominating Committees effective May 1996.
The Audit Committee currently is composed of Messrs. W. George Loar
(Chairman) and Robert V. Leffler, Jr. The Audit Committee held two meetings in
fiscal 1995. The Audit Committee meets with Zapata's independent accountants to
review Zapata's accounting policies, internal controls and other accounting and
auditing matters; makes recommendations to the Zapata Board of Directors as to
the engagement of independent accountants; and reviews the letter of engagement
and statement of fees relating to the scope of
80
<PAGE> 86
the annual audit and special audit work which may be recommended or required by
the independent accountants.
The Compensation Committee was composed of Messrs. Avram A. Glazer
(Chairman), R. C. Lassiter and Robert V. Leffler, Jr. during fiscal 1995. The
Compensation Committee held three meetings during fiscal 1995. The functions
performed by the Compensation Committee included reviewing Zapata's executive
salary and bonus structure; reviewing Zapata's stock option plans; recommending
directors' fees; setting bonus goals; and approving salary and bonus awards to
key executives.
The Nominating Committee was composed of Messrs. Malcolm I. Glazer and W.
George Loar during fiscal 1995. The Nominating Committee held two meetings
during fiscal 1995. The functions performed by the Nominating Committee included
proposing candidates to fill vacancies on the Zapata Board of Directors,
reviewing the structure and composition of the Zapata Board of Directors, and
considering qualifications requisite for continuing Board service.
The Zapata Special Committee currently is composed of Messrs. R.C.
Lassiter, Robert V. Leffler, Jr. and W. George Loar. See "Approval of the Merger
and Related Transactions--Background of the Merger--Background of Zapata's Entry
into the Merger Agreement" for a description of recent activities of the Zapata
Special Committee.
During the fiscal year ended September 30, 1995, each director of Zapata
attended at least 75% of the aggregate number of meetings of the Zapata Board of
Directors and respective committees on which he served.
COMPENSATION OF DIRECTORS
During the year ended September 30, 1995, those members of the Zapata Board
of Directors who were not employees of Zapata were paid an annual retainer of
$20,000, plus $1,000 for each committee of the Zapata Board of Directors on
which a member of the Zapata Board of Directors served. Effective April 1, 1995,
Zapata changed the payment schedule of directors' fees from an annual payment of
$20,000 to a quarterly retainer of $5,000. Those directors who also are Zapata
employees do not receive any additional compensation for their services as
directors.
Pursuant to Zapata's Amended and Restated Special Incentive Plan, each
nonemployee director of Zapata automatically receives, following initial
appointment or election to the Zapata Board of Directors, a grant of options to
purchase 20,000 shares of Zapata's Common Stock at the fair market value on the
date of the grant. Each such option is exercisable in three equal annual
installments after the date of the grant.
As members of the Zapata Special Committee appointed for purposes of
considering potential merger transactions with Houlihan's and Specialty, Mr.
Lassiter, Chairman of the Zapata Special Committee, was paid $20,000 and Messrs.
Leffler and Loar were paid $15,000 each for their work in evaluating the Merger.
In November 1993, Peter M. Holt and Zapata entered into a three-year
Consulting Agreement pursuant to which Zapata agreed to pay Mr. Holt an annual
consulting fee of $200,000 for the first year, $150,000 for the second year and
$130,000 for the third year. Pursuant to the Consulting Agreement, during the
first eighteen months of its term, Mr. Holt served in the capacity of Chairman
and Chief Executive Officer of the divisions or subsidiaries of Zapata engaged
in the natural gas compression business, and had the title of Chairman and Chief
Executive Officer. The Consulting Agreement provided that, commencing in May
1995 and for the remaining 18 months of the term of the Consulting Agreement,
Mr. Holt would serve as Chairman of such divisions and subsidiaries. Mr. Holt
also served as Chief Executive Officer of such divisions and subsidiaries. In
November 1995, Mr. Holt resigned from the Board of Directors of Zapata and from
all of his management and board positions with affiliates of Zapata, thereby
terminating Zapata's remaining obligations under the Consulting Agreement.
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<PAGE> 87
RESIGNATION OF DIRECTOR
Effective as of and by letter (the "Resignation Letter") dated November 16,
1995, Peter M. Holt resigned from the Zapata Board of Directors and from all of
his management and board positions with Zapata affiliates. The Resignation
Letter stated that Mr. Holt was resigning because of a disagreement with Zapata
on matters relating to Zapata's operations, policies and practices.
Specifically, the letter described Mr. Holt's disagreement with Zapata as a
disagreement regarding (i) the characterization of certain matters in Zapata's
November 13, 1995 proxy statement (the "November Proxy Statement") prepared in
connection with a special meeting of the Zapata's stockholders held on December
15, 1995 for the purpose of considering and voting upon the approval of the sale
of Zapata's natural gas compression business conducted by Energy Industries and
(ii) Zapata's implementation of its new strategic plan involving repositioning
Zapata in the food services business and exiting the energy business.
With regard to the November Proxy Statement, the Resignation Letter
asserted that certain disclosures contained therein required correction in order
to not be misleading. Specifically, the Resignation Letter asserted that: (i)
Zapata's new strategic plan to enter the food services business was not adopted
by Zapata's Board of Directors until September 20, 1995, and yet the November
Proxy Statement stated that the strategy had been in development since late 1994
and early 1995; (ii) Zapata had already identified its acquisition candidates
for expansion into the food services industry to be funded with the proceeds
from the sale of Energy Industries and that the failure to so state in the proxy
materials was misleading; and (iii) Zapata had failed to advise its stockholders
of what was meant by the words "new strategy" and "acquisitions in the food
service industry" in that, to the knowledge of Mr. Holt, the only acquisitions
that have been seriously considered by Zapata in furtherance of its new strategy
were acquisitions from Malcolm I. Glazer and his affiliates. With respect to the
last assertion, the Resignation Letter refers to the formation of the Zapata
Special Committee on September 20, 1995 for the purpose of considering the
possible investments in Houlihan's and Specialty. Malcolm Glazer or his
affiliates beneficially own substantial interests in those companies. See "Risk
Factors--Litigation--Litigation Involving a Former Director."
Zapata believes Mr. Holt's description of his disagreement with Zapata
contained in the Resignation Letter is both inaccurate and incomplete. Mr.
Holt's Resignation Letter asserted that Zapata's new strategy of departing the
energy industry and entering the food services industry was not presented to the
Zapata Board of Directors for a vote until the special meeting of the Zapata
Board of Directors held on September 20, 1995. Zapata notes, however, that at a
meeting of the Zapata Board of Directors held on May 5, 1995, the Zapata Board
of Directors, with Mr. Holt participating, approved the engagement of Schroder
Wertheim & Co. Incorporated ("Schroder Wertheim"), an investment banking firm,
as Zapata's financial advisor in connection with the sale of Zapata's then
primary energy-related assets, Energy Industries and Cimarron Gas Holding
Company, and the authorization of appropriate officers of Zapata to negotiate
terms and conditions of the sale of these businesses with viable bidders. At the
same May 5, 1995 meeting, Mr. Holt participated in a discussion by the directors
of the possibility that Zapata might purchase stock of Envirodyne. At a meeting
of the Zapata Board of Directors held on May 30, 1995, the Zapata Board of
Directors, with Mr. Holt participating, decided to form a special committee of
the Zapata Board of Directors to consider the acquisition of common stock of
Envirodyne from the Malcolm I. Glazer Trust. At the May 30, 1995 meeting of the
Zapata Board of Directors, Avram A. Glazer (Zapata's President and Chief
Executive Officer) made a presentation to the Zapata Board of Directors of a
plan to reposition Zapata into the food services business, including references
to potential acquisition candidates. Mr. Holt participated in this discussion,
from which there emerged a consensus among the members of the Zapata Board of
Directors to pursue the redirection of Zapata's business into the food services
industry, and Mr. Holt voiced no objection to the proposed redirection. The new
direction of Zapata was also discussed at length at Zapata's Annual Meeting of
Stockholders held on July 27, 1995, at which Mr. Holt was present. To the
knowledge of Zapata, Mr. Holt had not, prior to receipt of the Resignation
Letter, informed any member of the Zapata Board of Directors or executive
officer of Zapata that he objected to Zapata's proposed exit from the energy
business and redirection of its business into the food services industry.
In addition, Zapata also notes that on June 8, 1995 Mr. Holt and another
party submitted a non-binding indication of interest to acquire Energy
Industries. That proposal was not pursued by Zapata because it would
82
<PAGE> 88
have involved terms substantially less favorable to Zapata and its stockholders
than the Weatherford Enterra proposal. A portion of the offered consideration in
such proposal was the common stock of Zapata owned by Mr. Holt and his
affiliates, which the proposal would have valued at a premium over the market
price of the common stock.
Zapata also disagrees with Mr. Holt's assertion that the statements
contained in the November Proxy Statement regarding the use of proceeds of the
Energy Industries sale were misleading. The statements in the November Proxy
Statement regarding the use of proceeds are (i) that Zapata intended to use the
net proceeds of the Energy Industries sale for general corporate purposes, which
might include repayment of debt, and for future acquisitions which were expected
to be in the food services industry and (ii) that Zapata did not have any
current plans or proposals to use the proceeds of the Energy Industries sale for
specific acquisitions or joint ventures. Zapata continues to believe that these
statements were accurate when made.
In connection with Mr. Holt's resignation, Zapata also notes that : (1)
beginning no later than June 1995, Mr. Holt and his representatives have on
several occasions requested that Zapata repurchase all of the shares of Zapata
Common Stock owned by Mr. Holt and his affiliates in a private transaction at a
premium over the public trading price; (2) together with the Resignation Letter,
Zapata received a copy of the petition filed in the 148th Judicial District
Court of Nueces County, Texas by the Holt Affiliates (described under "Risk
Factors--Litigation--Litigation Involving a Former Director"), in which the Holt
Affiliates seek substantial monetary relief against Zapata; and (3) on August
16, 1995, Zapata informed Mr. Holt of an indemnification claim of approximately
$6 million against the Holt Affiliates in connection with what Zapata believes
are breaches of representations and warranties by the Holt Affiliates in the
1993 purchase agreement pursuant to which Zapata purchased Energy Industries
from the Holt Affiliates. Mr. Holt has disputed the latter claim and it remains
unresolved.
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<PAGE> 89
MANAGEMENT AND EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation with
respect to the fiscal years ended September 30, 1995, 1994 and 1993 for services
in all capacities rendered to Zapata and its subsidiaries by the persons who
served as chief executive officer during fiscal 1995, the four most highly
compensated executive officers of Zapata other than the chief executive officer
who were serving as executive officers on September 30, 1995 and one additional
individual who would have been in that category but for the fact that he was not
serving as an executive officer on September 30, 1995 (the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ------------------------------------------------- ---- -------- -------- ------------
<S> <C> <C> <C> <C>
Avram A. Glazer, President and 1995 $183,240 -- --
Chief Executive Officer(1)
Malcolm I. Glazer, Chairman(2) 1995 11,250 -- --
1994 29,800 -- --
Ronald C. Lassiter, Chairman and 1995 196,220 -- --
Chief Executive Officer of 1994 344,859 -- --
Zapata Protein, Inc.(3) 1993 358,600 $175,000 $ 2,100(8)
Robert W. Jackson, President and 1995 200,000 -- --
Chief Executive Officer of 1994 200,000 -- --
Cimarron(4) 1993 200,000 -- --
Joseph B. Mokry, President and 1995 192,855 83,460 --
Chief Operating Officer of 1994 172,260 100,080 8,512(8)
Energy Industries, Inc.(5)
Lamar C. McIntyre, Vice President, 1995 131,943 -- 7,800(8)
Chief Financial Officer and 1994 113,881 -- 2,230(8)
Assistant Secretary (6) 1993 108,964 18,000 2,382(8)
Bruce K. Williams, Chairman, President 1995 140,434 -- 22,645(7)
and Chief Executive Officer of 1994 160,824 39,000 3,596(8)
Zapata Exploration Company (7) 1993 156,240 54,684 3,193(8)
</TABLE>
- ---------------
(1) In March 1995, Mr. A. Glazer was elected as President and Chief Executive
Officer of Zapata. In addition to regular salary, the amount shown in the
"Salary" column includes director and board committee fees for the portion
of the fiscal year during which Mr. A. Glazer was not an executive officer.
(2) Mr. M. Glazer currently serves as Chairman, and served as President and
Chief Executive Officer of Zapata from August 1994 to March 1995. He
received no compensation during the period for acting in these capacities
other than director and board committee fees, which are included in the
"Salary" column.
(3) Amounts in the "Salary" column include amounts paid to Mr. Lassiter under
the consulting agreement described below under "Employment Agreements and
Other Incentive Plans."
(4) Mr. Jackson ceased serving as an executive officer of Zapata effective
December 1, 1995.
(5) In connection with the sale of the assets of Energy Industries, Mr. Mokry
ceased serving as an executive officer of Zapata in December 1995.
(6) Mr. McIntyre ceased serving as an executive officer of Zapata effective
January 15, 1996.
(7) In connection with the closing of the sale of the assets of Zapata
Exploration Company, Mr. Williams ceased serving as an executive officer of
Zapata on August 14, 1995. The amount included in the "All Other
Compensation" column for 1995 includes amounts paid to Mr. Williams under
the Consulting Agreement described below under "Employment Agreements and
Other Incentive Plans."
(8) The amounts indicated represent Zapata's contributions to its profit-sharing
plan.
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<PAGE> 90
While the officers of Zapata receive benefits in the form of certain
perquisites, none of the Named Officers has received perquisites which exceed in
value the lessor of $50,000 or 10% of such officer's salary and bonus for any of
the fiscal years shown in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED VALUE AT FISCAL YEAR-END AT FISCAL YEAR-END
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------------- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Avram A. Glazer................. 0 0 13,333/6,667 0/0
Malcolm I. Glazer............... 0 0 13,333/6,667 0/0
Ronald C. Lassiter.............. 244,000 $289,750 0/0 0/0
Robert W. Jackson............... 0 0 0/0 0/0
Lamar C. McIntyre............... 0 0 42,000/0 $52,000/0
Joseph B. Mokry................. 0 0 0/0 0/0
Bruce K. Williams............... 98,000 $122,500 0/0 0/0
</TABLE>
The options included in the foregoing table were granted in 1990 under
Zapata's 1990 Stock Option Plan, except in the case of Messrs. A. Glazer and M.
Glazer, whose options were granted in 1993 under Zapata's Amended and Restated
Special Incentive Plan with respect to their service as nonemployee directors.
The options were granted at market value on the date of grant and are
exercisable in cumulative one-third installments commencing one year from the
date of grant, with full vesting occurring on the third anniversary of the grant
date. On September 30, 1995, the closing price of Zapata Common Stock on the
NYSE was $4.375 per share. No options were granted to any of the Named Officers
in fiscal 1995.
PENSION PLAN INFORMATION
Effective January 15, 1995, Zapata amended its Pension Plan to provide that
highly compensated employees (those having covered annual compensation in excess
of $66,000) will not earn additional benefits under the plan after that date. In
addition, Zapata terminated its Supplemental Pension Plan except with respect to
benefits already accrued. Messrs. A. Glazer, M. Glazer, Jackson and Mokry are
not participants in the Pension Plan or the Supplemental Pension Plan. Mr.
Lassiter retired for purposes of the Pension Plan effective August 1, 1994 and
receives annual benefits of $87,860 under the Pension Plan and $101,512 under
the Supplemental Pension Plan. Mr. McIntyre's estimated annual benefit under the
Pension Plan is $48,941.00 (assuming payments commence after Mr. McIntyre
reaches age 61 on a single-life annuity basis). Mr. Williams will be eligible to
receive annual benefits under the Pension Plan when he turns 55 years of age.
EMPLOYMENT AGREEMENTS AND OTHER INCENTIVE PLANS
Effective as of March 15, 1991, Zapata entered into an employment agreement
with Mr. Lassiter. The agreement provided for continuation of salary for a
three-year period following termination of employment under certain
circumstances occurring within two years after a change of control. A "change of
control" for purposes of this provision occurred in July 1992. As a result of
the change in Mr. Lassiter's responsibilities in July 1994, Mr. Lassiter
terminated his employment under this provision of his contract. Subsequently,
Mr. Lassiter entered into a consulting agreement (the "Consulting Agreement")
with Zapata under which he agreed to serve as Chairman and Chief Executive
Officer of Zapata Protein, Inc. for the same aggregate compensation he would
have been entitled to receive under the termination provisions of the employment
agreement, with the payment schedule deferred over a more extended period of
time so long as Mr. Lassiter continues to serve under the Consulting Agreement.
The payments to Mr. Lassiter under the provisions of the Consulting Agreement
are included in the "Salary" column of the Summary Compensation Table.
Effective as of September 30, 1992, Cimarron Holding Company, a subsidiary
of Zapata ("Cimarron"), entered into an employment agreement with Robert W.
Jackson (the "Jackson Agreement"). The Jackson Agreement provided for Mr.
Jackson's continuing employment as President, Chief Executive Officer and
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<PAGE> 91
Director of Cimarron for a period of five years and contained provisions
requiring salary continuation payments for the remainder of the term of the
agreement in the event of a termination without cause or a voluntary resignation
for "good reason." On December 1, 1995, Zapata and Cimarron entered into a
Mutual Release Agreement (the "Mutual Release Agreement") with Mr. Jackson,
pursuant to which Mr. Jackson resigned from his position as Chairman, President
and Chief Executive Officer of Cimarron, and the parties compromised, settled
and resolved all rights and obligations pursuant to all contracts, agreements or
benefit plans by or among the parties, as well as all controversies among them.
Under the Mutual Release Agreement, the Jackson Agreement was terminated and
Zapata and Cimarron agreed to make a one-time payment of $306,534 to Mr.
Jackson, representing the present value of the continuing payments that would
have been due under the Jackson Agreement, less a negotiated amount reflecting
settlement of certain unresolved disputes and early termination of certain other
agreements.
Effective October 1, 1994, Zapata entered into an employment agreement with
Mr. McIntyre. The agreement provided for continuing employment of Mr. McIntyre
as Vice President, Treasurer and Chief Financial Officer until December 17, 1998
at a compensation level at least equal to Mr. McIntyre's base salary as of
October 1, 1994. The agreement provided that if Zapata terminated Mr. McIntyre's
employment for any reason other than for cause, Zapata would be obligated to pay
Mr. McIntyre's base salary in effect on September 30, 1994 (approximately $8,825
per month) until December 17, 1998. Zapata terminated Mr. McIntyre's employment
effective January 15, 1996, thereby triggering Zapata's obligation to make such
payments through December 17, 1998.
Effective March 15, 1991, Zapata entered into an employment agreement with
Mr. Williams. As a result of the termination of his employment on August 14,
1995, Mr. Williams will receive payments for three years equivalent to his base
salary in effect at the time of the termination ($163,116 annually). Effective
August 16, 1995, Zapata Exploration Company, a wholly owned subsidiary of Zapata
("Zapex"), entered into a consulting agreement (the "Consulting Agreement") with
Mr. Williams whereby he agreed to provide services including operational
oversight for Zapex's Bolivia investment, direction of the winding down of
Zapex's domestic oil and gas operations, and other services in exchange for a
monthly payment equal to a retainer plus an hourly fee. The Consulting Agreement
is terminable by either Zapex or Mr. Williams upon written notice of an election
to terminate, which termination shall be effective upon the last day of the
month following the month during which any such notice is given. Payments to Mr.
Williams under the provisions of the Consulting Agreement during the portion of
fiscal 1995 following the termination of his employment are included in the "All
Other Compensation" column of the Summary Compensation Table.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Zapata's directors and executive
officers, and persons who own more than 10% of a registered class of Zapata's
equity securities, to file with the Commission and the NYSE initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of Zapata. Directors, officers and greater than 10% stockholders are
required by the Commission's regulations to furnish Zapata with copies of all
Section 16(a) forms they file.
To Zapata's knowledge, based solely on review of the copies of such reports
furnished to Zapata and written representations that no other reports were
required, during the fiscal year ended September 30, 1995 all reports required
by Section 16(a) to be filed by its directors, officers and greater than 10%
beneficial owners were filed on a timely basis.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of Zapata's Board of Directors (the "Zapata
Compensation Committee"), comprised of Avram A. Glazer (until his resignation in
January 1996), Mr. Leffler and Mr. Lassiter (nonvoting until September 1995),
has been responsible for the approval and administration of compensation
programs for Zapata's executive officers. The Zapata Compensation Committee has
endeavored to ensure that the compensation programs for Zapata's executive
officers are effective in attracting and retaining key executives responsible
for the success of Zapata and are administered in an appropriate fashion in the
long-
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<PAGE> 92
term best interest of Zapata and its stockholders. The Zapata Compensation
Committee has sought to align total compensation for Zapata's executive officers
with the performance of Zapata and the individual performance of each executive
officer in assisting Zapata in accomplishing its goals. Zapata's compensation
program consists of (1) an annual component, which includes base salary and an
annual incentive bonus, and (2) a long-term component consisting of stock
options. Because of recent reductions in the size of the Zapata Board of
Directors (currently consisting of five persons), the Zapata Board of Directors
determined to assume the responsibilities of the Zapata Compensation Committee
in May 1996. The following is a report of the Zapata Compensation Committee with
respect to compensation policies and determinations relating to fiscal year
1995.
Base Salary
The Zapata Compensation Committee's policy with respect to 1995 base
salaries for executive officers was generally to keep them at appropriate levels
in light of compensation surveys in which Zapata participated. From August 1994
until March 1995, Malcolm I. Glazer served as Chairman, President and Chief
Executive Officer of Zapata and received no compensation for acting in these
capacities other than director and board committee fees. When Avram A. Glazer
became President and Chief Executive Officer in March 1995, his annual salary
was established by the Zapata Board of Directors at $300,000, the same salary
rate as had applied to Malcolm I. Glazer's predecessor as Chief Executive
Officer. The determination of the base salaries for all the executive officers,
including the Chief Executive Officer, but excluding Mr. Lassiter, was based on
the Compensation Committee's subjective evaluation and did not involve
application of objective measures of performance. Mr. Lassiter's compensation is
fixed by contract. The compensation surveys were evaluated for purposes of
determining general competitive compensation levels, and variations in
performance between Zapata and companies included in the surveys were not
specifically evaluated in connection with the determination of base salary
levels. The companies included in the surveys are not necessarily the same as
those included in the Peer Group referred to under "Stockholder Return
Performance Graph."
Annual Incentive Bonus
None of Zapata's executive officers, except Joseph B. Mokry, received a
bonus for fiscal year 1995. Mr. Mokry, who served as Vice President and Chief
Operating Officer of Energy Industries, Inc. in fiscal year 1995, received a
bonus of $83,460 for 1995. The Compensation Committee's determination that no
bonuses would be paid for 1995 resulted from its subjective determination that
corporate performance did not warrant the payment of bonuses. The exception for
Mr. Mokry was based on the Compensation Committee's subjective evaluation of his
performance at Zapata's subsidiary Energy Industries, Inc. No formulas based on
stock prices or other quantitative measures of performance were used in
determining whether or not bonuses would be paid.
Stock Options
The Zapata Compensation Committee believes that to achieve Zapata's
long-term growth objectives and to align management and its stockholders'
interest, it is in Zapata's best interest from time to time to grant stock
options to key members of its management staff. Zapata's 1990 Stock Option Plan
and Special Incentive Plan are administered by the Zapata Compensation
Committee, which has the full power and authority to designate participants and
determine the terms and provisions of the option agreements. The price of each
option granted is the fair market value of a share of Zapata Common Stock on the
date the option is granted. No options were granted under the 1990 Stock Option
Plan or the Special Incentive Plan during fiscal year 1995.
THE ZAPATA COMPENSATION COMMITTEE
Avram A. Glazer (Chairman)
R. C. Lassiter
Robert V. Leffler, Jr.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the fiscal year ended September 30, 1995, the Committee was initially
comprised of Malcolm I. Glazer, Avram A. Glazer, Peter M. Holt, Daniel P. Whitty
and Ronald C. Lassiter (as a nonvoting member). Mr. Whitty served on the
Committee until his resignation from the Zapata Board of Directors in November
1994. Mr. M. Glazer resigned from the Committee on December 29, 1994 and was
replaced by Myrl S. Gelb, who served on the committee from that date until his
resignation from the Zapata Board of Directors in May 1995. Mr. Robert V.
Leffler, Jr. became a member of the Committee in May 1995. Mr. Lassiter became a
voting member of the Committee in September 1995. Mr. Holt's membership on the
Committee ceased when he resigned from the Zapata Board of Directors in November
1995. Mr. A. Glazer resigned from the Committee in January 1996. Committee
members M. Glazer, A. Glazer, Holt and Lassiter were officers of Zapata (or one
or more of its subsidiaries) during the fiscal year ended September 30, 1995.
In November 1993, Zapata purchased the natural gas compression business of
Energy Industries for an aggregate of $74 million in cash and 2,700,000 shares
of Zapata's Common Stock. At the time of the acquisition, Mr. Holt was the chief
executive officer of Energy Industries, as well as its majority shareholder. In
fiscal 1995, Zapata made indemnification claims against Mr. Holt and the other
sellers aggregating approximately $7 million under the purchase agreement
relating to Zapata's acquisition of Energy Industries. As of May 15, 1996, such
claims remained unresolved. In connection with the acquisition of Energy
Industries, Zapata entered into a three-year noncompetition agreement and a
three-year Consulting Agreement with Mr. Holt. These agreements were not
affected by the Energy Industries Sale. However, as a result of Mr. Holt's
resignation in November 1995, Zapata's obligations under the Consulting
Agreement were terminated. See "Compensation of Directors," above.
During fiscal 1995, Energy Industries purchased Caterpillar engines and
parts from Holt Company of Texas, a corporation owned by Mr. Holt, for
consideration totaling $10.4 million. Zapata believes that such payments are
comparable to those that would have been made to nonaffiliated entities for
comparable products.
On February 14, 1995, Zapata entered into a stock purchase agreement with
ZP Acquisition Corp. ("ZP") for the sale of Zapata Protein, Inc. R. C. Lassiter
held an ownership interest in ZP, which committed to buy all of the issued and
outstanding shares of Zapata Protein for $56 million. ZP and its guarantors
failed to close the transaction and perform their obligations under the purchase
agreement and related guaranty agreement. Zapata has filed a lawsuit in the
District Court of Harris County, Texas, number 95-26579, styled Zapata
Corporation v. ZP Acquisition Corp., et al., seeking to recover all damages
arising from the failure to close the Zapata Protein transaction.
In August 1995, Zapata purchased 4,189,298 shares of the common stock of
Envirodyne for $18.8 million from the Malcolm Glazer Trust. As of April 9, 1996,
Zapata held 4,189,298 shares, or 28.9%, of Envirodyne common stock. Malcolm I.
Glazer is also a director of Envirodyne. Such shares represented all of Malcolm
I. Glazer's ownership interest in Envirodyne. Zapata paid the purchase price by
issuing a subordinated promissory note in a principal amount of $18.8 million,
bearing interest at the prime rate and maturing in August 1997, subject to
prepayment at Zapata's option. This transaction was approved by a special
committee of Zapata's Board of Directors comprised of Messrs. Lassiter, Leffler
and Loar. Zapata prepaid the entire principal amount of the promissory note
during the first quarter of fiscal 1996.
In September 1995, Zapata's Board of Directors established the Zapata
Special Committee for the purpose of investigating the legal and financial
considerations of one or more merger or acquisition transactions involving
Zapata and Houlihan's and Speciality. Malcolm I. Glazer and members of his
family beneficially own approximately 73% and 45% of the outstanding common
stock of Houlihan's and Specialty, respectively, and Malcolm I. Glazer, Avram
Glazer and other members of their family serve as directors of both of those
companies. Subsequently, the Committee's authority was expanded to include
taking action to approve the issuance of Zapata Common Stock and related matters
in connection with the Merger, and the Merger Agreement was entered into on June
4, 1996.
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On May 6, 1996, Darcie Glazer became employed by Zapata as an investment
analyst. She is a daughter of Malcolm I. Glazer. Ms. Glazer's office is in her
home in New York City. She receives an annual salary of $95,000 and other
standard employee benefits.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Kristian Siem served as a director of Zapata from 1993 until his
resignation in April 1995. On May 17, 1993, Zapata completed certain financial
transactions with Norex Drilling Ltd. ("Norex Drilling"), a wholly owned
subsidiary of Norex America, Inc. ("Norex America" and, collectively with Norex
Drilling and other affiliates, "Norex"), a company of which Mr. Siem was the
Chairman and Chief Executive Officer. In these transactions, Zapata raised
$111.4 million from the issuance of debt and equity securities pursuant to a
Second Amended and Restated Master Restructuring Agreement dated as of April 16,
1993, as amended (the "Norex Agreement"). Under the terms of the Norex
Agreement, Zapata issued $50.0 million of senior secured notes and $32.6 million
of senior convertible notes to Norex. In addition, Norex purchased 3.0 million
shares of Common Stock for $11.25 million and 17.5 million shares of $1
Preference Stock for $17.5 million. The $1 Preference Stock was to pay dividends
at an annual rate of 8.5% and was exchangeable into 673,077 shares of Zapata's
Tidewater common stock at the option of Norex. In August 1993, Norex exchanged
all of its $1 Preference Stock for $17.5 million aggregate principal amount of
8.5% unsecured exchangeable notes, maturing May 16, 1996. The 8.5% unsecured
notes were exchangeable into the 673,077 shares of Tidewater common stock for
which the $1 Preference Stock had previously been exchangeable. In March 1995,
Zapata entered into an agreement with Norex under which Zapata was permitted to
sell the shares of Tidewater common stock and apply the net proceeds toward
repayment of the 8.5% unsecured notes. All of such shares were sold in March
1995 for $12.7 million and the proceeds applied to reduce the outstanding
principal amount of the 8.5% unsecured notes from $17.5 million to $4.8 million
in April 1995. Zapata prepaid the $4.8 million outstanding balance in March
1996. On April 10, 1995, Zapata repurchased from Norex 2,250,000 shares of
Zapata's Common Stock for an aggregate purchase price of $9,000,000. Pursuant to
a conditional resignation letter dated March 7, 1995, Mr. Siem's resignation
from Zapata's Board of Directors became effective when the repurchase of the
2,250,000 shares of Zapata's Common Stock from Norex, the receipt by Norex of
the proceeds of the sale of the Tidewater common stock and the payment to Mr.
Siem of certain unpaid directors' fees and reimbursed expenses had all been
completed. As a result, Mr. Siem's resignation from the Board of Directors
became effective on April 10, 1995.
For further information concerning certain transactions and relationships
of Peter M. Holt, Ronald C. Lassiter and Malcolm I. Glazer with Zapata, see
"--Compensation Committee Interlocks and Insider Participation."
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<PAGE> 95
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF ZAPATA
The following table indicates the number of shares of Zapata Common Stock
or $2 Preference Stock owned beneficially as of June 15, 1996 by (i) each person
known to Zapata to beneficially own more than 5% of the outstanding shares of
either Zapata Common Stock or $2 Preference Stock, (ii) each Zapata director,
(iii) the Named Officers of Zapata (other than Robert W. Jackson, for whom
information is not available) and (iv) all directors and executive officers of
Zapata as a group. Except to the extent indicated in the footnotes to the
following table, each of the persons or entities listed therein has sole voting
and sole investment power with respect to the shares which are deemed
beneficially owned by such person or entity.
<TABLE>
<CAPTION>
AMOUNT OF SHARES BENEFICIALLY OWNED
----------------------------------------------
PERCENT OF CLASS
---------------------------------
TITLE OF CLASS NAME SHARES BEFORE MERGER AFTER MERGER(1)
- ------------------------- --------------------------------- ---------- ------------- ------------------
<S> <C> <C> <C> <C>
Zapata Common Stock...... Avram A. Glazer(2) 20,000 * *
Malcolm I. Glazer(2) 10,415,384 35.2% 38.27-49.9%(1)
1482 South Ocean Boulevard
Palm Beach, Florida 33480
Ronald C. Lassiter 78,477 * *
Robert V. Leffler, Jr.(2) 6,666 * *
W. George Loar(2) 6,666 * *
Lamar C. McIntyre(2) 42,026 * *
Joseph B. Mokry -- -- --
Bruce K. Williams -- -- --
Ryback Management Corporation(3) 3,166,600 10.7% 7.79%
7711 Carondelet Avenue,
Suite 700
St. Louis, Missouri 63105
Pioneering Management
Corporation(4) 2,083,100 7.05% 5.13%
60 State Street
Boston, Massachusetts 02109-1820
Directors and effective officers
as a group(10 persons) 10,595,219 35.9% 38.72-50.34%(1)
$2 Preference Stock...... Larry A. Reiten 150 5.7% 5.7%
Route 1, Box 297
Bayfield, Wisconsin 54814-9701
</TABLE>
- ---------------
* Represents ownership of less than 1.0%.
(1) The low end of the range is computed on the assumption that all holders of
Houlihan's Common Stock other than those owned by the Glazer Group make the
Stock Election and the high end of the range is computed on the assumption
that all such holders make the Cash Election. Such computation also assumes
that 11,032,289 shares of Zapata Common Stock are issued in the Merger on
the basis of an assumed Market Value of the Zapata Common Stock equal to
$3.625 per share (the closing sales price on the NYSE on August 9, 1996).
(2) Includes 20,000, 20,000, 6,666, 6,666 and 41,800 shares issuable under
options, exercisable within 60 days of June 15, 1996, held by Messrs. A.
Glazer, M. Glazer, Leffler, Loar and McIntyre, respectively.
(3) As reported by Ryback Management Corporation as of May 10, 1996. Consists of
2,165,000 and 1,001,500 shares beneficially owned by Linder Growth Fund and
Linder Dividend Fund, respectively.
(4) As reported on Form 13G dated January 26, 1996 and filed with the
Commission.
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STOCKHOLDER RETURN PERFORMANCE GRAPH
The following graph compares the yearly percentage change in Zapata's
cumulative total return on its Common Stock over the preceding five-year period
with the cumulative total return of the Standard & Poor's 500 Stock Index ("S&P
500 Index") and with a peer group of publicly traded companies over the same
period. The peer group (the "Peer Group") is the peer group used by Zapata in
the presentation of the performance graph included in the proxy soliciting
material for its 1995 annual meeting and consists of the following companies:
Tidewater, Enterra Corp., Production Operators Corp., Western Gas Resources,
Inc., Aquila Gas Pipeline Corporation, Tejas Gas Corporation, KN Energy, Inc.
and USX-Delhi Group.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG ZAPATA CORPORATION, THE S & P 500 INDEX
AND A PEER GROUP
<TABLE>
<CAPTION>
MEASUREMENT PERIOD ZAPATA
(FISCAL YEAR COVERED) CORPORATION PEER GROUP S&P 500
<S> <C> <C> <C>
9/90 100 100 100
9/91 65 99 131
9/92 89 130 146
9/93 80 187 165
9/94 73 148 171
9/95 71 167 221
</TABLE>
* $100 INVESTED ON 09/30/90 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING SEPTEMBER 30.
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<PAGE> 97
PROPOSAL NO. 3
APPROVAL OF 1996 LONG-TERM INCENTIVE PLAN OF ZAPATA
The Zapata Board of Directors has adopted, subject to approval by the
stockholders of Zapata, the 1996 Long-Term Incentive Plan (the "Incentive
Plan"). A copy of the Incentive Plan is attached hereto as Appendix E. The
following description of the Incentive Plan is qualified by reference to the
full text of the Incentive Plan.
The purpose of the Incentive Plan is to retain key executives and other
selected employees, reward them for making major contributions to the success of
Zapata and provide them with a proprietary interest in the growth and
performance of Zapata and its subsidiaries.
Employees who participate in the Incentive Plan will be selected by a
committee designated by the Zapata Board of Directors to administer the
Incentive Plan (in this capacity, the "Committee") from among those employees
who hold positions of responsibility and whose performance, in the judgment of
the Committee, have a significant effect on the success of Zapata. In addition,
in accordance with the Merger Agreement, holders of options previously issued
under the Houlihan's Stock Option Plans will participate in the Incentive Plan.
The total number of shares of Zapata Common Stock that may be issued
pursuant to the Incentive Plan will not exceed 5,000,000, of which approximately
2,600,000 shares will be issuable pursuant to options previously granted under
the Houlihan's Stock Option Plans. Not more than 750,000 shares of Zapata Common
Stock are available for awards other than stock options and stock appreciation
rights granted at an exercise or strike price not less than fair market value on
the date of grant. The number of shares of Zapata Common Stock that may be
awarded pursuant to the Incentive Plan is subject to adjustment upon the
occurrence of certain events.
The Incentive Plan will be administered by the Committee, which will be
constituted to permit the Incentive Plan to comply with Rule 16b-3 promulgated
under the Exchange Act. Subject to the terms of the Incentive Plan, the
Committee will have authority (i) to select employees to receive awards, (ii) to
determine the timing, form, amount or value and term of awards, and the
conditions and limitations, if any, subject to which awards will be made and
become payable and (iii) to interpret the Incentive Plan and adopt rules,
regulations and guidelines for carrying out the Incentive Plan. The Committee
may delegate certain of its duties under the Incentive Plan to senior officers
of Zapata.
The Incentive Plan provides for the grant of any or all of the following
types of awards: stock options (including stock options substituted for
Houlihan's Options), stock appreciation rights, stock awards and cash awards.
Stock options will have exercise prices not less than the fair market value of
the Zapata Common Stock on the date of grant and may be incentive stock options
that comply with Section 422 of the Code. The exercise price of any stock option
may, at the discretion of the Committee, be paid in cash or by surrendering
shares of Zapata Common Stock or another award under the Incentive Plan, valued
at fair market value on the date of exercise, or any combination thereof.
Vesting conditions for a stock option will be specified by the Committee and set
forth in the applicable option agreement. Vesting conditions may include,
without limitation, provision for acceleration in the case of a change in
control of Zapata or for stock appreciation rights exercisable for cash (in lieu
of the option) in the case of such a change in control.
Stock appreciation rights are rights to receive, without payment to Zapata,
cash or shares of Zapata Common Stock with a value determined by reference to
the difference between the exercise or "strike" price of the stock appreciation
right and the fair market value or other specified valuation of the Zapata
Common Stock at the time of exercise. Stock appreciation rights may be granted
in tandem with stock options or separately.
Stock awards may consist of Zapata Common Stock or be denominated in units
of Zapata Common Stock. Stock awards may be subject to conditions established by
the Committee, including service vesting conditions and performance conditions
(including without limitation performance conditions based on achievement of
specific business objectives, increases in specified indices and attaining
specified growth measures or rates). A stock award may provide for voting rights
and dividend or dividend equivalent rights.
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<PAGE> 98
Cash awards may be denominated in cash with the amount of payment subject
to conditions specified by the Committee, including service conditions and
performance conditions.
No participant may be granted, during any three-year period, awards
consisting of stock options or stock appreciation rights exercisable for more
than 12.5 percent of the shares of Zapata Common Stock reserved for issuance
under the Incentive Plan.
Payment of awards may be made in cash or Zapata Common Stock or
combinations thereof, as determined by the Committee. An award may provide for
the granting or issuance of additional, replacement or alternative awards upon
the occurrence of specified events, including the exercise of the original
award.
An award may provide for a tax gross-up payment to a participant if a
change in control of Zapata results in the participant owing an excise tax or
other tax above the rate ordinarily applicable, pursuant to the parachute tax
provisions of Section 280G of the Code or otherwise. The gross-up payment would
be in an amount such that the net amount received by the participant, after
paying the increased tax and any additional taxes on the additional amount,
would be equal to that receivable by the participant if the increased tax were
not applicable.
Zapata's Board of Directors may amend, modify, suspend or terminate the
Incentive Plan for the purpose of meeting or addressing any changes in legal
requirements or for any other purpose permitted by law except that (i) no
amendment or alteration that would impair the rights under any award previously
granted will be made without the award holder's consent and (ii) no amendment or
alteration will be effective prior to approval by Zapata's stockholders to the
extent such approval is then required pursuant to Rule 16b-3 promulgated under
the Exchange Act in order to preserve the applicability of any exemption
provided by such rule to any award then outstanding (unless the holder of such
award consents) or to the extent stockholder approval is otherwise required by
applicable legal requirements.
The holder of a nonqualified stock option will recognize no taxable income
as a result of the grant of the stock option. Upon the exercise of the stock
option, however, the holder of a nonqualified stock option will recognize
taxable ordinary income in an amount equal to the difference between the fair
market value of the shares on the date of exercise and the exercise or purchase
price (or, in the case of relinquishment, in an amount equal to the sum of the
cash received and the fair market value of the shares or award received
determined on the date of exercise) and, correspondingly, Zapata will be
entitled to an income tax deduction for such amount.
Upon the exercise of an incentive stock option, the stock option holder
generally will not recognize taxable income by reason of the exercise, and
Zapata normally will not be entitled to any income tax deduction. If the stock
option holder disposes of the shares acquired upon the exercise of an incentive
stock option after satisfaction of certain minimum holding periods, any gain
realized will be capital gain. Gain attributable to post-exercise appreciation
of stock acquired upon the exercise of a nonqualified or incentive stock option
will be capital gain if the stock option holder has held the shares as a capital
asset for more than one year. If a stock option holder disposes of the shares
acquired upon the exercise of an incentive stock option within the minimum
holding periods, the stock option holder would recognize ordinary income, and
Zapata would be entitled to a commensurate income tax deduction (except with
respect to post-exercise appreciation).
The grant of a stock appreciation right will produce no U.S. federal tax
consequences for the participant or Zapata. The exercise of a stock appreciation
right results in taxable income to the participant equal to the difference
between the exercise price of the shares and the market price of the shares on
the date of exercise, and a corresponding tax deduction to Zapata.
A participant under the Incentive Plan who has been granted an award of
restricted shares of Zapata Common Stock will not realize taxable income at the
time of the grant, and Zapata will not be entitled to a tax deduction at the
time of the grant, unless the participant makes an election to be taxed at the
time of the award. When the restrictions lapse, the participant will recognize
taxable income in an amount equal to the excess of the fair market value of the
shares at such time over the amount, if any, paid for such shares. Zapata will
be entitled to a corresponding tax deduction. Dividends paid to the participant
during the restriction
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period will also be compensation income to the participant and deductible as
such by Zapata. The holder of a restricted stock award may elect to be taxed at
the time of grant of the restricted stock award on the market value of the
shares, in which case (i) Zapata will be entitled to a deduction at the same
time and in the same amount, (ii) dividends paid to the participant during the
restriction period will be taxable as dividends to him or her and will not be
deductible by Zapata, and (iii) there will be no further federal income tax
consequences when the restrictions lapse.
The allocation of awards under the Incentive Plan is not currently
determinable as such allocation is dependent upon future decisions to be made by
the Committee in its sole discretion, subject to the applicable provisions of
the Incentive Plan.
VOTE REQUIRED
Approval of the Incentive Plan will require the affirmative vote of the
holders of a majority of the shares of Zapata Common Stock represented and
entitled to vote at the meeting. For the purpose of such determination,
abstentions will have the same effect as votes cast against approval of the
Incentive Plan, and broker non-votes will have no effect on the determination of
outcome of the vote.
The Zapata Board of Directors recommends a vote FOR approval of the
Incentive Plan.
PROPOSAL NO. 4
STOCKHOLDER PROPOSAL TO PROVIDE FOR CUMULATIVE VOTING
Martin Glotzer, who resides at 7061 North Kedzie Avenue, Chicago, Illinois
60645, is the owner of 200 shares, and John J. Gilbert, who resides at 29 East
64th Street, New York, New York 10021-7043, is the owner of 203 shares and
co-trustee with Margaret R. Gilbert under the will of Caston J. Gilbert for 40
shares, and both representing an additional family interest of 1,600 shares of
Zapata Common Stock. These stockholders have advised Zapata that it is their
intention to present the following resolution for consideration and action by
stockholders at the 1996 Annual Meeting of Stockholders:
"RESOLVED: That the stockholders of Zapata Corporation, assembled in
annual meeting in person and by proxy, hereby request the Board of
Directors to take the steps necessary to provide for cumulative voting in
the election of directors, which means each stockholder shall be entitled
to as many votes as shall equal the number of shares he or she owns
multiplied by the number of directors to be elected, and he or she may cast
all of such votes for a single candidate, or any two or more of them as he
or she may see fit."
PROPONENTS' STATEMENT IN SUPPORT OF PROPOSAL
Ms. Gilbert and Messrs. Glotzer and Gilbert have made the following
statement in support of this proposal:
"REASONS: Continued support along the lines we suggest were shown at
the last annual meeting, when %, [LEFT BLANK BY
PROPONENTS] owners of [LEFT BLANK BY PROPONENTS] shares, were
cast in favor of this proposal. The vote against included [LEFT
BLANK BY PROPONENTS] unmarked proxies."
"A California law provides that all state pension holding and state
college funds, invested in shares must be voted in favor of cumulative
voting proposals, showing increasing recognition of the importance of this
democratic means of electing directors."
"The National Bank Act provides for cumulative voting. In many cases
companies get around it by forming holding companies without cumulative
voting. Banking authorities have the right to question the capability of
directors to be on banking boards. In many cases authorities come in after
and say the director or directors were not qualified. We were delighted to
see that the SEC has finally taken action to prevent bad directors from
being on boards of public companies. The SEC should have hearings to
prevent such persons becoming directors before they harm investors."
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"We think cumulative voting is the answer to find new directors for
various committees. Some recommendations have been made to carry out the
CERES 10 points. The 11th should be, in our opinion, having cumulative
voting and ending staggered boards."
"When Alaska became a state it took away cumulative voting over our
objections. The Valdez oil spill might have been prevented if environmental
directors were elected through cumulative voting. The high derivative
losses might have been prevented with cumulative voting."
"Many successful corporations have cumulative voting. Example,
Pennzoil defeated Texaco in that famous case. Ingersoll-Rand also having
cumulative voting won two awards. FORTUNE magazine ranked it second in its
industry as 'America's Most Admired Corporations' and the WALL STREET
TRANSCRIPT noted 'on almost any criteria used to evaluate management,
Ingersoll-Rand excels.' In 1994 and 1995 they raised their dividend."
"Lockheed-Martin, as well as VWR Corporation [sic] now have a
provision that if anyone has 40% of the shares, cumulative voting applies,
it applies to the latter company."
"In 1995 American Premier adopted cumulative [sic] voting. Allegheny
Power System tried to take away cumulative voting as well as put in a
stagger system, and stockholders defeated it, showing stockholders are
interested in their rights."
COMMENT BY MANAGEMENT
The Zapata Board of Directors believes that directors should be chosen for
their capacity and willingness to represent all stockholders, and that the
present system of voting for directors provides the best assurance that the
decisions of the directors will be made in the best interest of all the
stockholders, rather than for the benefit of special interest groups.
Cumulative voting tends to produce special interest directors beholden to
the narrow interests of those who elect them, even though such interests may be
adverse to the overall welfare of Zapata and the stockholders as a whole. A
board encumbered by such conflicting factions could impede the ability of Zapata
to arrive at decisions that represent the long-term interest of all stockholders
and to react timely and decisively in critical situations. The factionalism
caused by cumulative voting could also deter independent persons of standing and
reputation from serving on the Zapata Board of Directors and reduce the sense of
cooperation and confidence which the Zapata Board of Directors presently
maintains.
Neither Delaware, the state in which Zapata and most major publicly owned
corporations are incorporated, nor the Model Business Corporation Act, which
reflects a consensus of the academic and practicing legal community, requires
cumulative voting. This is in accord with the belief of the Zapata Board of
Directors that the principle of majority rule is the appropriate one for the
election of directors.
Under the DGCL, the action recommended in this proposal could be taken only
if the Zapata Board of Directors recommended an amendment to Zapata's Restated
Certificate of Incorporation establishing cumulative voting and directed that
the amendment be submitted to a vote of Zapata's stockholders. Zapata's Board of
Directors has not recommended, and does not recommend, such an amendment.
Therefore, a vote in favor of this proposal would be only an advisory
recommendation to the Zapata Board of Directors that it take steps to initiate
such an amendment.
The Stockholder Proposal included an erroneous statement that all proxies
not marked will be voted for the Stockholder Proposal. Because this statement is
contrary to the Commission's proxy rules, Zapata has omitted this statement from
the Stockholder Proposal.
VOTE REQUIRED
The affirmative vote of a majority of the total number of shares of Common
Stock and $2 Preference Stock present in person or represented by proxy at the
meeting is required to approve the Stockholder Proposal.
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THE ZAPATA BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE STOCKHOLDER
PROPOSAL.
OTHER MATTERS
Representatives of Coopers & Lybrand L.L.P., the firm of independent public
accountants that currently audits Zapata's consolidated financial statements,
are expected to be present at the Zapata Annual Meeting and will have the
opportunity to make a statement if they desire to do so and to respond to
appropriate questions.
The Board of Directors knows of no other matter to be presented at the
Zapata Annual Meeting. If any additional matter properly comes before the
meeting, it is intended that proxies in the enclosed form will be voted on the
matter in accordance with the discretion of the persons named in the proxy.
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the 1997 annual
meeting of stockholders of Zapata must be received by Zapata by March , 1997
to be considered for inclusion in the proxy statement and form of proxy relating
to the 1997 meeting.
EXPERTS
The consolidated financial statements of Zapata as of September 30, 1995
and 1994 and for the years then ended included in Zapata's Annual Report on Form
10-K for the year ended September 30, 1995 and included and incorporated by
reference in this Joint Proxy Statement/Prospectus have been incorporated herein
in reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of said firm as experts in accounting and auditing. The
consolidated financial statements of Zapata for the fiscal year ended September
30, 1993 included in Zapata's Annual Report on Form 10-K for the year ended
September 30, 1995 and incorporated by reference in this Joint Proxy
Statement/Prospectus have been audited by Arthur Andersen LLP, independent
public accountants, as set forth in their report thereon and are incorporated by
reference in this Joint Proxy Statement/Prospectus in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
The consolidated financial statements of Houlihan's included in Houlihan's
Annual Report on Form 10-K for the fiscal year ended December 25, 1995 and
incorporated by reference in this Joint Proxy Statement/Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report incorporated herein by reference and have been so incorporated herein in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of Envirodyne Industries, Inc. and
subsidiaries as of December 28, 1995 and December 29, 1994 and for the period
December 30, 1994 to December 28, 1995 and January 1 to December 29, 1994
(Post-consummation) and January 1 to December 31, 1993 (Pre-consummation)
included in Zapata's Current Report on Form 8-K dated June 19, 1996 and
incorporated by reference in this Joint Proxy Statement/Prospectus have been
incorporated herein in reliance on the report, which includes an explanatory
paragraph discussing the comprehensive financial restructuring through
implementation of reorganization under Chapter 11 of the United States
Bankruptcy Code, of Coopers & Lybrand L.L.P., independent accountants, given on
the authority of said firm as experts in accounting and auditing.
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APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF JUNE 4, 1996
(AS AMENDED AND RESTATED AS OF
AUGUST 15, 1996)
BY AND AMONG
ZAPATA CORPORATION,
ZAPATA ACQUISITION CORP.
AND
HOULIHAN'S RESTAURANT GROUP, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
THE MERGER..............................................................................
Section 1.1 Effective Time of the Merger.........................................
Section 1.2 Closing..............................................................
Section 1.3 Effects of the Merger................................................
Section 1.4 Directors............................................................
Section 1.5 Officers.............................................................
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES; DISSENTING SHARES...................
Section 2.1 Conversion of Securities.............................................
Section 2.2 Certain Definitions..................................................
Section 2.3 Elections............................................................
Section 2.4 Certain Adjustments and Limitations..................................
Section 2.5 Exchange of Certificates.............................................
Section 2.6 Stock Transfer Books.................................................
Section 2.7 Dissenting Shares....................................................
ARTICLE III
REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE COMPANY....................
Section 3.1 Due Incorporation, Etc...............................................
Section 3.2 Qualification as Foreign Entities....................................
Section 3.3 Capital Stock........................................................
Section 3.4 Material Company Subsidiaries........................................
Section 3.5 Ownership of Equity Interests........................................
Section 3.6 Corporate Power and Authority........................................
Section 3.7 No Conflicts or Consents; Environmental Law; and Litigation..........
Section 3.8 SEC Reports and Financial Statements.................................
Section 3.9 Information in Joint Proxy Statement and Registration Statement......
Section 3.10 No Material Adverse Change...........................................
Section 3.11 Taxes................................................................
Section 3.12 DGCL Section 203.....................................................
Section 3.13 Vote Required........................................................
Section 3.14 Opinion of Company Financial Advisor.................................
Section 3.15 No Undisclosed Employee Benefit Plan Liabilities.....................
Section 3.16 Tax Matters..........................................................
Section 3.17 Affiliates...........................................................
Section 3.18 General..............................................................
ARTICLE IV
REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE PARENT AND THE SUB.........
Section 4.1 Due Incorporation, Etc...............................................
Section 4.2 Qualification as Foreign Entities....................................
Section 4.3 Capital Stock........................................................
Section 4.4 Material Parent Subsidiaries.........................................
Section 4.5 Ownership of Equity Interests........................................
Section 4.6 Corporate Power and Authority........................................
Section 4.7 No Conflicts or Consents; Environmental Law; and Litigation..........
Section 4.8 SEC Reports and Financial Statements.................................
Section 4.9 Information in Joint Proxy Statement and Registration Statement......
</TABLE>
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<TABLE>
<S> <C> <C>
Section 4.10 No Material Adverse Change...........................................
Section 4.11 Taxes................................................................
Section 4.12 Reservation of Shares................................................
Section 4.13 DGCL Section 203.....................................................
Section 4.14 Vote Required........................................................
Section 4.15 Interim Operations of the Sub........................................
Section 4.16 Opinion of Parent Financial Advisor..................................
Section 4.17 No Undisclosed Employee Benefit Plan Liabilities.....................
Section 4.18 General..............................................................
ARTICLE V
COVENANTS AND AGREEMENTS................................................................
Section 5.1 Conduct of Business of the Company...................................
Section 5.2 Conduct of Business of the Parent....................................
Section 5.3 Reasonable Best Efforts..............................................
Section 5.4 Letter of the Company's Accountants..................................
Section 5.5 Letter of the Parent's Accountants...................................
Section 5.6 Access to Information................................................
Section 5.7 Stockholders Meetings................................................
Section 5.8 Stock Exchange Listing...............................................
Section 5.9 Company Plans........................................................
Section 5.10 Other Employee Benefit Plans.........................................
Section 5.11 Exclusivity..........................................................
Section 5.12 Fees and Expenses....................................................
Section 5.13 Brokers or Finders...................................................
Section 5.14 Rule 145.............................................................
Section 5.15 Board Membership.....................................................
Section 5.16 Takeover Statutes....................................................
ARTICLE VI
CONDITIONS..............................................................................
Section 6.1 Conditions to Each Party's Obligation To Effect the Merger...........
Section 6.2 Conditions of Obligations of the Parent and the Sub..................
Section 6.3 Conditions of Obligations of the Company.............................
ARTICLE VII
TERMINATION AND AMENDMENT...............................................................
Section 7.1 Termination..........................................................
Section 7.2 Effect of Termination................................................
ARTICLE VIII
MISCELLANEOUS...........................................................................
Section 8.1 Survival of Representations and Warranties; Enforcement of Certain
Covenants............................................................
Section 8.2 Amendment............................................................
Section 8.3 Extension; Waiver....................................................
Section 8.4 Notices..............................................................
Section 8.5 Interpretation.......................................................
Section 8.6 Counterparts.........................................................
Section 8.7 Entire Agreement; No Third Party Beneficiaries.......................
Section 8.8 Governing Law........................................................
Section 8.9 Specific Performance.................................................
Section 8.10 Publicity............................................................
Section 8.11 Assignment...........................................................
Section 8.12 Validity.............................................................
Section 8.13 Conveyance Tax.......................................................
</TABLE>
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SCHEDULE OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM LOCATION
- ------------------------------------------------------------------------- --------------------
<S> <C>
Acquisition Transaction.................................................. Section 5.11
Adjusted Voting Power.................................................... Section 2.2
Aggregate Cash Amount.................................................... Section 2.2
Aggregate Stock Amount................................................... Section 2.2
Agreement................................................................ Preamble
Beneficially Owned....................................................... Section 2.2
Cash Election............................................................ Section 2.1(c)
Certificates............................................................. Section 2.5(b)
Closing.................................................................. Section 1.2
Closing Date............................................................. Section 1.2
Code..................................................................... Preamble
Company.................................................................. Preamble
Company Common Stock..................................................... Section 2.1(a)
Company Disclosure Schedule.............................................. Section 3.3
Company Financial Statements............................................. Section 3.8
Company Options.......................................................... Section 3.3
Company Plans............................................................ Section 3.3
Company SEC Documents.................................................... Section 3.8
Company Stockholder Meeting.............................................. Section 5.7
Compensable Expenses..................................................... Section 5.11
Confidentiality Agreement................................................ Section 5.6
Contracts................................................................ Section 3.7(b)
Convertible Securities................................................... Section 2.2
Costs.................................................................... Section 5.10(d)(ii)
Current Employees........................................................ Section 5.10(a)
DGCL..................................................................... Preamble
DGCL Interested Stockholder.............................................. Section 3.12
Dissenting Shares........................................................ Section 2.7
Effective Time........................................................... Section 1.1
Election Deadline........................................................ Section 2.3(c)
Employee Benefit Plans................................................... Section 5.10(a)
Environmental Laws....................................................... Section 3.7(c)
ERISA.................................................................... Section 3.15
Exchange Act............................................................. Section 3.7(a)
Exchange Agent........................................................... Section 2.5(a)
Exchange Fund............................................................ Section 2.5(a)
Form of Election......................................................... Section 2.3(a)
Glazer................................................................... Section 2.2
Glazer Group............................................................. Section 2.2
Glazer Shares............................................................ Section 2.2
Governmental Entity...................................................... Section 3.7(a)
HSR Act.................................................................. Section 3.7(a)
Indemnified Parties...................................................... Section 5.10(d)(ii)
IRS...................................................................... Section 3.11(a)
Joint Proxy Statement.................................................... Section 3.9(a)
Liens.................................................................... Section 3.3
Market Value............................................................. Section 2.2
Material Advance Effect (Company)........................................ Section 3.18
Material Adverse Effect (Parent)......................................... Section 4.18
Material Company Subsidiary.............................................. Section 3.4(a)
</TABLE>
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<TABLE>
<CAPTION>
DEFINED TERM LOCATION
- ------------------------------------------------------------------------- --------------------
<S> <C>
Material Parent Subsidiary............................................... Section 4.4
Maximum Glazer Number.................................................... Section 2.1(e)
Maximum Ownership Limits................................................. Section 2.1(e)
Merger................................................................... Preamble
Merger Consideration..................................................... Section 2.2
Merger Filing Date....................................................... Section 1.1
NASD..................................................................... Section 2.3(a)
NYSE..................................................................... Section 2.2
Options.................................................................. Section 2.2
Outstanding Share Number................................................. Section 2.2
Outstanding Voting Securities............................................ Section 2.2
Parent................................................................... Preamble
Parent Common Stock...................................................... Section 2.1(a)
Parent Disclosure Schedule............................................... Section 4.3
Parent Financial Statements.............................................. Section 4.8
Parent Options........................................................... Section 4.3
Parent Plans............................................................. Section 4.3
Parent SEC Documents..................................................... Section 4.8
Parent Stockholder Meeting............................................... Section 5.7
Person................................................................... Section 5.11
Preference Stock......................................................... Section 4.3
Preferred Stock.......................................................... Section 4.3
Representative........................................................... Section 2.3(a)
Residual Election........................................................ Section 2.1(d)
S-4...................................................................... Section 3.9
SAS...................................................................... Section 5.4
SEC...................................................................... Section 3.8
Securities Act........................................................... Section 3.8
Stock Election........................................................... Section 2.1(b)
Sub...................................................................... Preamble
Subsidiary............................................................... Section 2.1(g)
Surviving Corporation.................................................... Section 1.3
Taxes.................................................................... Section 3.11(b)
Tax Return............................................................... Section 3.11(b)
Trust.................................................................... Section 3.12
Voting Debt.............................................................. Section 3.3
Voting Power............................................................. Section 2.2
Voting Securities........................................................ Section 2.2
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 4, 1996, as amended and
restated as of August 15, 1996 (this "Agreement"), by and among Zapata
Corporation, a Delaware corporation (the "Parent"), Zapata Acquisition Corp., a
Delaware corporation and a wholly owned subsidiary of the Parent (the "Sub"),
and Houlihan's Restaurant Group, Inc., a Delaware corporation (the "Company").
WHEREAS, duly constituted and authorized special committees of the
respective Boards of Directors of the Parent and the Company comprised of
persons who are not members of the Glazer Group (as defined in Section 2.2)
have, after consulting with legal counsel and investment bankers engaged for
that purpose, approved the merger provided for herein ("Merger") as being in the
best interests of the Parent and its stockholders and the Company and its
stockholders, respectively, and have recommended that the respective
stockholders of each company approve the Merger;
WHEREAS, each of the respective Boards of Directors of the Sub and the
Company has determined that it is the best interests of each corporation and its
respective stockholders to effect the Merger upon the terms and subject to the
conditions set forth herein;
WHEREAS, in furtherance thereof, each of the respective Boards of Directors
of the Sub and the Company has approved the merger of the Company into the Sub,
with the Sub as the surviving corporation, all of the outstanding stock of which
will be owned by the Parent in accordance with the provisions of the General
Corporation Law of the State of Delaware (the "DGCL");
WHEREAS, the aforesaid special committee of the Board of Directors of the
Parent, being thereunto duly authorized by the Board of Directors of the Parent,
has approved the issuance of common stock of the Parent pursuant to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder ("Code");
WHEREAS, pursuant to the Merger, the stockholders of the Company shall have
the right to receive common stock of the Parent and cash, on and subject to the
terms and conditions set forth herein; and
WHEREAS, the Company, the Parent and the Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 Effective Time of the Merger. Upon the terms and subject to
the conditions set forth in this Agreement at the Effective Time (as defined in
this Section 1.1), the Company shall be merged with and into the Sub in
accordance with the DGCL and the separate corporate existence of the Company
shall thereupon cease. On the "Merger Filing Date" (as defined in this Section
1.1), the Parent, the Sub and the Company shall cause to be filed with the
Secretary of State of the State of Delaware a properly executed certificate of
merger consistent with the terms of this Agreement and the DGCL. Such
certificate of merger shall state that the effective time of the Merger (the
"Effective Time") shall be the close of business on the date such certificate of
merger is filed (the "Merger Filing Date"), and the Merger shall be effective at
that time. The Merger Filing Date shall be the same day as the Closing Date
unless the parties shall otherwise agree.
Section 1.2 Closing. Unless this Agreement is terminated and the
transactions contemplated herein abandoned pursuant to Section 7.1 and assuming
the satisfaction or waiver of the conditions set forth in Article VI, the
closing of the Merger (the "Closing") will take place at 10:00 a.m. on a date to
be specified by the parties (the "Closing Date"), which will be no later than
the second business day following the satisfaction
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or waiver of the conditions set forth in Article VI, at the offices of Baker &
Botts, L.L.P., Houston, Texas, unless another date or place is agreed to in
writing by the parties hereto.
Section 1.3 Effects of the Merger. The Sub shall be the surviving
corporation of the Merger (the "Surviving Corporation") and shall continue its
existence under the laws of the State of Delaware. The Certificate of
Incorporation of the Sub in effect at the Effective Time will be amended in its
entirety to read as set forth in Annex I and, as such, will be the Restated
Certificate of Incorporation of the Sub, until amended in accordance with the
terms thereof and the DGCL. The Bylaws of the Sub in effect at the Effective
Time will be the Bylaws of the Surviving Corporation, until duly amended in
accordance with the terms thereof and the DGCL. The Merger will have the effects
set forth in the DGCL. Without limiting the generality of the foregoing, at the
Effective Time, all the properties, rights, privileges, powers and franchises of
the Company and the Sub will vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and the Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
Section 1.4 Directors. The initial directors of the Surviving Corporation
shall be Frederick R. Hipp and such other person or persons as shall be
designated by the Parent, each to hold office from the Effective Time in
accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation and until his or her successor is duly elected or appointed and
qualified.
Section 1.5 Officers. The officers of the Company at the Effective Time
will be the initial officers of the Surviving Corporation, each to hold office
from the Effective Time in accordance with the Certificate of Incorporation and
Bylaws of the Surviving Corporation and until his or her successor is duly
appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES;
DISSENTING SHARES
Section 2.1 Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of the Sub, the Company or the
holders of any capital stock of the Sub or the Company:
(a) Each share of common stock, par value $.01 per share, of the Company
("Company Common Stock") issued and outstanding immediately prior to the
Effective Time (excluding any treasury shares, shares held by the Parent and
Dissenting Shares) as to which no Cash Election, Stock Election or Residual
Election has been made shall be converted into the right to receive (x) $4.00 in
cash, without interest, plus (y) a number of shares of common stock, par value
$.25 per share ("Parent Common Stock"), of the Parent equal to $4.00 divided by
the Market Value.
(b) Each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time as to which the holder of record thereof so elects
as provided in Section 2.3 (a "Stock Election") shall be converted into the
right to receive a number of shares of Parent Common Stock equal to $8.00
divided by the Market Value.
(c) Each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time as to which the holder of record thereof so elects
as provided in Section 2.3 (a "Cash Election") shall, unless Section 2.1(e)
applies, be converted into the right to receive $8.00 in cash, without interest.
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(d) Each share of Company Common Stock issued and outstanding immediately
prior to the Effective Date as to which the holder of record thereof so elects
as provided in Section 2.3 (a "Residual Election") shall, unless Section 2.1(e)
applies, be converted into the right to receive:
(x) a number of shares of Parent Common Stock equal to
ASA -- (NES X $4.00) -- (SES X $8.00)
-------------------------------------
RES X MV
where
ASA = Aggregate Stock Amount (as defined in Section 2.2)
NES = number of shares of Company Common Stock as to which no Cash
Election, Stock Election or Residual Election has been exercised, but excluding
any Dissenting Shares
SES = number of shares of Company Common Stock as to which Stock Elections
have been exercised
RES = number of shares of Company Common Stock as to which Residual
Elections have been exercised
MV = Market Value
plus
(y) cash, without interest, in an amount equal to (i) $8.00 less (ii)
the product of the number of shares of Parent Common Stock determined
pursuant to the immediately preceding clause (x) and the Market Value.
(e) If immediately after the Effective Time the Glazer Group would hold in
the aggregate either more than (i) 49.9% of the Voting Power of all Voting
Securities of the Parent or (ii) 49.9% of the Adjusted Voting Power of all
Outstanding Voting Securities of the Parent (such limits being referred to as
the "Maximum Ownership Limits"), then the consideration to be received in the
Merger with respect to shares of Company Common Stock covered by Cash Elections
and Residual Elections shall be adjusted as follows:
The maximum number of whole shares of Parent Common Stock which can be
issued to the Glazer Group in the Merger (the "Maximum Glazer Number") without
the Glazer Group holding in the aggregate more than either Maximum Ownership
Limit shall be calculated assuming that a number of shares equal to the
Aggregate Stock Amount divided by the Market Value is issued in the Merger.
Each share covered by a Cash Election will be converted into the right to
receive:
(x) a number of shares of Parent Common Stock equal to
ASA -- (NES X $4.00) -- (SES X $8.00) -- MGN X RES X MV
---
GS
------------------------------------------------------
CES X MV
where
ASA = Aggregate Stock Amount
NES = number of shares of Company Common Stock as to which no Cash
Election, Stock Election or Residual Election has been exercised, but excluding
any Dissenting Shares
SES = number of shares of Company Common Stock as to which Stock Elections
have been exercised
MGN = Maximum Glazer Number
RES = number of shares of Company Common Stock as to which a Residual
Election has been exercised
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GS = number of Glazer Shares
CES = number of shares of Company Common Stock as to which a Cash Election
has been exercised
MV = Market Value
plus
(y) an amount of cash, without interest, equal to (i) $8.00 less (ii)
the product of the number of shares of Parent Common Stock determined
pursuant to the immediately preceding clause (x) and the Market Value.
Each share of Company Common Stock as to which a Residual Election has been
exercised shall be converted into the right to receive:
(1) a number of shares of Parent Common Stock equal to
MGN
---
GS
where
MGN = Maximum Glazer Number
GS = number of Glazer Shares
plus
(2) an amount of cash, without interest, equal to (i) $8.00 less (ii)
the product of the number of shares of Parent Common Stock determined
pursuant to the immediately preceding clause (1) and the Market Value.
(f) At the Effective Time, all such shares of Company Common Stock shall no
longer be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each certificate previously evidencing any such shares shall
thereafter represent the right to receive the Merger Consideration. The holders
of such certificates previously evidencing such shares of Company Common Stock
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such shares of Company Common Stock except as otherwise
provided herein or by law.
(g) Each share of Company Common Stock held in the treasury of the Company
and each share of Company Common Stock owned by the Parent or any Subsidiary of
the Parent or of the Company immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof and no payment shall be
made with respect thereto. As used in this Agreement, the word "Subsidiary"
means, with respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which (i) such party or any other Subsidiary
of such party is a general partner (excluding partnerships, the general
partnership interests of which held by such party or any Subsidiary of such
party do not have a majority of the voting interests in such partnership) or
(ii) at least a majority of the securities or other interests having by their
terms ordinary voting power to elect a majority of the Board of Directors or
others performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party, by any
one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries. References to a wholly owned Subsidiary of an entity include a
Subsidiary all of the securities having ordinary voting power to elect the Board
of Directors or others performing similar functions of which is owned directly
or through "wholly owned" Subsidiaries by such entity.
(h) Each issued and outstanding share of common stock, par value $1.00 per
share, of the Sub will continue to be one fully paid and nonassessable share of
common stock, par value $1.00 per share, of the Surviving Corporation.
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Section 2.2 Certain Definitions.
"Adjusted Voting Power" means, with respect to Outstanding Voting
Securities, the highest number of votes that the holders of all such Outstanding
Voting Securities would be entitled to cast for the election of directors or on
any other matter (except to the extent such voting rights are dependent upon
arrearages in the payment of dividends, events of default or bankruptcy),
assuming for purposes of this computation, the conversion into or exchange for
Voting Securities of Convertible Securities and the exercise of Options for the
purchase of Voting Securities or Convertible Securities, in each case to the
extent that any such action would increase the number of such votes.
"Aggregate Cash Amount" means (a) the Outstanding Share Number multiplied
by $4.00 less (b) the number of Dissenting Shares multiplied by $8.
"Aggregate Stock Amount" means the Outstanding Share Number multiplied by
$4.00.
Securities are "Beneficially Owned" by a person if such person possesses
the ability, whether through contract, arrangement, understanding, relationship
or otherwise, to exercise, directly or indirectly, the voting power (including
the power to vote or to direct the voting) and/or the investment power
(including the power to dispose or to direct the disposition) of such security.
"Cash Election" means an election made pursuant to Section 2.1(c).
"Convertible Securities" means securities of a corporation which are
convertible into or exchangeable for Voting Securities.
"Glazer" means Malcolm I. Glazer, individually and as trustee of the
Malcolm Glazer Trust U/A dated March 23, 1990, as amended ("Trust").
"Glazer Group" means Glazer and any corporation, person, partnership, trust
or other entity controlled, directly or indirectly, by Glazer.
"Glazer Shares" means shares of Company Common Stock which are owned of
record or Beneficially Owned by any member of the Glazer Group.
"Market Value" means the average closing price of a share of Parent Common
Stock as reported on the Composite Tape for the New York Stock Exchange, Inc.
("NYSE") for the 20 trading days immediately preceding the 5th trading day prior
to the date of the Company Stockholder Meeting (the "Meeting Date").
"Merger Consideration" means the consideration to be issued in the Merger
in respect of the Company Common Stock as provided in Section 2.1.
"Options" means options and rights of a corporation (whether presently
exercisable or not) to purchase Voting Securities or Convertible Securities
(except options issued under employee stock option plans).
"Outstanding Share Number" means the number of shares of Company Common
Stock outstanding immediately prior to the Effective Time (excluding any
treasury shares and shares held by the Parent).
"Outstanding Voting Securities" at any time means the then issued and
outstanding Voting Securities, Convertible Securities (which shall be counted at
the highest conversion or exchange rate at which they can be converted or
exchanged) and Options (which shall be counted at the highest rate at which they
can be exercised) of a corporation.
"Residual Election" means an election made pursuant to Section 2.1(d).
"Stock Election" means an election made pursuant to Section 2.1(b).
"Voting Power" means, with respect to Voting Securities, the highest number
of votes that the holders of all Voting Securities, issued and outstanding on
the date such determination is made, would be entitled to cast for the election
of directors or on any other matter (except to the extent such voting rights are
dependent upon arrearages in the payment of dividends, events of default or
bankruptcy).
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"Voting Securities" means the common stock and any other securities of a
corporation of any kind or class having power to vote for the election of
directors.
Section 2.3 Elections.
(a) Cash Elections, Stock Elections and Residual Elections shall be made by
holders of record of Company Common Stock by mailing to the Exchange Agent a
form designated for that purpose (a "Form of Election"). The Form of Election
with respect to Cash Elections, Stock Elections and Cash/Stock Elections shall
contain a certification that no shares of Company Common Stock covered by such
Form of Election are owned of record or Beneficially Owned by any member of the
Glazer Group. To be effective, a Form of Election must be properly completed,
signed and submitted to the Exchange Agent and accompanied by the certificates
representing the shares of Company Common Stock as to which the election is
being made (or by the guaranty of the delivery of such certificates by an
appropriate trust company in the United States or a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc. (the "NASD")). Holders of record of shares of Company Common Stock who hold
such shares as nominees, trustees or in other representative capacities (a
"Representative") may submit multiple Forms of Election, provided that such
Representative certifies that each such Form of Election covers all the shares
of Company Common Stock held by such Representative for a particular beneficial
owner or owners. The Parent will have the discretion, which it may delegate in
whole or in part to the Exchange Agent, to determine whether Forms of Election
have been properly completed, signed and submitted or revoked and to disregard
immaterial defects in Forms of Election. The decision of the Parent (or the
Exchange Agent) in such matters shall be conclusive and binding. Neither the
Parent nor the Exchange Agent will be under any obligation to notify any person
of any defect in a Form of Election submitted to the Exchange Agent. The Parent
shall make all computations contemplated by this Section 2.3 and all such
computations shall be conclusive and binding on the holders of Company Common
Stock. Glazer has agreed with the Parent pursuant to the Supplemental Agreement
of even date herewith to make or cause to be made the Residual Election with
respect to all shares of Company Common Stock owned of record or Beneficially
Owned by him and, to the extent within his actual control, any other member of
the Glazer Group.
(b) For the purposes hereof, a holder of Company Common Stock who does not
submit a Form of Election which is received by the Exchange Agent prior to the
Election Deadline or who holds Dissenting Shares shall not have made a Cash
Election, a Stock Election or a Residual Election. If the Parent or the Exchange
Agent shall determine that any purported Cash Election, Stock Election or
Residual Election was not properly made, such purported Cash Election, Stock
Election or Residual Election shall be deemed to be of no force and effect and
the stockholder making such purported Cash Election, Stock Election or Residual
Election shall for purposes hereof be deemed not to have made a Cash Election,
Stock Election or Residual Election, as applicable.
(c) The Parent and the Company shall each use its best efforts to mail the
Form of Election to all persons who become holders of Company Common Stock
during the period between the record date for the Company's Stockholder Meeting
and 5:00 p.m. New York City time, on the date four calendar days prior to the
Meeting Date. A Form of Election must be received by the Exchange Agent by 5:00
p.m. New York City time, on the date one calendar day prior to the Meeting Date
(the "Election Deadline") in order to be effective. All elections other than
that made or caused to be made by Glazer with respect to the Glazer Shares may
be revoked until the Election Deadline.
Section 2.4 Certain Adjustments and Limitations.
(a) If between the date of this Agreement and the Effective Time the
outstanding shares of capital stock of the Parent or the Company shall have been
changed into a different number of shares or a different class, by reason of any
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the Merger Consideration shall be
correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares.
(b) In the event that (i) the Market Value is at such a level that the
holders of the shares of Company Common Stock that exercise Cash Elections are
entitled to receive on a per share basis no cash in excess of $4
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and (ii) the Parent Company Stock issuable in respect of the Glazer Shares still
would cause the number of shares held by the Glazer Group to exceed one of the
Maximum Ownership Limits, this Agreement shall be terminated and the Merger
shall not be consummated.
Section 2.5 Exchange of Certificates.
(a) Promptly after completion of the allocation and election procedures set
forth in Sections 2.1 and 2.3, the Parent shall deposit, or shall cause to be
deposited, with American Stock Transfer & Trust Company or another bank or trust
company designated by the Parent (the "Exchange Agent"), for the benefit of the
holders of shares of Company Common Stock, for exchange in accordance with this
Article II through the Exchange Agent, (i) certificates evidencing a number of
shares of Parent Common Stock equal to the Aggregate Stock Amount and (ii) cash
in an amount equal to the Aggregate Cash Amount (such certificates for shares of
Parent Common Stock, together with any dividends or distributions with respect
thereto, and cash, being hereinafter referred to as the "Exchange Fund"). The
Exchange Agent shall, pursuant to irrevocable instructions, deliver the Parent
Common Stock and cash contemplated to be issued pursuant to Section 2.1 out of
the Exchange Fund. Except as contemplated by Section 2.5(e), the Exchange Fund
shall not be used for any other purpose. The Parent, the Sub and the Company
will pay their respective expenses, if any, incurred in connection with the
Merger, and none of the Parent, the Sub or the Company will pay any of the
expenses of any stockholder of the Company incurred in connection with the
Merger.
(b) As soon as reasonably practicable after the Effective Time, the Parent
will instruct the Exchange Agent to mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
evidenced outstanding shares of Company Common Stock (other than Dissenting
Shares) (the "Certificates"), (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange Agent,
shall be in such form and have such other provisions as the Parent may
reasonably specify and shall provide a mechanism for the surrender of shares
evidenced by lost or misplaced stock certificates) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for certificates
evidencing shares of Parent Common Stock or cash. The letter of transmittal need
not be accompanied by Certificates previously delivered to the Exchange Agent
pursuant to a Form of Election and not withdrawn. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with such letter of
transmittal duly executed, and such other customary documents as may be required
pursuant to such instructions, the holder of such Certificate shall be entitled
to receive in exchange therefor (A) certificates evidencing that number of whole
shares of Parent Common Stock which such holder has the right to receive in
respect of the shares of Company Common Stock formerly evidenced by such
Certificate in accordance with Section 2.1, (B) cash to which such holder is
entitled to receive in accordance with Section 2.1, (C) cash in lieu of
fractional shares of Parent Common Stock to which such holder is entitled
pursuant to Section 2.5(e) and (D) any dividends or other distributions to which
such holder is entitled pursuant to Section 2.5(c), and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of ownership
of shares of Company Common Stock which is not registered in the transfer
records of the Company, a certificate evidencing the proper number of shares of
Parent Common Stock and/or cash may be issued and/or paid in accordance with
this Article II to a transferee if the Certificate evidencing such shares of
Company Common Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.5, each Certificate shall be deemed at any time
after the Effective Time to evidence only the right to receive upon such
surrender the Merger Consideration. The shares of Parent Common Stock
constituting the Merger Consideration shall be deemed to have been issued at the
Effective Time.
(c) No dividends or other distributions declared or made after the
Effective Time with respect to Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Common Stock evidenced thereby, and no other
part of the Merger Consideration shall be paid to any such holder, until the
holder of such Certificate shall surrender such Certificate. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be paid to the holder of the certificates evidencing whole shares of
Parent Common Stock issued in exchange therefor, without interest, (i) promptly,
the amount of any cash payable with respect to a fractional share of
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Parent Common Stock to which such holder is entitled pursuant to Section 2.5(e)
and the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Parent
Common Stock, and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
surrender and a payment date occurring after surrender payable with respect to
such whole shares of Parent Common Stock. No interest shall be paid on the
Merger Consideration.
(d) All shares of Parent Common Stock issued and cash paid upon conversion
of the shares of Company Common Stock in accordance with the terms hereof shall
be deemed to have been issued or paid in full satisfaction of all rights
pertaining to such shares of Company Common Stock.
(e) (i) No certificates or scrip evidencing fractional shares of Parent
Common Stock shall be issued upon the surrender for exchange of Certificates,
and such fractional share interests will not entitle the owner thereof to vote
or to any rights of a stockholder of Parent. In lieu of any such fractional
shares, each holder of Company Common Stock upon surrender of a Certificate for
exchange pursuant to this Section 2.5 shall be paid an amount in cash (without
interest), rounded to the nearest cent, determined by multiplying (a) the Market
Value by (b) the fractional interest to which such holder would otherwise be
entitled (after taking into account all shares of Company Common Stock then held
of record by such holder).
(ii) As soon as practicable after the determination of the amount of cash,
if any, to be paid to holders of Company Common Stock with respect to any
fractional share interests, the Exchange Agent shall promptly pay such amounts
to such holders of the Company Common Stock subject to and in accordance with
the terms of Section 2.5(c).
(f) Any portion of the Exchange Fund which remains undistributed to the
holders of Company Common Stock on the first anniversary date of the Effective
Time shall be delivered to the Parent, upon demand, and any holders of Company
Common Stock who have not theretofore complied with this Article II shall
thereafter look only to the Parent for the Merger Consideration to which they
are entitled.
(g) Neither the Parent nor the Surviving Corporation shall be liable to any
holder of shares of Company Common Stock for any such shares of Parent Common
Stock, cash (or dividends or distributions with respect thereto) or cash from
the Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(h) The Parent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock such amounts as the Parent is required to deduct
and withhold with respect to the making of such payment under the Code, or any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld by the Parent, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of the shares of Company
Common Stock in respect of which such deduction and withholding was made by the
Parent.
Section 2.6 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company. On or after the Effective Time, any Certificates
presented to the Exchange Agent or the Parent for any reason shall be converted
into the Merger Consideration.
Section 2.7 Dissenting Shares. Notwithstanding any other provisions of
this Agreement to the contrary, shares of Company Common Stock that are
outstanding immediately prior to the Effective Time and which are held by
stockholders who shall have not voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly in writing appraisal for
such shares in accordance with Section 262 of the DGCL (collectively, the
"Dissenting Shares") shall not be converted into or represent the right to
receive the Merger Consideration. Such stockholders shall be entitled to receive
payment of the appraised value of such shares of Company Common Stock held by
them in accordance with the provisions of such Section 262, except that all
Dissenting Shares held by stockholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to appraisal of such
shares of Company Common Stock under such Section 262 shall thereupon be deemed
to have been converted into and to have become exchangeable, as of the Effective
Time, for the right to receive, without any interest thereon, the Merger
Consideration, on the
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basis that (as provided in Section 2.3(b)) such holders shall be deemed not to
have made a Cash Election, Stock Election or Residual Election, upon surrender,
in the manner provided in Section 2.5, of the Certificate or Certificates that
formerly evidenced such shares of Company Common Stock.
ARTICLE III
REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS OF THE COMPANY
The Company represents and warrants to, and covenants and agrees with, the
Parent and the Sub as follows:
Section 3.1 Due Incorporation, Etc. Each of the Company and each Material
Company Subsidiary (as defined in Section 3.4) is a corporation or other legal
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or organization, with all requisite power
and authority to own, operate and lease its properties and to carry on its
business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power and authority,
individually or in the aggregate, has not had, and is not reasonably likely to
have, a material adverse effect on the Company and its Subsidiaries. The Company
has delivered to the Parent true and accurate copies of the certificate of
incorporation, bylaws or other organizational documents of each of the Company
and each Material Company Subsidiary.
Section 3.2 Qualification as Foreign Entities. Each of the Company and
each Material Company Subsidiary is duly licensed or qualified to do business
and, if applicable, is in good standing, in each state or other jurisdiction in
which the character of the properties owned or leased by it or the nature of the
business conducted by it requires it to be so licensed or qualified, except
where the failure to be so licensed, qualified or in good standing has not had,
and is not reasonably likely to have, a material adverse effect on the Company
and its Subsidiaries.
Section 3.3 Capital Stock. The authorized capital stock of the Company
consists of 20,000,000 shares of Company Common Stock, of which as of April 30,
1996, 9,998,012 shares of Company Common Stock were issued and outstanding and
no shares were held in the Company's treasury. Also, as of April 30, 1996, the
Company had reserved for issuance (a) 1,195,600 shares of Company Common Stock
for issuance upon the exercise of then-outstanding options ("Company Options")
under the Company's 1994 Stock Option Plan for Outside Directors and its 1994
Executive Stock Option Plan (collectively, the "Company Plans") and (b)
1,290,000 shares of Company Common Stock in respect of future grants of Company
Options under the Company Plans. Since December 28, 1992, the Company has not
issued any shares of its capital stock, except for issuances of Company Common
Stock upon the exercise of Company Options granted under the Company Plans, and
has not repurchased, redeemed or otherwise retired any shares of its capital
stock. All the outstanding shares of capital stock of the Company and each of
its Subsidiaries are, and all shares of Company Common Stock that may be issued
pursuant to the Company Plans will be, when issued and paid for in accordance
with the terms thereof, duly authorized, validly issued, fully paid and
nonassessable and not subject to any preemptive rights of third parties in
respect thereto. No bonds, debentures, notes or other indebtedness having the
right to vote under ordinary circumstances (or convertible into securities
having such right to vote) ("Voting Debt") of the Company or any of its
Subsidiaries are issued or outstanding. Except as disclosed above, as disclosed
in the Company SEC Documents (as defined in Section 3.8) filed prior to May 16,
1996 or as disclosed in Section 3.3 of the Company Disclosure Schedule delivered
by the Company to the Parent pursuant to this Agreement ("Company Disclosure
Schedule"), (x) there are no existing options, warrants, calls, subscriptions,
rights, commitments or other agreements of any character obligating the Company
or any of its Subsidiaries to issue, transfer, vote, or sell or cause to be
issued, transferred, voted, or sold any shares of its capital stock, Voting Debt
or other interests of the Company or any of its Subsidiaries or securities
convertible into or exchangeable for such shares or other securities or
interests or obligating the Company or any of its Subsidiaries to grant, extend
or enter into any such option, warrant, call, subscription, right, agreement or
commitment; (y) there are no outstanding contractual obligations of the Company
or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares
of capital stock of the Company or
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any shares of capital stock or other interests of any of the Company's
Subsidiaries and any partnership interests are not subject to current or future
capital calls; and (z) each of the outstanding shares of capital stock or other
interests of the Company's Subsidiaries are owned by the Company or by a
Subsidiary of the Company free and clear of any liens, security interests,
pledges, charges, claims, encumbrances, restrictions or legends of any kind
(collectively, "Liens"), except those which, individually or in the aggregate,
have not had, and are not reasonably likely to have, a material adverse effect
on the Company and its Subsidiaries.
Section 3.4 Material Company Subsidiaries.
(a) Each Material Company Subsidiary is listed in Section 3.4(a) of the
Company Disclosure Schedule.
(b) The Company has provided to the Parent full access to the minute books
and stock records of each of the Company and each Material Company Subsidiary.
Section 3.5 Ownership of Equity Interests. Except as disclosed in Section
3.5 of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries owns or holds, directly or indirectly, any capital stock of, or
other equity or other ownership interest in (or any securities, rights or other
interests exchangeable for, convertible into or which otherwise relate to the
acquisition of any capital stock of), any Person or is a partner or joint
venturer in any partnership or joint venture.
Section 3.6 Corporate Power and Authority. The Company has the requisite
corporate power to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, subject to the approval and adoption of this
Agreement (insofar as it relates to the Merger) and the Merger by the
affirmative vote of the holders of Company Common Stock entitled to cast at
least a majority of the total number of votes entitled to be cast by holders of
Company Common Stock and the filings referred to in Section 3.7(a). The
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the Merger and of the other transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions so contemplated, other than with respect to the Merger, the
required stockholder approval and adoption noted above, and the filing of a
certificate of merger with the Secretary of State of the State of Delaware. This
Agreement has been duly and validly executed and delivered by the Company and,
assuming this Agreement constitutes a valid an binding obligation of the Parent
and the Sub, constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
Section 3.7 No Conflicts or Consents; Environmental Law; and Litigation.
(a) Other than the filings provided for in Section 1.1 and as required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations thereunder (the "HSR Act"), and the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder (the
"Exchange Act"), and filings with regulatory authorities with respect to liquor
licenses, no notices, reports or other filings are required to be made by the
Company with, nor any consents, registrations, approvals, permits or
authorizations required to be obtained from, any domestic governmental or
regulatory authority, agency, commission or other entity ("Governmental
Entity"), in connection with the execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby, the failure to make or obtain any or all of which (i) is reasonably
likely to have a material adverse effect on the Company and its Subsidiaries or
(ii) would prevent, materially delay or materially burden the transactions
contemplated in this Agreement.
(b) The execution and delivery of this Agreement by the Company do not, and
the consummation by the Company of the transactions contemplated hereby will
not, constitute or result in (i) a breach or violation of, or a default under,
the certificate of incorporation, as amended, or bylaws of the Company or the
comparable governing instruments of any Material Company Subsidiary, (ii) except
as disclosed in Section 3.7(b) of the Company Disclosure Schedule, a breach or
violation of, a default under, or the acceleration of or the creation of any
Lien (with or without the giving of notice or the lapse of time) pursuant to,
any provision of any agreement, lease, contract, note, mortgage, indenture,
arrangement or other obligation ("Contracts") of the Company or any of its
Subsidiaries or any law, rule, ordinance or regulation or judgment, decree,
order, award
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or governmental or non-governmental permit or license to which the Company or
any of its Subsidiaries is subject or (iii) any change in the rights or
obligations of any party under any such Contract, except, in the case of clauses
(ii) and (iii) above, for such breaches, violations, defaults, accelerations or
changes that, individually or in the aggregate, (x) have not had, and are not
reasonably likely to have, a material adverse effect on the Company and its
Subsidiaries or (y) would not prevent, materially delay or materially burden the
transactions contemplated by this Agreement.
(c) Except as disclosed in the Company SEC Documents filed prior to May 16,
1996 or as disclosed in Section 3.7(c) of the Company Disclosure Schedule, (i)
the Company and its Subsidiaries are in compliance with all applicable statutes,
ordinances, rules and regulations of any Governmental Entity relating to
protection of the environment and human health including, without limitation,
with respect to air, surface water, ground water, land and subsurface strata
(collectively, "Environmental Law") except for non-compliance which,
individually or in the aggregate, has not had, and is not reasonably likely to
have, a material adverse effect on the Company and its Subsidiaries and (ii)
neither the Company nor any of its Subsidiaries has received written notice of,
or is the subject of, any action, cause of action, claim, investigation, demand
or notice by any Person alleging liability under or non-compliance by the
Company or any of its Subsidiaries with any Environmental Law which,
individually or in the aggregate, has had, or is reasonably likely to have, a
material adverse effect on the Company and its Subsidiaries.
(d) Except as disclosed in the Company SEC Documents filed prior to May 16,
1996 or in Section 3.7(d)(i) of the Company Disclosure Schedule, there is no
suit, claim, action, proceeding or investigation pending or, to the best
knowledge of the Company, threatened, against the Company or any of its
Subsidiaries which, individually or in the aggregate, has had, or is reasonably
likely to have, a material adverse effect on the Company and its Subsidiaries or
affect adversely in any material respect the ability of the Company to
consummate the transactions contemplated by this Agreement. Except as disclosed
in the Company SEC Documents filed prior to May 16, 1996 or in Section
3.7(d)(ii) of the Company Disclosure Schedule, neither the Company nor any of
its Subsidiaries is subject to any outstanding order, writ, injunction or decree
which, individually or in the aggregate, has had, or is reasonably likely to
have, a material adverse effect on the Company and its Subsidiaries or affect
adversely in any material respect the ability of the Company to consummate the
transactions contemplated hereby.
Section 3.8 SEC Reports and Financial Statements. Since January 1, 1993,
the Company has filed with the Securities and Exchange Commission (the "SEC")
all forms, reports and documents required to be filed by it under the Securities
Act of 1933, as amended, and the rules and regulations thereunder (the
"Securities Act") or the Exchange Act, and has heretofore made available to the
Parent true and complete copies of all such forms, reports and documents (as
they have been amended since the time of their filing, collectively, the
"Company SEC Documents"). The Company SEC Documents, including without
limitation any financial statements or schedules included therein, at the time
filed, and any forms, reports or other documents filed by the Company with the
SEC after the date of this Agreement, (a) did not at the time they were filed,
or will not at the time they are filed, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading and (b) complied or will be prepared
in compliance in all material respects with the applicable requirements of the
Securities Act or the Exchange Act, as the case may be. The financial statements
of the Company included in the Company SEC Documents ("Company Financial
Statements") comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements, to normal audit adjustments) and fairly
present (subject, in the case of the unaudited statements, to normal audit
adjustments) the consolidated financial position of the Company and its
Subsidiaries as at the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended. Except as reflected,
reserved against or otherwise disclosed in the Company Financial Statements or
as otherwise disclosed in the Company SEC Documents, in each case filed prior
May 16, 1996 or as disclosed in Section 3.8 of the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries has any
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liabilities or obligations (absolute, accrued, fixed, contingent or otherwise)
other than (i) liabilities incurred in the ordinary course of business
consistent with past practice, and (ii) liabilities and obligations that, alone
or in the aggregate, have not had, and are not reasonably likely to have, a
material adverse effect on the Company and its Subsidiaries.
Section 3.9 Information in Joint Proxy Statement and Registration
Statement.
(a) None of the information with respect to the Company or its Subsidiaries
to be included in the joint proxy statement/prospectus to be used by the Boards
of Directors of the Company and the Parent in connection with the solicitation
of proxies for use at the meetings referred to in Section 5.7 ("Joint Proxy
Statement") or in the registration statement on Form S-4 to be filed with the
SEC by the Parent in connection with the issuance of shares of Parent Common
Stock in the Merger to holders of Company Common Stock (the "S-4") will, in the
case of the Joint Proxy Statement or any amendment thereof or supplement
thereto, at the time of the mailing of the Joint Proxy Statement or any
amendment thereof or supplement thereto, and at the time of the Company
Stockholder Meeting (as defined in Section 5.7) or, in the case of the S-4, at
the time it becomes effective under the Securities Act and at the time of the
Closing, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Joint Proxy Statement, when filed, will comply as to form in
all material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
(b) Notwithstanding Section 3.9(a), the Company makes no representation
with respect to statements made in the Joint Proxy Statement (and any amendment
thereto or supplement thereto) and in the S-4 based on information regarding and
supplied by the Parent or the Sub specifically for inclusion therein.
Section 3.10 No Material Adverse Change. Except as disclosed in the
Company SEC Documents filed prior to May 16, 1996 or as disclosed in Section
3.10 of the Company Disclosure Schedule, since December 29, 1995, the Company
and its Subsidiaries have conducted their respective businesses in the ordinary
and usual course and there has not been any change in the assets, business,
results of operations or financial condition of the Company and its Subsidiaries
that has had, or is reasonably likely to have, a material adverse effect on the
Company and its Subsidiaries.
Section 3.11 Taxes.
(a) Each of the Company and its Subsidiaries has duly filed all material
federal, state, local and foreign income and other Tax Returns (as defined in
Section 3.11(b)) required to be filed by it, except as disclosed in Section
3.11(a)(i) of the Company Disclosure Schedule. Except as disclosed in Section
3.11(a)(ii) of the Company Disclosure Schedule, each of the Company and its
Subsidiaries has duly paid or caused to be paid all Taxes shown to be due on
such Tax Returns in respect of the periods covered by such returns and has made
adequate provision in the Company Financial Statements for payment of all Taxes
anticipated to be payable in respect of all taxable periods or portions thereof
ending on or before the date hereof. Section 3.11(a)(iii) of the Company
Disclosure Schedule discloses the periods through which the Tax Returns required
to be filed by the Company and its Subsidiaries have been examined by the
Internal Revenue Service (the "IRS") or other appropriate taxing authority, or
the period during which any assessments may be made by the IRS or other
appropriate taxing authority has expired. Except as disclosed in Section
3.11(a)(iv) of the Company Disclosure Schedule, as of the date hereof, all
material deficiencies and assessments asserted as a result of such examinations
or other audits by federal, state, local or foreign taxing authorities have been
paid, fully settled or adequately provided for in the Company Financial
Statements, and no issue or claim has been asserted in writing for Taxes by any
taxing authority for any prior period, the adverse determination of which would
result in a deficiency which is reasonably likely to have a material adverse
effect on the Company and its Subsidiaries, other than those heretofore paid or
provided for in the Company's Financial Statements. Except as disclosed in
Section 3.11(a)(v) of the Company Disclosure Schedule, as of the date hereof,
there are no material outstanding agreements or waivers extending the statutory
period of limitation applicable to any material Tax Return of the Company or its
Subsidiaries. Except as disclosed in Section 3.11(a)(vi) of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries (x) has
been a member of a
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group filing consolidated returns for federal income tax purposes, or (y) is a
party to any material tax sharing or tax indemnity agreement or any other
material agreement of a similar nature that remains in effect.
(b) For purposes of this Agreement, the term "Taxes" means all taxes,
charges, fees, levies or other assessments, including, without limitation,
income, gross receipts, excise, property, sales, transfer, license, payroll,
withholding, capital stock and franchise taxes, imposed by the United States or
any state, local or foreign government or subdivision or agency thereof,
including any interest, penalties or additions thereto. For purposes of this
Agreement, the term "Tax Return" means any report, return or other information
or document required to be supplied to a taxing authority in connection with
Taxes.
Section 3.12 DGCL Section 203. To the best knowledge of the Company, the
Trust either is not an interested stockholder of the Company, as defined in
Section 203(c)(5) of the DGCL ("DGCL Interested Stockholder"), or, if a DGCL
Interested Stockholder, became such more than three years prior to the date of
this Agreement. Accordingly, the terms of Section 203 of the DGCL are not
applicable to the Company's participation in the Merger.
Section 3.13 Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock entitled to vote with
respect to the Merger is the only vote of the holders of any class or series of
the Company's capital stock necessary to approve the Merger and the transactions
contemplated hereby.
Section 3.14 Opinion of Company Financial Advisor. The Special Committee
of the Board of Directors of the Company has received the opinion of Donaldson,
Lufkin & Jenrette Securities Corporation, its financial advisor, to the effect
that, as of the date of such opinion, the Merger Consideration to be received
pursuant to the Merger by the holders of the Company Common Stock (other than by
Glazer and other holders affiliated with Glazer) is fair to such holders from a
financial point of view.
Section 3.15 No Undisclosed Employee Benefit Plan Liabilities. All
"employee benefit plans," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), maintained or contributed to
by the Company or its Subsidiaries are in compliance with all applicable
provisions of ERISA and the Code, and the Company and its Subsidiaries do not
have any liabilities or obligations with respect to any such employee benefit
plans, whether or not accrued, contingent or otherwise, except (a) as described
in any of the Company SEC Documents, (b) as set forth in Section 5.10(a) of the
Company Disclosure Schedule with respect to employment arrangements and
indemnification agreements and (c) for instances of non-compliance or
liabilities or obligations that have not had, or are not reasonably be expected
to have, individually or in the aggregate, a material adverse effect on the
Company and the Subsidiaries.
Section 3.16 Tax Matters. Neither the Company nor, to the knowledge of the
Company, any of its affiliates referred to in Section 3.17 has taken or agreed
to take any action that would prevent the Merger from constituting a
reorganization under the provisions of Section 368(a) of the Code.
Section 3.17 Affiliates. Section 3.17 of the Company Disclosure Schedule
identifies all persons who, to the knowledge of the Company, may be deemed to be
affiliates of the Company under Rule 145 of the Securities Act, including,
without limitation, all directors and officers of the Company. Concurrently with
the execution and delivery of this Agreement, the Company has delivered to the
Parent duplicate copies of letter agreements, each substantially in the form of
Annex II, executed by each person so identified as an affiliate of the Company
in Section 3.17 of the Company Disclosure Schedule.
Section 3.18 General. As used in this Agreement with respect to the
Company and/or its Subsidiaries, related partnerships or equity investments, the
term "material adverse effect" means an effect which is both material and
adverse with respect to the assets, business, results of operations or financial
condition of the Company taken as a whole with its Subsidiaries, which effect
shall be measured net of, and only after giving the Company and its Subsidiaries
the benefit of, any insurance, indemnity, reimbursement, contribution,
compensation or other similar right which would operate to reduce, offset,
compensate, mitigate or otherwise limit the impact thereof on the Company and/or
any of its Subsidiaries; provided, however that any adverse change or changes in
the assets, business, results of operations or financial condition of the
Company taken as
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a whole with its Subsidiaries attributable to changes in general economic
conditions shall not be deemed to constitute a material adverse effect.
ARTICLE IV
REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS OF THE PARENT AND THE SUB
The Parent and the Sub, jointly and severally, represent and warrant to, and
covenant and agree with, the Company as follows:
Section 4.1 Due Incorporation, Etc. Each of the Parent and each Material
Parent Subsidiary (as defined in Section 4.4) is a corporation or other legal
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or organization, with all requisite power
and authority to own, operate and lease its properties and to carry on its
business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power and authority,
individually or in the aggregate has not had, and is not reasonably likely to
have, a material adverse effect on the Parent and its Subsidiaries. The Parent
has made available to the Company true and accurate copies of the certificate of
incorporation, bylaws or other organizational documents of each of the Parent
and each Material Parent Subsidiary.
Section 4.2 Qualification as Foreign Entities. Each of the Parent and each
Material Parent Subsidiary is duly licensed or qualified to do business and, if
applicable, is in good standing, in each state or other jurisdiction in which
the character of the properties owned or leased by it or the nature of the
business conducted by it requires it to be so licensed or qualified, except
where the failure to be so licensed, qualified or in good standing has not had,
and is not reasonably likely to have, a material adverse effect on the Parent
and its Subsidiaries.
Section 4.3 Capital Stock. The authorized capital stock of the Parent
consists of (a) 165,000,000 shares of Parent Common Stock, of which as of April
30, 1996, 29,548,507 shares were issued and outstanding and no shares were held
in the Parent's treasury, (b) 2,000,000 shares of preferred stock, no par value
per share ("Preferred Stock"), of which, as of April 30, 1996, no shares were
issued and outstanding or held in the Parent's treasury, and (c) 18,000,000
million shares of preference stock, par value $1.00 per share ("Preference
Stock"), of which, as of April 30, 1996, 242,419 shares had been designated as
$2.00 Per Cumulative Convertible Preference Stock, 3,627 shares of such series
were issued and outstanding as of that date and no shares of such series were
held in the Parent's treasury as of that date. Also, as of April 30, 1996, the
Company had reserved for issuance (i) 165,900 shares of Parent Common Stock upon
exercise of then-outstanding stock options ("Parent Options") under the Parent's
1981 Stock Incentive Plan, the Special Incentive Plan and the 1990 Stock Option
Plan (collectively, the "Parent Plans), (ii) 256,333 shares of Parent Common
Stock in respect of future grants of Parent Options pursuant to the Parent Plans
and (iii) 5,527 shares of Parent Common Stock upon conversion of the $2.00
Noncumulative Convertible Preference Stock. Except as disclosed in the Parent
SEC Documents (as defined in Section 4.8) filed prior to May 16, 1996 or as
disclosed in Section 4.3(a) of the Parent Disclosure Schedule delivered by the
Parent to the Company pursuant to this Agreement ("Parent Disclosure Schedule"),
since December 31, 1995, the Parent has not issued any shares of its capital
stock, except for issuances of Parent Common Stock upon the exercise of Parent
Options granted under the Parent Plans and upon conversion of its $2.00
Noncumulative Convertible Preference Stock, and has not repurchased, redeemed or
otherwise retired any shares of its capital stock. All the outstanding shares of
capital stock of the Parent and each of its Subsidiaries are, and all shares of
Parent Common Stock that may be issued pursuant to the Parent Plans or upon
conversion of the $2.00 Noncumulative Convertible Preference Stock will be, when
issued and paid for in accordance with the respective terms thereof, duly
authorized, validly issued, fully paid and nonassessable and not subject to any
preemptive rights of third parties in respect thereto. No Voting Debt of the
Parent or any of its Subsidiaries is issued or outstanding. Except as disclosed
in the Parent SEC Documents filed prior to May 16, 1996 or as disclosed in
Section 4.3(b) of the Parent Disclosure Schedule, (x) there are no existing
options, warrants, calls, subscriptions, rights, commitments or other agreements
of any character obligating the Parent or any of
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its Subsidiaries to issue, transfer, vote or sell or cause to be issued,
transferred, voted or sold any shares of its capital stock, Voting Debt or any
other interests of the Parent or any of its Subsidiaries or securities
convertible into or exchangeable for such shares or other interests or
obligating the Parent to grant, extend or enter into any such option, warrant,
call, subscription, right, agreement or commitment; (y) there are no outstanding
contractual obligations of the Parent or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock of the Parent or any
shares of capital stock or other interests of any of the Parent's Subsidiaries
and any partnership interests are not subject to current or future capital
calls; and (z) each of the outstanding shares of capital stock or other
interests of the Parent's Subsidiaries are owned by the Parent or by a
Subsidiary of the Parent free and clear of any Liens, except those which
individually or in the aggregate have not had, and are not reasonably likely to
have, a material adverse effect on the Parent and its Subsidiaries.
Section 4.4 Material Parent Subsidiaries. (a) Each Material Parent
Subsidiary is listed in Section 4.4(a) of the Parent Disclosure Schedule.
(b) The Parent has provided to the Company full access to the minute books,
stock records and comparable documents of each of the Parent and each Material
Parent Subsidiary.
Section 4.5 Ownership of Equity Interests. Except as disclosed in Section
4.5 of the Parent Disclosure Schedule, neither the Parent nor any of its
Subsidiaries owns or holds, directly or indirectly, any capital stock of, or
other equity or other ownership interest in (or any securities, rights or other
interests exchangeable for, convertible into or which otherwise relate to the
acquisition of any capital stock of), any Person or is a partner or joint
venturer in any partnership or joint venture.
Section 4.6 Corporate Power and Authority. The Parent and the Sub each has
the requisite corporate power to execute and deliver this Agreement and to
consummate the transactions contemplated hereby, subject to the approval of the
issuance of the shares of Parent Common Stock in the Merger by the affirmative
vote of the holders, voting as a class, of the Parent Common Stock and the
Preference Stock entitled to cast at least a majority of the total number of
votes voting on such matter as required by the NYSE and the filings referred to
in Section 4.7(a). The execution, delivery and performance of this Agreement by
the Parent and the Sub and the consummation by the Parent and the Sub of the
Merger and the other transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Parent and the Sub and no
other corporate proceedings are necessary to authorize this Agreement or to
consummate the transactions so contemplated, other than the required stockholder
approval by the Parent noted above, and the filing of a certificate of merger
with the Secretary of State of the State of Delaware. The Parent, as the sole
stockholders of the Sub, has approved and adopted this Agreement (insofar as it
relates to the Merger) and the Merger. This Agreement has been duly and validly
executed and delivered by the Parent and the Sub and, assuming this Agreement
constitutes a valid and binding obligation of the Company, constitutes a valid
and binding obligation of the Parent and the Sub, enforceable against the Parent
and the Sub in accordance with its terms.
Section 4.7 No Conflicts or Consents; Environmental Law; and Litigation.
(a) Other than the filing provided for in Section 1.1 and as required under the
HSR Act, the Securities Act and the Exchange Act, no notices, reports or other
filings are required to be made by the Parent or the Sub with, nor any consents,
registrations, approvals, permits or authorizations required to be obtained
from, any Governmental Entity, in connection with the execution and delivery of
this Agreement by the Parent and the Sub and the consummation by the Parent and
the Sub of the transactions contemplated hereby, the failure to make or obtain
any or all of which (i) is reasonably likely to have a material adverse effect
on the Parent and its Subsidiaries or (ii) would prevent, materially delay or
materially burden the transactions contemplated in this Agreement.
(b) The execution and delivery of this Agreement by the Parent and the Sub
do not, and the consummation by the Parent and the Sub of the transactions
contemplated hereby will not, constitute or result in (i) a breach or violation
of or a default under, the certificate of incorporation or bylaws of the Parent
or the Sub or the comparable governing instruments of any Material Parent
Subsidiary, (ii) a breach or violation of, a default under, or the acceleration
of or the creation of any Lien (with or without the giving of notice or the
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lapse of time) pursuant to, any provision of any Contract of the Parent or any
of its Subsidiaries or any law, rule, ordinance or regulation or judgment,
decree, order, award or governmental or non-governmental permit or license to
which Parent or any of its Subsidiaries is subject or (iii) any change in the
rights or obligations of any party under any such Contract, except, in the case
of clause (ii) and (iii) above, for such breaches, violations, defaults,
accelerations or changes that, alone or in the aggregate, (x) have not had, and
are not reasonably likely to have, a material adverse effect on the Parent and
its Subsidiaries or (y) would not prevent, materially delay or materially burden
the transactions contemplated by this Agreement.
(c) Except as disclosed in the Parent SEC Documents filed prior to May 16,
1996 or as disclosed in Section 4.7(c) of the Parent Disclosure Schedule, (i)
the Parent and its Subsidiaries are in compliance with all applicable statutes,
ordinances, rules and regulations of any Governmental Entity relating to
Environmental Law except for non-compliance which, individually or in the
aggregate, has not had, and is not reasonably likely to have, a material adverse
effect on the Parent and its Subsidiaries and (ii) neither the Parent nor any of
its Subsidiaries has received written notice of, or is the subject of, any
action, cause of action, claim, investigation, demand or notice by any Person
alleging liability under or non-compliance by the Parent or any of its
Subsidiaries with any Environmental Law which, individually or in the aggregate,
has had, or is reasonably expected to have, a material adverse effect on the
Parent and its Subsidiaries.
(d) Except as disclosed in the Parent SEC Documents filed prior to May 16,
1996 or in Section 4.7(d)(i) of the Parent Disclosure Schedule, there is no
suit, claim, action, proceeding or investigation pending or, to the best
knowledge of the Parent, threatened, against the Parent or any of its
Subsidiaries which, individually or in the aggregate, has had, or is reasonably
likely to have, a material adverse effect on the Parent and its Subsidiaries or
affect adversely in any material respect the ability of the Parent to consummate
the transactions contemplated by this Agreement. Except as disclosed in the
Parent SEC Documents filed prior to May 16, 1996 or in Section 4.7(d)(ii) of the
Parent Disclosure Schedule, neither the Parent nor any of its Subsidiaries is
subject to any outstanding order, writ, injunction or decree which, individually
or in the aggregate has had, or is reasonably likely to have, a material adverse
effect on the Parent and its Subsidiaries or affect adversely in any material
respect the ability of the Parent to consummate the transactions contemplated
hereby.
Section 4.8 SEC Reports and Financial Statements. Since January 1, 1993,
the Parent has filed with the SEC all forms, reports and documents required to
be filed by it under the Securities Act or the Exchange Act, and has heretofore
made available to the Company true and complete copies of all such forms,
reports and documents (as they have been amended since the time of their filing,
collectively, the "Parent SEC Documents"). The Parent SEC Documents, including
without limitation any financial statements or schedules included therein, at
the time filed, and any forms, reports or other documents filed by the Parent
with the SEC after the date of this Agreement, (a) did not at the time they were
filed, or will not at the time they are filed, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading and (b) complied or will be prepared
in compliance in all material respects with the applicable requirements of the
Securities Act or the Exchange Act, as the case may be. The financial statements
of the Parent included in the Parent SEC Documents ("Parent Financial
Statements") comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements, to normal audit adjustments) and fairly
present (subject, in the case of the unaudited statements, to normal audit
adjustments) the consolidated financial position of the Parent and its
Subsidiaries as at the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended. Except as reflected,
reserved against or otherwise disclosed in the Parent Financial Statements or as
otherwise disclosed in the Parent SEC Documents, in each case filed prior to May
16, 1996 or as disclosed in Section 4.8 of the Parent Disclosure Schedule, as of
the date of this Agreement, neither the Parent nor any of its Subsidiaries had
any liabilities or obligations (absolute, accrued, fixed, contingent or
otherwise) other than (i) liabilities incurred in the ordinary course of
business
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consistent with past practice and (ii) liabilities and obligations that, alone
or in the aggregate, have not had, and are not reasonably likely to have, a
material adverse effect on the Parent and its Subsidiaries.
Section 4.9 Information in Joint Proxy Statement and Registration
Statement. (a) None of the information with respect to the Parent or its
Subsidiaries to be included in the Joint Proxy Statement or the S-4 will, in the
case of the Joint Proxy Statement or any amendment thereof or supplement
thereto, at the time of the mailing of the Joint Proxy Statement or any
amendment thereof or supplement thereto, and at the time of the Parent's
Stockholder Meeting (as defined in Section 5.7), or, in the case of the S-4, at
the time it becomes effective under the Securities Act and at the time of the
Closing, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The S-4 will, when filed with the SEC by the Parent, comply as to
form in all material respects with the provisions of the Securities Act and the
rules and regulations thereunder.
(b) Notwithstanding Section 4.9(a), neither the Parent nor the Sub makes
any representation with respect to statements made in the Joint Proxy Statement
(and any amendment thereof or supplement thereto) and in the S-4 based on
information regarding the Company supplied specifically for inclusion therein.
Section 4.10 No Material Adverse Change. Except as disclosed in the Parent
SEC Documents filed prior to May 16, 1996 or as disclosed in Section 4.10 of the
Parent Disclosure Schedule, since September 30, 1995, the Parent and its
Subsidiaries have conducted their respective businesses in the ordinary and
usual course and there has not been any change in the assets, business, results
of operations or financial condition of the Parent and its Subsidiaries that has
had, or is reasonably likely to have, a material adverse effect on Parent and
its Subsidiaries.
Section 4.11 Taxes. Each of the Parent and its Subsidiaries has duly filed
all material federal, state, local and foreign income and other Tax Returns
required to be filed by it, except as disclosed in Section 4.11(a) of the Parent
Disclosure Schedule. Except as disclosed in Section 4.11(b) of the Parent
Disclosure Schedule, each of the Parent and its Subsidiaries has duly paid or
caused to be paid all Taxes shown to be due on such Tax Returns in respect of
the periods covered by such returns and has made adequate provision in the
Parent Financial Statements for payment of all Taxes anticipated to be payable
in respect of all taxable periods or portions thereof ending on or before the
date hereof. Section 4.11(c) of the Parent Disclosure Schedule lists the periods
through which the Tax Returns required to be filed by the Parent and its
Subsidiaries have been examined by the IRS or other appropriate taxing
authority, or the period during which any assessments may be made by the IRS or
other appropriate taxing authority has expired. Except as disclosed in Section
4.11(d) of the Parent Disclosure Schedule, as of the date hereof all material
deficiencies and assessments asserted as a result of such examinations or other
audits by federal, state, local or foreign taxing authorities have been paid,
fully settled or adequately provided for in the Parent Financial Statements, and
no issue or claim has been asserted in writing for Taxes by any taxing authority
for any prior period, the adverse determination of which would result in a
deficiency which is reasonably likely to have a material adverse effect on the
Parent and its Subsidiaries, other than those heretofore paid or provided for in
the Parent Financial Statements. Except as disclosed in Section 4.11(e) of the
Parent Disclosure Schedule, as of the date hereof, there are no material
outstanding agreements or waivers extending the statutory period of limitation
applicable to any material Tax Return of the Parent or its Subsidiaries. Except
as disclosed in Section 4.11(f) of the Parent Disclosure Schedule, neither the
Parent nor any of its Subsidiaries (i) has been a member of a group filing
consolidated tax returns for federal income tax purposes or (ii) is a party to
any material tax sharing or tax indemnity agreement or any other material
agreement of a similar nature that remains in effect.
Section 4.12 Reservation of Shares. The Parent has reserved and will keep
available for issuance a number of authorized but unissued shares of Parent
Common Stock equal to the maximum number of shares of Parent Common Stock that
may become issuable pursuant to the Merger.
Section 4.13 DGCL Section 203. To the best knowledge of the Parent, the
Trust became a DGCL Interested Stockholder of the Parent more than three years
prior to the date of this Agreement. Accordingly, the terms of Section 203 of
the DGCL are not applicable to the participation by the Parent or the Sub in the
Merger.
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Section 4.14 Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Parent Common Stock and Preference Stock,
voting together as a class, on the issuance of the shares of Parent Common Stock
in the Merger, as required by the NYSE, is the only vote of the holders of any
class or series of the Parent's capital stock necessary to approve the
transactions contemplated hereby.
Section 4.15 Interim Operations of the Sub. The Sub was formed solely for
the purpose of engaging in the transactions contemplated hereby, has engaged in
no other business activities, has conducted its operations only as contemplated
hereby and will not have a negative net worth as of the Effective Time.
Section 4.16 Opinion of Parent Financial Advisor. The Special Committee of
the Board of Directors of Parent has received the opinion of CS First Boston
Corporation, its financial advisor, to the effect that, as of the date of such
opinion, the Merger Consideration is fair to the Parent from a financial point
of view.
Section 4.17 No Undisclosed Employee Benefit Plan Liabilities. All
"employee benefit plans," as defined in Section 3(3) of ERISA maintained or
contributed to by the Parent or its Subsidiaries are in compliance with all
applicable provisions of ERISA and the Code, and the Parent and its Subsidiaries
do not have any liabilities or obligations with respect to any such employee
benefit plans, whether or no accrued, contingent or otherwise, except (a) as
described in any of the Parent SEC Documents and (b) for instances of
non-compliance or liabilities or obligations that have not had, or are not
reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the Parent and its Subsidiaries.
Section 4.18 General. As used in this Agreement with respect to Parent
and/or its Subsidiaries, related partnerships or equity investments, the term
"material adverse effect" means an effect which is both material and adverse
with respect to the assets, business, results of operations or financial
condition of the Parent taken as a whole with its Subsidiaries, which effect
shall be measured net of, and only after giving the Parent and its Subsidiaries
the benefit of, any insurance, indemnity, reimbursement, contribution,
compensation or other similar right which would operate to reduce, offset,
compensate, mitigate or otherwise limit the impact thereof on the Parent and/or
any of its Subsidiaries; provided, however that any adverse change or changes in
the assets, business, results of operations or financial condition of the Parent
taken as a whole with its Subsidiaries attributable to changes in general
economic conditions shall not be deemed to constitute a material adverse effect.
ARTICLE V
COVENANTS AND AGREEMENTS
Section 5.1 Conduct of Business of the Company. Except as contemplated by
this Agreement or with the prior written consent of the Parent, which consent
shall not be unreasonably withheld and is hereby given with respect to actions
disclosed in the Company Disclosure Schedule, during the period from the date of
this Agreement to the Effective Time, the Company will, and will cause each of
its Subsidiaries to, conduct its operations only in the ordinary and usual
course of business consistent with past practice and, consistent therewith, will
use all reasonable efforts, and will cause each of its Subsidiaries to use all
reasonable efforts, to preserve intact its present business organization, keep
available the services of its present officers and employees and preserve its
relationships with licensors, licensees, customers, suppliers, employees and any
others having business dealings with it, in each case in all material respects.
Without limiting the generality of the foregoing, and except as otherwise
expressly provided in this Agreement, the Company will not, and will not permit
any of the Subsidiaries to, prior to the Effective Time, without the prior
written consent of Parent, not to be unreasonably withheld:
(a) adopt any amendment to its certificate of incorporation or by-laws or
comparable organizational documents;
(b) except for issuances of capital stock of the Company's Subsidiaries to
the Company or a wholly owned Subsidiary of the Company, issue, reissue, sell or
pledge or authorize or propose the issuance, reissuance, sale or pledge of
additional shares of capital stock of any class, or securities convertible into
capital stock of any class, or any rights, warrants or options to acquire any
convertible securities or capital stock, other
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than the issuance of shares of Company Common Stock upon the exercise of Company
Options outstanding on the date of this Agreement in accordance with their
present terms;
(c) declare, set aside or pay any dividend or other distribution (whether
in cash, securities or property or any combination thereof) in respect of any
class or series of its capital stock, except that any wholly owned Subsidiary of
the Company may pay dividends and make distributions to the Company or any of
the Company's wholly owned Subsidiaries;
(d) adjust, split, combine, subdivide, reclassify or redeem, purchase or
otherwise acquire, or propose to redeem or purchase or otherwise acquire, any
shares of its capital stock;
(e) (i) incur, assume or pre-pay any long-term debt or incur or assume any
short-term debt, except that the Company and its Subsidiaries may incur, assume
or pre-pay debt in the ordinary course of business consistent with past practice
or as disclosed in Section 5.1(e) of the Company Disclosure Schedule, (ii)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other Person
except in the ordinary course of business consistent with past practice, or
(iii) make any loans, advances or capital contributions to, or investments in,
any other Person except in the ordinary course of business consistent with past
practice and except for loans, advances, capital contributions or investments
between any wholly owned Subsidiary of the Company and the Company or another
wholly owned Subsidiary of the Company;
(f) settle or compromise any suit or claim or threatened suit or claim (i)
relating to the transactions contemplated hereby or (ii) involving the payment
of money or the surrender of property or other rights in an amount or having a
fair market value, in each case, in excess of $500,000;
(g) except for (i) increases in salary, wages and benefits of employees of
the Company or its Subsidiaries (other than executive or corporate officers of
the Company) in accordance with past practice, (ii) increases in salary, wages
and benefits granted to employees of the Company or its Subsidiaries (other than
executive or corporate officers of the Company) in conjunction with promotions
or other changes in job status consistent with past practice or required under
existing agreements, (iii) increases in salary, wages and benefits to employees
of the Company pursuant to collective bargaining agreements entered into in the
ordinary course of business consistent with past practice, and (iv) matters
disclosed in Section 5.1(g) of the Company Disclosure Schedule, increase the
compensation or fringe benefits payable or to become payable to its directors,
officers or employees (whether from the Company or any of its Subsidiaries), or
pay any benefit not required by any existing plan or arrangement (including, the
granting of, or waiver of performance or other vesting criteria under, stock
options, stock appreciation rights, shares of restricted stock or deferred stock
or performance units) or grant any severance or termination pay to (except
pursuant to existing agreements or policies), or enter into any employment or
severance agreement with, any director, officer or other key employee of the
Company or any of its Subsidiaries or establish, adopt, enter into, terminate or
amend any collective bargaining, bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, welfare, deferred
compensation, employment, termination, severance or other employee benefit plan,
agreement, trust, fund, policy or arrangement for the benefit or welfare of any
directors, officers or current or former employees, except to the extent such
termination or amendment is required by applicable law; provided, however, that
nothing herein will be deemed to prohibit the payment of benefits as they become
payable;
(h) except as disclosed in Section 5.1(h) of the Company Disclosure
Schedule, acquire, sell, lease or dispose of any assets or securities which are
material to the Company and its Subsidiaries, taken as a whole, or enter into
any commitment to do any of the foregoing or enter into any material commitment
or transaction outside the ordinary course of business consistent with past
practice other than transactions between a wholly owned Subsidiary of the
Company and the Company or another wholly owned Subsidiary of the Company;
(i) (i) modify, amend or terminate any material Contract, (ii) waive,
release, relinquish or assign any material Contract (including any material
insurance policy) or other material right or claim, or (iii) cancel or forgive
any material indebtedness owed to the Company or any of its Subsidiaries, other
than in each case in a
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manner in the ordinary course of business consistent with past practice or which
is not material to the business of the Company and its Subsidiaries taken as a
whole;
(j) make any tax election not required by law or settle or compromise any
tax liability, in either case that is material to the Company and its
Subsidiaries taken as a whole; or
(k) change any of the material accounting principles or practices used by
it except as required by the SEC and the Financial Accounting Standards Board.
Section 5.2 Conduct of Business of the Parent. Except as contemplated by
this Agreement or with the prior written consent of the Company, which consent
shall not be unreasonably withheld and is hereby given with respect to actions
disclosed in the Parent Disclosure Schedule, during the period from the date of
this Agreement to the Effective Time, the Parent will, and will cause each of
its Subsidiaries to, conduct its operations only in the ordinary and usual
course of business consistent with past practice and, consistent therewith, will
use all reasonable efforts, and will cause each of its Subsidiaries to use all
reasonable efforts, to preserve intact its present business organization, keep
available the services of its present officers and employees and preserve its
relationships with licensors, licensees, customers, suppliers, employees and any
others having business dealings with it, in each case in all material respects.
Without limiting the generality of the foregoing, and except as otherwise
expressly provided in this Agreement, the Parent will not, and will not permit
any of the Subsidiaries to, prior to the Effective Time, without the prior
written consent of the Company, not to be unreasonably withheld:
(a) adopt any amendment to its certificate of incorporation or by-laws or
comparable organizational documents;
(b) except for issuances of capital stock of the Parent's Subsidiaries to
the Parent or a wholly owned Subsidiary of the Parent, issue, reissue, sell or
pledge or authorize or propose the issuance, reissuance, sale or pledge of
additional shares of capital stock of any class, or securities convertible into
capital stock of any class, or any rights, warrants or options to acquire any
convertible securities or capital stock, other than the issuance of shares of
Parent Common Stock upon the exercise of Parent Options and the conversion of
shares of $2.00 Noncumulative Convertible Preference Stock outstanding on the
date of this Agreement, in each case in accordance with their present terms;
(c) declare, set aside or pay any dividend or other distribution (whether
in cash, securities or property or any combination thereof) in respect of any
class or series of its capital stock, except that any wholly owned Subsidiary of
the Parent may pay dividends and make distributions to the Parent or any of the
Parent's wholly owned Subsidiaries;
(d) adjust, split, combine, subdivide, reclassify or redeem, purchase or
otherwise acquire, or propose to redeem or purchase or otherwise acquire, any
shares of its capital stock;
(e) (i) incur, assume or pre-pay any long-term debt or incur or assume any
short-term debt, except that the Parent and its Subsidiaries may incur, assume
or pre-pay debt in the ordinary course of business consistent with past practice
or as disclosed in Section 5.2(e) of the Parent Disclosure Schedule, (ii)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other Person
except in the ordinary course of business consistent with past practice, or
(iii) make any loans, advances or capital contributions to, or investments in,
any other Person except in the ordinary course of business consistent with past
practice and except for loans, advances, capital contributions or investments
between any wholly owned Subsidiary of the Parent and the Parent or another
wholly owned Subsidiary of the Parent;
(f) settle or compromise any suit or claim or threatened suit or claim (i)
relating to the transactions contemplated hereby or (ii) involving the payment
of money or the surrender of property or other rights in an amount or having a
fair market value, in each case, in excess of $500,000;
(g) except for (i) increases in salary, wages and benefits of employees of
the Parent or its Subsidiaries (other than executive or corporate officers of
the Parent) in accordance with past practice, (ii) increases in salary, wages
and benefits granted to employees of the Parent or its Subsidiaries (other than
executive or
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corporate officers of the Parent) in conjunction with promotions or other
changes in job status consistent with past practice or required under existing
agreements, (iii) increases in salary, wages and benefits to employees of the
Parent pursuant to collective bargaining agreements entered into in the ordinary
course of business consistent with past practice, and (iv) matters disclosed in
Section 5.2(g) of the Parent Disclosure Schedule, increase the compensation or
fringe benefits payable or to become payable to its directors, officers or
employees (whether from the Parent or any of its Subsidiaries), or pay any
benefit not required by any existing plan or arrangement (including, the
granting of, or waiver of performance or other vesting criteria under, stock
options, stock appreciation rights, shares of restricted stock or deferred stock
or performance units) or grant any severance or termination pay to (except
pursuant to existing agreements or policies), or enter into any employment or
severance agreement with, any director, officer or other key employee of the
Parent or any of its Subsidiaries or establish, adopt, enter into, terminate or
amend any collective bargaining, bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, welfare, deferred
compensation, employment, termination, severance or other employee benefit plan,
agreement, trust, fund, policy or arrangement for the benefit or welfare of any
directors, officers or current or former employees, except to the extent such
termination or amendment is required by applicable law; provided, however, that
nothing herein will be deemed to prohibit the payment of benefits as they become
payable;
(h) except as disclosed in Section 5.2(h) of the Parent Disclosure
Schedule, acquire, sell, lease or dispose of any assets or securities which are
material to the Parent and its Subsidiaries or enter into any commitment to do
any of the foregoing or enter into any material commitment or transaction
outside the ordinary course of business consistent with past practice other than
transactions between a wholly owned Subsidiary of the Parent and the Parent or
another wholly owned Subsidiary of the Parent;
(i) (i) modify, amend or terminate any material Contract, (ii) waive,
release, relinquish or assign any material Contract (including any material
insurance policy) or other material right or claim, or (iii) cancel or forgive
any material indebtedness owed to the Parent or any of its Subsidiaries, other
than in each case in a manner in the ordinary course of business consistent with
past practice or which is not material to the business of the Parent and its
Subsidiaries;
(j) make any tax election not required by law or settle or compromise any
tax liability, in either case that is material to the Parent and its
Subsidiaries except that Parent and Sub may elect in Parent's consolidated
Federal income tax return for the year ended September 30, 1995 to waive the
carryback period for net operating losses and carry the losses forward; or
(k) change any of the material accounting principles or practices used by
it except as required by the SEC and the Financial Accounting Standards Board.
Section 5.3 Reasonable Best Efforts. Subject to the terms and conditions
of this Agreement, each of the Parent, the Sub and the Company will use its
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including (a) the prompt preparation and filing
with the SEC of the S-4 and the Joint Proxy Statement, (b) such actions as may
be required to have the S-4 declared effective under the Securities Act and the
Joint Proxy Statement cleared by the SEC, in each case as promptly as
practicable, including by consulting with each other as to, and responding
promptly to, any SEC comments with respect thereto, (c) such actions as may be
required to be taken under applicable state securities or blue sky laws in
connection with the issuance of shares of Parent Common Stock contemplated
hereby and (d) the making of any necessary filings, and thereafter the making of
any required submissions, with respect to this Agreement and the Merger under
the HSR Act or any other applicable law. Each party will promptly consult with
the other with respect to, provide any necessary information with respect to and
provide the other (or its counsel) copies of, all filings made by such party
with any Governmental Agency in connection with this Agreement and the Merger.
In addition, if at any time prior to the Effective Time any event or
circumstance relating to either the Company or the Parent or any of their
respective Subsidiaries, or any of their respective officers or directors, is
discovered by the Company or the Parent, as the case may be, which should be set
forth in an amendment or supplement to the S-4 or the Joint Proxy Statement, the
discovering party will promptly inform the other party of such event or
circumstance.
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Section 5.4 Letter of the Company's Accountants. Following receipt by
Deloitte & Touche LLP, the Company's independent auditors, of an appropriate
request from the Parent pursuant to Statement on Auditing Standards ("SAS") No.
72, the Company will use its reasonable best efforts to cause to be delivered to
the Parent a letter of Deloitte & Touche LLP, dated a date within two business
days before the date on which the S-4 will become effective and addressed to the
Parent, in form and substance reasonably satisfactory to the Parent and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the S-4, which
letter will be brought down to the Closing.
Section 5.5 Letter of the Parent's Accountants. Following receipt by
Coopers & Lybrand, LLP, the Parent's independent auditors, of an appropriate
request from the Parent or the Company pursuant to SAS No. 72, the Parent will
use its reasonable best efforts to cause to be delivered to the Parent and
Company a letter of Coopers & Lybrand LLP, dated a date within two business days
before the date on which the S-4 will become effective and addressed to the
Parent and Company, in form and substance reasonably satisfactory to the Parent
and Company and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the S-4, which letter will be brought down to the Closing.
Section 5.6 Access to Information. Upon reasonable notice, the Company and
the Parent will each (and will cause each of their respective Subsidiaries to)
afford to the officers, employees, accountants, counsel and other
representatives of the other, access, during normal business hours during the
period prior to the Effective Time, to all its properties, facilities, books,
contracts, commitments and records and other information as reasonably requested
by such party and, during such period, each of the Company and the Parent will
(and will cause each of their respective Subsidiaries to) furnish promptly to
the other (a) a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to the requirements
of United States federal securities laws or regulations, and (b) all other
information concerning its business, properties and personnel as such other
party may reasonably request. The parties will hold any such information which
is nonpublic in confidence in accordance with the terms of the Confidentiality
Agreement, dated December 1, 1995, between the Parent and the Company (the
"Confidentiality Agreement"), and in the event of termination of this Agreement
for any reason each party will promptly comply with the terms of the
Confidentiality Agreement.
Section 5.7 Stockholders Meetings. Each of the Parent and the Company,
consistent with applicable law and its certificate of incorporation, as amended,
and by-laws, will call a meeting of its stockholders (respectively, the "Parent
Stockholder Meeting" and the Company Stockholder Meeting") for the purpose of
voting upon this Agreement (insofar as it relates to the Merger) and the Merger,
in the case of the Company, and the issuance of the shares of Parent Common
Stock in the Merger, in the case of the Parent, and use its reasonable best
efforts to hold such meeting as promptly as practicable. Each of the Parent and
the Company will, through a special committee of its Board of Directors,
recommend to its stockholders approval of such matters; provided, however, that
nothing contained in this Section 5.7 will require the Board of Directors or the
special committee thereof of either the Parent or the Company to take any action
or refrain from taking any action which either Board determines in good faith
with advice of counsel could reasonably be expected to result in a breach of its
fiduciary duties under applicable law.
Section 5.8 Stock Exchange Listing. The Parent will use its reasonable
best efforts to cause the Parent Common Stock to be issued in the Merger to be
approved for listing on the NYSE not later than the Effective Time, subject to
official notice of issuance, and to cause such Parent Common Stock to be duly
registered or qualified under all applicable state securities or blue sky laws.
Section 5.9 Company Plans. (a) On or prior to the Effective Time, the
Company and its Board of Directors (or a committee thereof) and the Parent will
take all action necessary to implement the provisions contained in Section
5.9(b).
(b) At the Effective Time, the Company's obligations with respect to each
outstanding Company Option under the Company Plans, as amended pursuant to the
following sentence, shall be assumed by the Parent. The Company Options so
assumed by the Parent shall continue to have, and be subject to, the same terms
and
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conditions set forth in the Company Plans and agreements pursuant to which such
Company Options were issued as in effect immediately prior to the Effective
Time, except that (i) each Company Option shall be exercisable for that number
of whole shares of Parent Common Stock equal to the product of the number of
shares of Company Common Stock covered by the Company Option immediately prior
to the Effective Time multiplied by the Exchange Ratio, rounded up to the
nearest whole number of shares of Parent Common Stock, and (ii) the per share
exercise price for the shares of Parent Common Stock issuable upon the exercise
of such assumed Company Option shall be equal to the quotient determined by
dividing the exercise price per share of Company Common Stock specified for such
Company Option under the applicable Company Plan or agreement immediately prior
to the Effective Time by the Exchange Ratio, rounding the resulting exercise
price down to the nearest whole cent. For purposes hereof "Exchange Ratio" shall
mean the ratio of $8.00 to the Market Value. The date of grant shall be the date
on which each Company Option was originally granted. The Parent shall (i)
reserve for issuance the number of shares of Parent Common Stock that will
become issuable upon the exercise of such Company Options pursuant to this
Section 5.9(b), (ii) at the Effective Time, execute a document evidencing the
assumption by the Parent of the Company's obligations with respect thereto under
this Section 5.9(b) and (iii) deliver to optionees under such Company Options
appropriate notices setting forth such optionees' rights pursuant to the Company
Options. As soon as practicable after the Effective Time, the Parent shall file
a registration statement on Form S-8 (or any successor form), or another
appropriate form with respect to the shares of Parent Common Stock subject to
such Company Options and shall use its best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such Company Options remain outstanding. With respect to those
individuals who subsequent to the Merger will be subject to the reporting
requirements under Section 16(a) of the Exchange Act, where applicable, the
Parent, to the extent legally permissible, shall administer the Company Plans
assumed pursuant to this Section 5.9(b) in a manner that complies with Rule
16b-3 promulgated by the SEC under the Exchange Act. It is the intention of the
parties that, subject to applicable law, the Company Options assumed by the
Parent qualify following the Effective Time as "incentive stock options" (as
defined in Section 422 of the Code) to the extent that the Company Options
qualified as incentive stock options prior to the Effective Time and any
conversion of incentive stock options shall be undertaken so as to preserve such
status.
(c) Except as disclosed in Section 5.9(c) of the Company Disclosure
Schedule, (i) there are no provisions in any plan, program or arrangement other
than the Company Plans, providing for the issuance or grant of any other
interest in respect of the capital stock of the Company or any of its
Subsidiaries and (ii) the Company will ensure that following the Effective Time
no holder of Company Options or any participant in the Company Plans or any
other plans, programs or arrangements will have any right thereunder to acquire
any equity securities of the Company, the Surviving Corporation or any
Subsidiary thereof.
Section 5.10 Other Employee Benefit Plans. (a) Except as otherwise
contemplated by this Agreement, the employee benefit plans (as defined in
Section 3(3) of ERISA) and other employee or director plans, programs and
policies other than salary (collectively, the "Employee Benefit Plans") of the
Company and its Subsidiaries in effect at the date of this Agreement will remain
in effect until otherwise determined after the Effective Time and, to the extent
such Employee Benefit Plans are not continued, the Parent will maintain, for a
period of at least two years after the Effective Time, Employee Benefit Plans
with respect to employees of the Company and its Subsidiaries which are no less
favorable, in the aggregate, than the most favorable of: (i) those Employee
Benefit Plans covering employees of the Parent from time to time; (ii) those
Employee Benefit Plans of the Company and its Subsidiaries that are in effect on
the date of this Agreement (as they may be amended, supplemented or modified and
as new Employee Benefit Plans may be adopted, to the extent disclosed in Section
5.10(a) of the Company Disclosure Schedule); or (iii) Employee Benefit Plans
that are reasonably competitive with respect to the industry in which the
employer of the affected employees competes; provided, that in any event, until
the second anniversary of the Effective Time, the Surviving Corporation will
provide individuals who are employees of the Company and its Subsidiaries as of
the Effective Time ("Current Employees") with Employee Benefit Plans that are no
less favorable in the aggregate than those provided to Current Employees by the
Company and for its Subsidiaries immediately before the Merger Filing Date.
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(b) Without limiting the generality of Section 5.10(a), the Parent will
cause the Surviving Corporation to (i) honor (x) in accordance with their terms
all individual employment, severance, termination and indemnification agreements
and (y) at least until the second anniversary of the Effective Date, all other
employee severance plans and policies, of the Company or any of its Subsidiaries
with respect to their respective past and present officers, directors, employees
and agents as of the Effective Time, (ii) waive any limitations regarding
pre-existing conditions of Current Employees and their eligible dependents under
any welfare or other employee benefit plans of the Parent and its affiliates in
which they participate after the Effective Time (except to the extent that such
limitations would have applied under the analogous plan of the Company and its
Subsidiaries immediately before the Effective Time), (iii) for all purposes
under the post-retirement welfare benefit plans and policies of the Parent and
its affiliates, treat Current Employees in the same manner as similarly situated
employees of the Parent who were hired by the Parent in accordance with the
terms of such plans and policies as then in effect, as any such plans and
policies are modified by the Parent or such affiliates from time to time, and
(iv) for all other purposes under all Employee Benefit Plans applicable to
employees of the Company and its Subsidiaries, treat all service with the
Company or any of its Subsidiaries by Current Employees (or retired employees
eligible for retiree medical benefits) before the Closing as service with the
Parent and its Subsidiaries, except to the extent such treatment would result in
duplication of benefits or would violate applicable law.
(c) Except as otherwise agreed with individual restricted stockholders, at
the Effective Time, each share of Company Common Stock which immediately prior
to the Effective Time was subject to restrictions on transfer, whether vested or
unvested, will become fully vested and freely transferable and will be exchanged
for unrestricted shares of Parent Common Stock in the Merger. It is understood
and agreed that under certain of the Company Plans and the Employee Benefit
Plans, and any agreements relating thereto, the Merger shall constitute a
"Change of Control" or "Change in Control" as defined therein.
(d) (i) The Parent will cause the Surviving Corporation and its successors
to continue in full force and effect for a period of not less than six years
from the Effective Time the indemnification provisions contained in Article
Ninth of the Certificate of Incorporation of the Company as in effect on the
date of this Agreement with respect to matters existing or occurring at or prior
to the Effective Time by directors and officers of the Company serving as such
as of the Effective Time; provided that, in the event any claim is asserted or
made within such six year period, all rights to indemnification in respect of
any such claim will continue until disposition of any and all such claims. For a
period of six years after the Effective Time, the Parent will, or will cause the
Surviving Corporation and its successors to, provide directors and officers
liability insurance having substantially the same terms and conditions and
providing at least the same coverage and amounts (with respect to occurrences
prior to the Effective Time) as the directors and officers liability insurance
maintained by the Company at the date of this Agreement for all present and
former directors and officers of the Company and its Subsidiaries who served as
such at any time since January 1, 1993 and their respective heirs, legal
representatives, successors and assigns.
(ii) From and after the Effective Time, the Parent agrees that it or the
Surviving Corporation will indemnify and hold harmless each director or officer
of the Company serving as such as of the Effective Time (an "Indemnified Party")
against any and all costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities (collectively, "Costs")
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Effective Time by reason of the fact that such Indemnified Party was then
serving as a director or officer of the Company or one of its Subsidiaries,
whether asserted or claimed prior to, at or after the Effective Time, to the
fullest extent allowed by law (and the Parent or the Surviving Corporation shall
also advance expenses as incurred to the fullest extent permitted under
applicable law provided the Person to whom expenses are advanced provides, if
required by law, an undertaking to repay such advances if it is ultimately
determined that such Person is not entitled to indemnification).
(iii) Any Indemnified Party wishing to claim indemnification under clause
(ii) above, upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify the Parent and the Surviving Corporation
thereof, but the failure to so notify shall not relieve the Parent or the
Surviving Corporation of any
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liability it may have to such Indemnified Party except to the extent that such
failure materially prejudices the indemnifying party. In the event of any such
claim, action, suit, proceeding or investigation (whether arising before, at or
after the Effective Time), (x) the Parent or the Surviving Corporation shall
have the right to assume the defense thereof (which it shall, in cooperation
with the Indemnified Party, vigorously defend) and neither the Parent nor the
Surviving Corporation shall be liable to such Indemnified Party for any legal
expenses of other counsel or any other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof, except that if neither
the Parent nor the Surviving Corporation elects to assume such defense or there
is a conflict of interest between the Parent or the Surviving Corporation, on
the one hand, and the Indemnified Party, including situations in which there are
one or more legal defenses available to the Indemnified Party that are different
from or additional to those available to the Parent or the Surviving
Corporation, the Indemnified Party may retain counsel satisfactory to it, and
the Parent or the Surviving Corporation shall pay all reasonable fees and
expenses of such counsel for the Indemnified Party promptly as statements
therefor are received; provided, however, that neither the Parent nor the
Surviving Corporation shall, in connection with any one such action or
proceeding or separate but substantially similar actions or proceedings arising
out of the same general allegations, be liable for the fees and expenses of more
than one separate firm of attorneys at any time for all Indemnified Parties
except to the extent that local counsel, in addition to such parties' regular
counsel, is required in order to effectively defend against such action or
proceeding, (y) the Indemnified Party will cooperate in the defense of any such
matter and (z) neither the Parent nor the Surviving Corporation shall be liable
for any settlement effected without its prior consent, and provided, further,
that neither the Parent nor the Surviving Corporation shall have any obligation
hereunder to any Indemnified Party when and if a court of competent jurisdiction
shall ultimately determine, and such determination shall have become final, that
the indemnification of such Indemnified Party in the manner contemplated hereby
is prohibited by applicable law.
(e) If the Surviving Corporation or any of its successors or assigns (x)
consolidate with or merge into any other corporation or entity and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (y) shall transfer all or substantially all of its properties and
assets to any Person, then and in each such case, proper provisions shall be
made so that the successors and assigns of the Surviving Corporation shall
assume all of the obligations of the Surviving Corporation set forth in this
Section 5.10.
(f) The provisions of paragraphs (d) and (e) of this Section 5.10 are
intended to be for the benefit of, and shall be enforceable by, each of the
directors, officers and employees of the Company who are the beneficiaries of
the indemnification arrangements specified herein and their respective heirs,
legal representatives, successors and assigns.
Section 5.11 Exclusivity. Except as provided in this Section 5.11, after
the date of this Agreement and until the termination of this Agreement pursuant
to Section 7.1, the Company will not, nor will it permit its officers,
directors, Subsidiaries, representatives or agents, directly or indirectly, to,
do any of the following: (i) solicit or initiate the submission of a proposal or
offer in respect of any transaction (other than the Merger) involving any
disposition or other change of ownership of a substantial portion of the
Company's stock or assets (an "Acquisition Transaction"); (ii) participate in
substantive discussions or engage in negotiations concerning an Acquisition
Transaction; or (iii) furnish or cause to be furnished to any corporation,
partnership, person or other entity or group (other than the Parent and its
representatives) (a "Person") any nonpublic information concerning the business,
operations, properties or assets of the Company in connection with an
Acquisition Transaction; provided, however, and notwithstanding anything else
contained in this Section 5.11 or otherwise in this Agreement, the Company and
its officers, directors, Subsidiaries, representatives and agents may engage in
activities referred to in clause (ii) above, and may furnish or cause to be
furnished nonpublic information to, any Person who, or representatives of any
Person who, makes a written proposal with respect to an Acquisition Transaction
if the Company's Board of Directors determines in good faith after consultation
with its outside counsel that it is obligated to consider such proposal in order
to satisfy its fiduciary duties under applicable law. If the Company determines
to accept a proposal for or otherwise engage in any Acquisition Transaction
(other than the Merger), it may terminate this Agreement provided it promptly
pays to the Parent in reimbursement for the Parent's expenses an amount in cash
(not to exceed $2,000,000) equal to the aggregate amount of the Parent's
documented out-of-pocket expenses reasonably
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incurred in connection with pursuing the transactions contemplated by this
Agreement as certified in good faith by the Parent and with reasonable detail
("Compensable Expenses"). If the Parent terminates this Agreement pursuant to
Section 7.1(e), the Company shall promptly reimburse the Parent for its
Compensable Expenses.
Section 5.12 Fees and Expenses. Except as set forth in Section 5.11,
whether or not the Merger is consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby will be
paid by the party incurring such expenses.
Section 5.13 Brokers or Finders. Each of the Parent and the Company
represents, as to itself, its Subsidiaries and its affiliates, that no agent,
broker, investment banker, financial advisor or other firm or person is or will
be entitled to any broker's, or finder's fee or any other commission or similar
fee in connection with any of the transactions contemplated by this Agreement,
except Donaldson, Lufkin & Jenrette Securities Corporation, whose fees and
expenses will be paid by the Company in accordance with the Company's agreement
with such firm, a copy of which has been provided to the Parent, and CS First
Boston Corporation, whose fees and expenses will be paid by the Parent in
accordance with the Parent's agreement with such firm, a copy of which has been
provided to the Company. Each of the Parent and the Company will indemnify and
hold the other harmless from and against any and all claims, liabilities or
obligations with respect to any other brokers, or finders, fees, commissions or
expenses asserted by any person on the basis of any act or statement alleged to
have been made by such party or its Subsidiary or affiliate.
Section 5.14 Rule 145. The Parent and the Surviving Corporation will use
their reasonable efforts to comply with the provisions of Rule 144(c) under the
Securities Act in order that such affiliates may resell such Parent Common Stock
pursuant to Rule 145(d) under the Securities Act.
Section 5.15 Board Membership. The Parent shall take such action as may be
required to increase the size of its Board of Directors in order to enable
Frederick R. Hipp and Warren Gfeller (and any substitute person designated by
the Company prior to the Effective Time) to be appointed to Parent's Board of
Directors immediately after the Effective Time.
Section 5.16 Takeover Statutes. If any "fair price", "moratorium",
"control share acquisition" or other form of anti-takeover statute or regulation
shall become applicable to the transactions contemplated hereby, the Parent and
the Company and their respective members of their Boards of Directors shall
grant such approvals and take such actions as are necessary so that the
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated herein and otherwise act to eliminate or
minimize the effects of such statute or regulation on the transactions
contemplated herein.
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation To Effect the Merger.
The respective obligations of the parties to effect the Merger will be subject
to the satisfaction, on or prior to the Merger Filing Date, of the following
conditions:
(a) This Agreement (insofar as it relates to the Merger) and the Merger
have been approved and adopted by the affirmative vote of the holders of Company
Common Stock entitled to cast at least a majority of the total number of votes
entitled to be cast by holders of Company Common Stock;
(b) The issuance of the shares of Parent Common Stock in the Merger has
been approved by the affirmative vote of the holders of the Parent Common Stock
and the Preference Stock, voting together as a class, entitled to cast at least
a majority of the total number of votes voting on such matter as required by the
NYSE;
(c) Any waiting period under the HSR Act applicable to the Merger has
expired or been terminated;
(d) The S-4 has become effective under the Securities Act and is not the
subject of any stop order or proceeding seeking a stop order; and the Parent has
received all material state securities or blue sky permits
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and other authorizations necessary to issue the shares of Parent Common Stock
pursuant to this Agreement and the Merger;
(e) No temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger is in effect
(each party agreeing to use all reasonable efforts to have any such order
reversed or injunction lifted);
(f) The Parent Common Stock has been approved for listing on the NYSE,
subject to official notice of issuance;
(g) The indebtedness outstanding under the Company's credit facility in the
amount of approximately $80.6 million at April 30, 1996 has been refinanced or
otherwise repaid; or
(h) The Parent and the Company each has received the legal opinion of Baker
& Botts L.L.P., reasonably satisfactory in form and substance to the Company and
its counsel and to the Parent and its counsel, based, in each case, upon
representation letters, dated on or about the date of such opinion,
substantially in the forms of Annex III and Annex IV hereto and containing such
other facts and representations as counsel may reasonably deem relevant, to the
effect that the Merger will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368(a) of the Code.
Section 6.2 Conditions of Obligations of the Parent and the Sub. The
obligations of the Parent and the Sub to effect the Merger are further subject
to the Company not having failed to perform its material obligations required to
be performed by it under this Agreement within 10 days after written notice is
delivered by the Parent to the Company of such failure to perform, the Company's
representations and warranties in this Agreement being true and correct in all
material respects as of the Merger Filing Date and the Company having obtained
all material consents, waivers, approvals, authorizations or orders required to
be obtained by the Company for the authorization, execution and delivery of this
Agreement and the consummation by it of the transactions contemplated hereby
(including material consents under the leases referred to in Section 3.7(b) of
the Company Disclosure Schedule).
Section 6.3 Conditions of Obligations of the Company. The obligation of
the Company to effect the Merger is further subject to the Parent and the Sub
not having failed to perform their material obligations required to be performed
by them under this Agreement within 10 days after written notice is delivered by
the Company to the Parent of such failure to perform, the Parent's and the Sub's
representations and warranties in this Agreement being true and correct in all
material respects as of the Merger Filing Date, the Parent's having taken
action, effective immediately after the Effective Time, to appoint to Parent's
Board of Directors the persons specified in Section 5.15 and the Parent having
offered to employ William W. Moreton as the Executive Vice President and Chief
Financial Officer of the Parent on terms substantially as set forth in the form
of employment agreement previously delivered by Mr. Moreton to the Parent with
such employment agreement to be effective immediately after the Effective Time.
ARTICLE VII
TERMINATION AND AMENDMENT
Section 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the matters
presented in connection with the Merger by the stockholders of the Parent and
the Company:
(a) by mutual consent of the Parent and the Company by action of their
respective Boards of Directors or special committees thereof;
(b) by either the Parent or the Company if the Merger is not consummated
before October 1, 1996 despite the good faith effort of such party to effect
such consummation (unless the failure to so consummate the Merger by such date
is due to the action or failure to act of the party seeking to terminate this
Agreement, and such action or failure to act constitutes a breach of this
Agreement);
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(c) by either the Parent or the Company if any court of competent
jurisdiction has issued an injunction permanently restraining, enjoining or
otherwise prohibiting the consummation of the Merger, which injunction has
become final and non-appealable;
(d) by the Company pursuant to Section 5.11;
(e) by the Parent if the Board of Directors of the Company or the special
committee thereof shall have withdrawn or modified, in any manner adverse to the
Parent, its recommendation for approval of this Agreement (insofar as it relates
to the Merger) and the Merger;
(f) by the Company if the special committee of the Board of Directors of
the Parent shall have withdrawn or modified, in any manner adverse to the
Company, its recommendation for approval of the issuance of Parent Common Stock
in the Merger;
(g) by either the Parent or the Company, if one of the conditions set forth
in Article VI to its obligation to consummate the Merger has not been satisfied;
or
(h) by the Parent if more than 1,000,000 shares of Company Common Stock
represent Dissenting Shares as of the Closing Date.
Section 7.2 Effect of Termination. In the event of a termination of this
Agreement by either the Company or the Parent as provided in Section 7.1, this
Agreement will forthwith become void and there will be no liability or
obligation on the part of the Parent, the Sub or the Company or their respective
officers or directors, other than (a) the provisions of the last sentence of
Section 5.11, which will survive for a period of one year from the date of any
such termination if and only if the Parent has not received the payment pursuant
to Section 5.11 and such termination of this Agreement is pursuant to Section
7.1(d) or (e), (b) to the extent that such termination results from the willful
breach by a party hereto of any of its covenants or agreements set forth in this
Agreement and (c) the obligations of the respective parties under the
Confidentiality Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Survival of Representations and Warranties; Enforcement of
Certain Covenants.
(a) None of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement will survive the Effective Time.
(b) The covenants of the Parent set forth in Sections 5.9 and 5.10 hereof
may be enforced after the Effective Time by any of the officers or directors of
the Company as of the Effective Time.
Section 8.2 Amendment. Subject to the DGCL, this Agreement may be amended
by the parties hereto, by action taken or authorized by their respective Boards
of Directors or special committees thereof, at any time before or after approval
of the matters presented at the meetings of the stockholders of the Company and
the Parent referred to in Section 5.7. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
Section 8.3 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by the respective Boards of
Directors or special committees thereof, may to the extent legally allowed, (a)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the covenants, agreements or conditions contained
here. Any agreement on the part of a party hereto to any such extension or
waiver will be valid only if set forth in a written instrument signed on behalf
of such party.
Section 8.4 Notices. All notices and other communications hereunder will
be in writing and will be deemed given if delivered personally, telecopied
(which is confirmed) or mailed by registered or certified mail
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(return receipt requested) to the parties at the following addresses (or at such
other address for a party as is specified by like notice):
(a) if to the Parent or the Sub, to
Zapata Corporation
1717 St. James Place
Houston, Texas 77253-3581
Attention: Joseph L. von Rosenberg III
General Counsel
with a copy to
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana
Houston, Texas 77002-4995
Attention: C. Michael Watson
and
Bracewell & Patterson L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
Attention: Edgar J. Marston
and
(b) if to the Company, to
Houlihan's Restaurant Group, Inc.
2 Brush Creek Boulevard
Kansas City, Kansas 64112
Attention: William W. Moreton
Executive Vice President and
Chief Financial Officer
with a copy to
Bryan Cave LLP
1200 Main Street, Suite 3500
Kansas City, Missouri 64105-2180
Attention: Kendrick T. Wallace
Section 8.5 Interpretation. When a reference is made in this Agreement to
Sections, such reference will be to a Section of this Agreement unless otherwise
indicated. The headings contained in this Agreement are for reference purposes
only and will not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement they will be deemed to be followed by the words "without
limitation." The phrases "the date of this Agreement," "the date hereof" and
terms of similar import, unless the context otherwise requires, will be deemed
to refer June 4, 1996.
Section 8.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which will be considered one and the same agreement and
will become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 8.7 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein), and the
Confidentiality Agreement (a) constitute the entire agreement and supersede all
prior agreements and understandings, both written and oral, among the parties
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with respect to the subject matter hereof and thereof, and (b) other than
Sections 5.9 and 5.10 are not intended to confer upon any person other than the
parties hereto and thereto any rights or remedies hereunder or thereunder.
Section 8.8 Governing Law. This Agreement will be governed and construed
in accordance with the laws of the State of Delaware applicable to contracts
made, executed, delivered and performed wholly within the State of Delaware,
without regard to any applicable conflicts of law. The Company, the Parent and
the Sub hereby (a) submit to the jurisdiction of any State and Federal courts
sitting in the State of Delaware with respect to matters arising out of or
relating hereto, (b) agree that all claims with respect to such matters may be
heard and determined in an action or proceeding in such State or Federal court
and no other court, (c) waive the defense of an inconvenient forum, and (d)
agree that a final judgment in any such action or proceeding will be conclusive
and may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law.
Section 8.9 Specific Performance. The parties hereto agree that if any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine.
Accordingly, the parties agree that they will be entitled to specific
performance of the terms of this Agreement, in addition to any other remedy at
law or equity.
Section 8.10 Publicity. Except as otherwise required by law or the rules
of the NYSE, for so long as this Agreement is in effect, neither the Company nor
the Parent will, or will permit any of its Subsidiaries to, issue or cause the
publication of any press release or other public announcement with respect to
the transactions contemplated by this Agreement without having consulted with
the other party.
Section 8.11 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder will be assigned by any of the parties hereto
(whether by operation of law or otherwise) without the prior written consent of
the other parties, except that the Sub may assign, in its sole discretion, any
or all rights, interests and obligations hereunder to any direct or indirect
wholly owned Subsidiary of the Parent incorporated under the laws of the State
of Delaware. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
Section 8.12 Validity. The invalidity or unenforceability of any provision
of this Agreement will not affect the validity or enforceability of any other
provisions hereof or thereof, which will remain in full force and effect.
Section 8.13 Conveyance Tax. The Company shall be liable for and shall
hold the holders of shares of the Company Common Stock harmless against any New
York State Real Property Gains Tax, New York State Real Estate Transfer Tax and
New York City Real Property Transfer Tax which becomes payable in connection
with the transactions contemplated by this Agreement.
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IN WITNESS WHEREOF, the Parent, the Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
ZAPATA CORPORATION
By: /s/
------------------------------------
Authorized Officer
ZAPATA ACQUISITION CORP.
By: /s/
------------------------------------
Authorized Officer
HOULIHAN'S RESTAURANT GROUP, INC.
By: /s/
------------------------------------
Authorized Officer
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APPENDIX B
CS FIRST BOSTON
CS First Boston Corporation 55 East 52nd Street
New York, NY 10055-0186
Telephone 212 909 2000
June 4, 1996
The Special Committee of
the Board of Directors
Zapata Corporation
1717 St. James Place
Houston, Texas 77253
Members of the Special Committee:
You have asked us to advise you with respect to the fairness to Zapata
Corporation ("Zapata") from a financial point of view of the consideration to be
paid by Zapata pursuant to the terms of the Agreement and Plan of Merger, dated
as of June 4, 1996 (the "Merger Agreement"), by and among Zapata, Zapata
Acquisition Corp., a wholly owned subsidiary of Zapata ("Sub"), and Houlihan's
Restaurant Group, Inc. ("Houlihan's"). The Merger Agreement provides for, among
other things, the merger of Houlihan's with and into Sub pursuant to which Sub
will be the surviving corporation (the "Merger") and each outstanding share of
the common stock, par value $.01 per share, of Houlihan's ("Houlihan's Common
Stock") will be converted into the right to receive shares of the common stock,
par value $.25 per share, of Zapata ("Zapata Common Stock") or cash, or a
combination thereof, based on each stockholder's election and subject to certain
proration provisions, such that the sum of the Market Value (as defined in the
Merger Agreement) of the shares of Zapata Common Stock and the amount of cash
equals $8.00 per share of Houlihan's Common Stock, as more fully described in
the Merger Agreement (the "Merger Consideration").
In arriving at our opinion, we have reviewed the Merger Agreement and
certain publicly available business and financial information relating to Zapata
and Houlihan's. We also have reviewed certain other information, including
financial forecasts, provided to us by Zapata and Houlihan's, and have met with
the respective managements of Zapata and Houlihan's to discuss the businesses
and prospects of Zapata and Houlihan's.
We also have considered certain financial and stock market data of Zapata
and Houlihan's, and we have compared that data with similar data for other
publicly held companies in businesses similar to those of Zapata and Houlihan's
and we have considered, to the extent publicly available, the financial terms of
certain other business combinations and other transactions which have recently
been effected. We also considered such other information, financial studies,
analyses and investigations and financial, economic and market criteria which we
deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied
upon its being complete and accurate in all material respects. With respect to
the financial forecasts, we have assumed that such forecasts have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of Zapata and Houlihan's as to the future
financial performance of Zapata and Houlihan's. In addition, we have not made an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of Zapata or Houlihan's, nor have we been furnished with any such
evaluations or appraisals. Our opinion is necessarily based upon information
available to us and financial, stock market and other conditions as they exist
and can be evaluated on the date hereof. We are not expressing any opinion as to
what the value of the Zapata Common Stock actually will be when issued to
Houlihan's stockholders pursuant to the Merger or the prices at which such
Zapata Common Stock will trade subsequent to the Merger.
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We have acted as financial advisor to the Special Committee of the Board of
Directors of Zapata in connection with the Merger and will receive a fee for our
services, including a fee upon the delivery of this opinion. We may in the
future provide financial advisory services to Zapata unrelated to the proposed
Merger, for which services we will receive compensation. In the ordinary course
of our business, CS First Boston and its affiliates may actively trade the
equity securities of Zapata and Houlihan's for their own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
It is understood that this letter is for the information of the Special
Committee of the Board of Directors of Zapata in connection with its evaluation
of the Merger and is not intended to be and shall not be deemed to constitute a
recommendation to any stockholder as to how such stockholder should vote on the
Merger. This letter is not to be quoted or referred to, in whole or in part, in
any registration statement, prospectus or proxy statement, or in any other
document used in connection with the offering or sale of securities, nor shall
this letter be used for any other purposes, without CS First Boston's prior
written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger Consideration to be paid by Zapata in the Merger is fair
to Zapata from a financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
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APPENDIX C
DONALDSON, LUFKIN & JENRETTE
Donaldson, Lufkin & Jenrette Securities Corporation
600 California Street, San Francisco, CA 94108-2704 - (415) 249-2100
June 4, 1996
Special Committee of the Board of Directors
Houlihan's Restaurant Group, Inc.
Two Brush Creek Boulevard
Kansas City, Missouri 64112
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of common stock, par value $0.01 per share ("Company Common
Stock") of Houlihan's Restaurant Group, Inc. (the "Company") who are not Malcolm
I. Glazer ("Glazer") or affiliated with Glazer (such stockholders, the
"Non-Glazer Stockholders") of the consideration to be received by such
stockholders, pursuant to the Agreement and Plan of Merger dated as of June 4,
1996, among Zapata Corporation ("Zapata"), the Company and Zapata Acquisition
Corp. (the "Sub"), a wholly owned subsidiary of Zapata (the "Agreement"),
pursuant to which the company will be merged (the "Merger") with and into the
Sub.
Pursuant to the Agreement, each share of Company Common Stock will be
converted into the right to receive, at the election of each Non-Glazer
Stockholder, (i)(x) $4.00 per share in cash, without interest, plus (y) a number
of shares of common stock, par value $0.25 per share ("Zapata Common Stock") of
Zapata equal to $4.00 divided by the average closing price of a share of Zapata
Common Stock for the 20 trading days immediately preceding the second trading
day prior to the date of the meeting of stockholders of the Company relating to
the Agreement (such average closing price, the "Market Value"); (ii) a number of
shares of Zapata Common stock equal to $8.00 divided by the Market Value; (iii)
the right to receive $8.00 in cash, without interest, subject to a reduction in
such cash amount (in exchange for an equal amount of Zapata Common Stock, valued
at the Market Value) pursuant to a formula whereby in the event that, as a
group, the Non-Glazer Stockholders exercise elections such that the aggregate
ownership of Zapata Common Stock and certain other securities by Glazer and his
affiliates immediately after the Merger would exceed either (a) 49.9% of the
Voting Power (as defined in the Agreement) of all Outstanding Voting Securities
(as defined in the Agreement) of Zapata, the cash elections of the Non-Glazer
Stockholders will be reduced (and their receipt of Zapata Common Stock will be
increased) pro rata such that Glazer and his affiliates own either 49.9% of the
Voting Power of all Voting Securities of Zapata or 49.9% of the Adjusted Voting
Power of all Outstanding Voting Securities of Zapata, whichever results in fewer
shares of Zapata Common Stock being issued to Glazer and his affiliates pursuant
to the Merger; or (iv) an amount of Zapata Common Stock and cash equal to $8.00
per share in the aggregate, in the same proportions of Zapata Common Stock and
cash as are received by Glazer and his affiliates pursuant to the Merger.
In arriving at our opinion, we have reviewed the Agreement and exhibits
thereto. We also have reviewed financial and other information that was publicly
available or furnished to us by the Company and Zapata including information
provided during discussions with their respective managements. Included in the
information provided during discussions with the Company's management were
certain financial projections of the Company for the period beginning January
1996 and ending December 2001 prepared by the management of the Company. In
addition, we have compared certain financial and securities data of the Company
with various other companies whose securities are traded in public markets,
reviewed the historical stock prices and trading volumes of the common stock of
the Company and Zapata, reviewed prices and premiums paid in other business
combinations and conducted such other financial studies, analyses and
investigations as we deemed appropriate for purposes of this opinion. We were
requested by you, the Special Committee of the Company's Board of Directors (the
"Special Committee"), not to, and we did not, solicit the interest of any other
party in acquiring the Company.
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In rendering our opinion, we have relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that was
available to us from public sources, that was provided to us by the Company and
Zapata or their respective representatives, or that was otherwise reviewed by
us. With respect to the financial projections for the Company supplied to us, we
have assumed that they have been reasonably prepared on the basis reflecting the
best currently available estimates and judgments of the management of the
Company as to the future operating and financial performance of the Company. We
have not assumed any responsibility for making an independent evaluation of the
Company's assets or liabilities or for making any independent verification of
any of the information reviewed by us. We have relied as to all legal matters on
advice of counsel to the Company and the Special Committee.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
price at which Zapata Common Stock will actually trade at any time. Our opinion
does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the consideration to be received by the Non-Glazer
Stockholders pursuant to the Agreement is fair to the Non-Glazer Stockholders
from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ THOMAS M. BENNINGER
------------------------------------
Thomas M. Benninger
Managing Director
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APPENDIX D
DELAWARE GENERAL CORPORATION LAW
SECTION 262 REGARDING APPRAISAL RIGHTS
262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec.228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251 (other than a merger effected pursuant to
subsection (g) of sec.251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to sec.sec.251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof.
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate
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of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or 253
of this title, each constituent corporation, either before the effective date of
the merger or consolidation or within ten days thereafter, shall notify each of
the holders of any class or series of stock of such constituent corporation that
are entitled to appraisal rights of the approval of the merger or consolidation
and that appraisal rights are available for any or all shares of such class or
series of stock of such constituent corporation, and shall include in such
notice a copy of this section; provided that, if the notice is given on or after
the effective date of the merger or consolidation, such notice shall be given by
the surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Any stockholder entitled to appraisal rights may, within twenty days
after the date of mailing of such notice, demand in writing from the surviving
or resulting corporation the appraisal of such holder's shares. Such demand will
be sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send a second notice to all such holders on or within 10 days
after such effective date; provided, however, that if such second notice is sent
more than 20 days following the sending of the first notice, such second notice
need only to be sent to each stockholder who is entitled to appraisal rights and
who has demanded appraisal of such holder's shares in accordance with the
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive such notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given; provided that, if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be the
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the next day
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for
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appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion
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of the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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APPENDIX E
1996 LONG-TERM INCENTIVE PLAN
OF
ZAPATA CORPORATION
1. Objective. The 1996 Long-Term Incentive Plan (the "Plan") of Zapata
Corporation, a Delaware corporation (the "Company"), is designed to retain key
executives and other selected employees and reward them for making major
contributions to the success of the Company and its Subsidiaries (as hereinafter
defined). These objectives are to be accomplished by making awards under the
Plan and thereby providing Participants (as hereinafter defined) with a
proprietary interest in the growth and performance of the Company and its
Subsidiaries.
2. Definitions. As used herein, the terms set forth below shall have the
following respective meanings:
"Award" means the grant of any form of stock option, stock appreciation
right, stock award or cash award, whether granted singly, in combination or in
tandem, to a Participant pursuant to any applicable terms, conditions and
limitations as the Committee may establish in order to fulfill the objectives of
the Plan.
"Award Agreement" means a written agreement between the Company and a
Participant that sets forth the terms, conditions and limitations applicable to
an Award.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means such committee of the Board as is designated by the Board
to administer the Plan. The Committee shall be constituted to permit the Plan to
comply with Rule 16b-3, as hereinafter defined.
"Common Stock" means the Common Stock, par value $.25 per share, of the
Company.
"Director" means an individual serving as a member of the Board.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Fair Market Value" means, as of a particular date, (i) if the shares of
Common Stock are listed on a national securities exchange, the closing sales
price per share of Common Stock on the consolidated transaction reporting system
for the principal such national securities exchange on that date, or, if there
shall have been no such sale so reported on that date, on the last preceding
date on which such a sale was so reported, (ii) if the shares of Common Stock
are not so listed but are quoted in the NASDAQ National Market System the
closing sales price per share of Common Stock on the NASDAQ National Market
System on that date, or, if there shall have been no such sale so reported on
that date, on the last preceding date on which such a sale was so reported or
(iii) if the Common Stock is not so listed or quoted, the mean between the
closing bid and asked price on that date, or, if there are no quotations
available for such date, on the last preceding date on which such quotations
shall be available, as reported by NASDAQ, or, if not reported by NASDAQ, by the
National Quotation Bureau, Inc.
"Participant" means an employee of the Company or any of its Subsidiaries
to whom an Award has been made under this Plan.
"Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, or any
successor rule.
"Subsidiary" means any corporation of which the Company directly or
indirectly owns shares representing more than 50% of the voting power of all
classes or series of capital stock of such corporation which have the right to
vote generally on matters submitted to a vote of the stockholders of such
corporation.
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3. Eligibility. Employees of the Company and its Subsidiaries eligible for
an Award under this Plan are those who hold positions of responsibility and
whose performance, in the judgment of the Committee, can have a significant
effect on the success of the Company and its Subsidiaries. Notwithstanding the
foregoing, individuals described in Paragraph 7(e) shall also be eligible for
Awards under this Plan, in accordance with the provisions of Paragraph 7(e).
4. Common Stock Available for Awards. There shall be available for Awards
granted wholly or partly in Common Stock (including rights or options which may
be exercised for or settled in Common Stock) during the term of this Plan an
aggregate of 5,000,000 shares of Common Stock (of which number approximately
2,600,000 shares will be issued pursuant to the options previously issued under
the Houlihan's Restaurant Group, Inc. 1994 Executive Stock Option Plan and the
Houlihan's Restaurant Group, Inc. 1994 Stock Option Plan for Outside Directors
and assumed by the Company under this Plan pursuant to Paragraph 7(e)).
Notwithstanding the foregoing, not more than an aggregate of 750,000 shares of
Common Stock shall be available for Awards other than stock options and stock
appreciation rights granted at an exercise or strike price not less than the
Fair Market Value on the date of grant. The Board of Directors and the
appropriate officers of the Company shall from time to time take whatever
actions are necessary to file required documents with governmental authorities
and stock exchanges and transaction reporting systems to make shares of Common
Stock available for issuance pursuant to Awards. Common Stock related to Awards
that are forfeited or terminated, expire unexercised, are settled in cash in
lieu of Common Stock or in a manner such that all or some of the shares covered
by an Award are not issued to a Participant, or are exchanged for Awards that do
not involve Common Stock, shall immediately become available for Awards
hereunder. The Committee may from time to time adopt and observe such procedures
concerning the counting of shares against the Plan maximum as it may deem
appropriate under Rule 16b-3.
5. Administration. This Plan shall be administered by the Committee, which
shall have full and exclusive power to interpret this Plan and to adopt such
rules, regulations and guidelines for carrying out this Plan as it may deem
necessary or proper, all of which powers shall be exercised in the best
interests of the Company and in keeping with the objectives of this Plan. Unless
otherwise provided in an Award Agreement with respect to a particular award, the
Committee may, in its discretion, provide for the extension of the
exercisability of an Award, accelerate the vesting or exercisability of an
Award, eliminate or make less restrictive any restrictions contained in an
Award, waive any restriction or other provision of this Plan or an Award or
otherwise amend or modify an Award in any manner that is either (i) not adverse
to the Participant holding such Award or (ii) consented to by such Participant.
The Committee may correct any defect or supply any omission or reconcile any
inconsistency in this Plan or in any Award in the manner and to the extent the
Committee deems necessary or desirable to carry it into effect. Any decision of
the Committee in the interpretation and administration of this Plan shall lie
within its sole and absolute discretion and shall be final, conclusive and
binding on all parties concerned. No member of the Committee or officer of the
Company to whom it has delegated authority in accordance with the provisions of
Paragraph 6 of this Plan shall be liable for anything done or omitted to be done
by him or her, by any member of the Committee or by any officer of the Company
in connection with the performance of any duties under this Plan, except for his
or her own willful misconduct or as expressly provided by statute.
6. Delegation of Authority. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties under
this Plan pursuant to such conditions or limitations as the Committee may
establish, except that the Committee may not delegate to any person the
authority to grant Awards to, or take other action with respect to, Participants
who are subject to Section 16 of the Exchange Act.
7. Awards. The Committee shall determine the type or types of Awards to be
made to each Participant under this Plan. Each Award made hereunder shall be
embodied in an Award Agreement, which shall contain such terms, conditions and
limitations as shall be determined by the Committee in its sole discretion and
shall be signed by the Participant and by the Chief Executive Officer, the Chief
Operating Officer, or any Vice President of the Company for and on behalf of the
Company. Awards may consist of those listed in this Paragraph 7 and may be
granted singly, in combination or in tandem. Awards may also be made in
combination or in tandem with, in replacement of, or as alternatives to, grants
or rights under this Plan or any
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other employee plan of the Company or any of its Subsidiaries, including the
plan of any acquired entity. An Award may provide for the granting or issuance
of additional, replacement or alternative Awards upon the occurrence of
specified events, including the exercise of the original Award. An Award may
provide that to the extent that the acceleration of vesting or any payment made
to a Participant under this Plan in the event of a change of control of the
Company is subject to federal income, excise, or other tax at a rate above the
rate ordinarily applicable to like payments paid in the ordinary course of
business ("Penalty Tax"), whether as a result of the provisions of Sections 28OG
and 4999 of the Code, any similar or analogous provisions of any statute adopted
subsequent to the date hereof, or otherwise, then the Company shall be obligated
to pay such Participant an additional amount of cash (the "Additional Amount")
such that the net amount received by such Participant, after paying any
applicable Penalty Tax and any federal or state income tax on such Additional
Amount, shall be equal to the amount that such Participant would have received
if such Penalty Tax were not applicable. Notwithstanding anything herein to the
contrary, no Participant may be granted, during any three-year period, Awards
consisting of stock options or stock appreciation rights exercisable for more
than 12.5% of the shares of Common Stock reserved for issuance under the Plan.
(a) Stock Option. An Award may consist of a right to purchase a specified
number of shares of Common Stock at a specified price that is not less than the
greater of (i) the Fair Market Value of the Common Stock on the date of grant
and (ii) the par value of the Common Stock on the date of grant. A stock option
may be in the form of an incentive stock option ("ISO") which, in addition to
being subject to applicable terms, conditions and limitations established by the
Committee, complies with Section 422 of the Code.
(b) Stock Appreciation Right. An Award may consist of a right to receive a
payment, in cash or Common Stock, equal to the excess of the Fair Market Value
or other specified valuation of a specified number of shares of Common Stock on
the date the stock appreciation right ("SAR") is exercised over a specified
strike price as set forth in the applicable Award Agreement.
(c) Stock Award. An Award may consist of Common Stock or may be denominated
in units of Common Stock. All or part of any stock award may be subject to
conditions established by the Committee, and set forth in the Award Agreement,
which may include, but are not limited to, continuous service with the Company
and its Subsidiaries, achievement of specific business objectives, increases in
specified indices, attaining specified growth rates and other comparable
measurements of performance. Such Awards may be based on Fair Market Value or
other specified valuations. The certificates evidencing shares of Common Stock
issued in connection with a stock award shall contain appropriate legends and
restrictions describing the terms and conditions of the restrictions applicable
thereto.
(d) Cash Award. An Award may be denominated in cash with the amount of the
eventual payment subject to future service and such other restrictions and
conditions as may be established by the Committee, and set forth in the Award
Agreement, including, but not limited to, continuous service with the Company
and its Subsidiaries, achievement of specific business objectives, increases in
specified indices, attaining specified growth rates and other comparable
measurements of performance.
(e) Stock Options to Houlihan's Restaurant Group, Inc. Directors and
Employees. The Company shall substitute certain stock options to purchase shares
of Houlihan's Restaurant Group, Inc. common stock, par value $.01 per share
("Houlihan Stock"), under Houlihan's Restaurant Group, Inc. 1994 Executive Stock
Option Plan and Houlihan's Restaurant Group, Inc. 1994 Stock Option Plan for
Outside Directors, with stock options to purchase Common Stock under this Plan.
The number of shares issued pursuant to these stock options, the exercise price
of the stock options, and other terms and conditions related to these options
are described in Exhibit A attached hereto.
8. Payment of Awards.
(a) General. Payment of Awards may be made in the form of cash or Common
Stock or combinations thereof and may include such restrictions as the Committee
shall determine, including in the case of Common Stock, restrictions on transfer
and forfeiture provisions. As used herein, "Restricted Stock" means Common Stock
that is restricted or subject to forfeiture provisions.
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(b) Deferral. With the approval of the Committee, payments may be deferred,
either in the form of installments or a future lump sum payment. The Committee
may permit selected Participants to elect to defer payments of some or all types
of Awards in accordance with procedures established by the Committee. Any
deferred payment, whether elected by the Participant or specified by the Award
Agreement or by the Committee, may be forfeited if and to the extent that the
Award Agreement so provides.
(c) Dividends and Interest. Dividends or dividend equivalent rights may be
extended to and made part of any Award denominated in Common Stock or units of
Common Stock, subject to such terms, conditions and restrictions as the
Committee may establish. The Committee may also establish rules and procedures
for the crediting of interest on deferred cash payments and dividend equivalents
for deferred payment denominated in Common Stock or units of Common Stock.
(d) Substitution of Awards. At the discretion of the Committee, a
Participant may be offered an election to substitute an Award for another Award
or Awards of the same or different type.
9. Stock Option Exercise. The price at which shares of Common Stock may be
purchased under a stock option shall be paid in full at the time of exercise in
cash or, if permitted by the Committee, by means of tendering Common Stock or
surrendering another Award, including Restricted Stock, valued at Fair Market
Value on the date of exercise, or any combination thereof. The Committee shall
determine acceptable methods for tendering Common Stock or other Awards to
exercise a stock option as it deems appropriate. If permitted by the Committee,
payment may be made by successive exercises by the Participant. The Committee
may provide for loans from the Company to permit the exercise or purchase of
Awards and may provide for procedures to permit the exercise or purchase of
Awards by use of the proceeds to be received from the sale of Common Stock
issuable pursuant to an Award. Unless otherwise provided in the applicable Award
Agreement, in the event shares of Restricted Stock are tendered as consideration
for the exercise of a stock option, a number of the shares issued upon the
exercise of the stock option, equal to the number of shares of Restricted Stock
used as consideration therefor, shall be subject to the same restrictions as the
Restricted Stock so submitted as well as any additional restrictions that may be
imposed by the Committee.
10. Tax Withholding. The Company shall have the right to deduct applicable
taxes from any Award payment and withhold, at the time of delivery or vesting of
cash or shares of Common Stock under this Plan, an appropriate amount of cash or
number of shares of Common Stock or a combination thereof for payment of taxes
required by law or to take such other action as may be necessary in the opinion
of the Company to satisfy all obligations for withholding of such taxes. The
Committee may also permit withholding to be satisfied by the transfer to the
Company of shares of Common Stock theretofore owned by the holder of the Award
with respect to which withholding is required. If shares of Common Stock are
used to satisfy tax withholding, such shares shall be valued based on the Fair
Market Value when the tax withholding is required to be made.
11. Amendment, Modification, Suspension or Termination. The Board may
amend, modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose permitted
by law except that (i) no amendment or alteration that would impair the rights
of any Participant under any Award previously granted to such Participant shall
be made without such Participant's consent and (ii) no amendment or alteration
shall be effective prior to approval by the Company's stockholders to the extent
such approval is then required pursuant to Rule 16b-3 in order to preserve the
applicability of any exemption provided by such rule to any Award then
outstanding (unless the holder of such Award consents) or to the extent
stockholder approval is otherwise required by applicable legal requirements.
12. Termination of Employment. Upon the termination of employment by a
Participant, any unexercised, deferred or unpaid Awards shall be treated as
provided in the specific Award Agreement evidencing the Award. In the event of
such a termination, the Committee may, in its discretion, provide for the
extension of the exercisability of an Award, accelerate the vesting or
exercisability of an Award, eliminate or make less restrictive any restrictions
contained in an Award, waive any restriction or other provision of this Plan or
an Award or otherwise amend or modify the Award in any manner that is either (i)
not adverse to such Participant or (ii) consented to by such Participant.
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13. Assignability. Unless otherwise determined by the Committee and
provided in the Award Agreement, no Award or any other benefit under this Plan
constituting a derivative security within the meaning of Rule 16a-l(c) under the
Exchange Act shall be assignable or otherwise transferable except by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder. The Committee may prescribe and include
in applicable Award Agreements other restrictions on transfer. Any attempted
assignment of an Award or any other benefit under this Plan in violation of this
Paragraph 13 shall be null and void.
14. Adjustments.
(a) The existence of outstanding Awards shall not affect in any manner the
right or power of the Company or its stockholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
capital stock of the Company or its business or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock (whether or not such issue is prior to, on a parity with or junior to the
Common Stock) or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding of any kind, whether or not of a character similar to that of
the acts or proceedings enumerated above.
(b) In the event of any subdivision or consolidation of outstanding shares
of Common Stock or declaration of a dividend payable in shares of Common Stock
or capital reorganization or reclassification or other transaction involving an
increase or reduction in the number of outstanding shares of Common Stock, the
Committee may adjust proportionally (i) the number of shares of Common Stock
reserved under this Plan and covered by outstanding Awards denominated in Common
Stock or units of Common Stock; (ii) the exercise or other price in respect of
such Awards; and (iii) the appropriate Fair Market Value and other price
determinations for such Awards. In the event of any consolidation or merger of
the Company with another corporation or entity or the adoption by the Company of
a plan of exchange affecting the Common Stock or any distribution to holders of
Common Stock of securities or property (other than normal cash dividends or
dividends payable in Common Stock), the Committee shall make such adjustments or
other provisions as it may deem equitable, including adjustments to avoid
fractional shares, to give proper effect to such event. In the event of a
corporate merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the Committee shall be authorized to issue or
assume stock options, regardless of whether in a transaction to which Section
424(a) of the Code applies, by means of substitution of new options for
previously issued options or an assumption of previously issued options, or to
make provision for the acceleration of the exercisability of, or lapse of
restrictions with respect to, Awards and the termination of unexercised options
in connection with such transaction.
15. Restrictions. No Common Stock or other form of payment shall be issued
with respect to any Award unless the Company shall be satisfied based on the
advice of its counsel that such issuance will be in compliance with applicable
federal and state securities laws. It is the intent of the Company that this
Plan comply with Rule 16b-3 with respect to persons subject to Section 16 of the
Exchange Act unless otherwise provided herein or in an Award Agreement, that any
ambiguities or inconsistencies in the construction of this Plan be interpreted
to give effect to such intention, and that if any provision of this Plan is
found not to be in compliance with Rule 16b-3, such provision shall be null and
void to the extent required to permit this Plan to comply with Rule 16b-3.
Certificates evidencing shares of Common Stock delivered under this Plan may be
subject to such stop transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any securities exchange or transaction
reporting system upon which the Common Stock is then listed and any applicable
federal and state securities law. The Committee may cause a legend or legends to
be placed upon any such certificates to make appropriate reference to such
restrictions.
16. Unfunded Plan. Insofar as it provides for Awards of cash, Common Stock
or rights thereto, this Plan shall be unfunded. Although bookkeeping accounts
may be established with respect to Participants who are entitled to cash, Common
Stock or rights thereto under this Plan, any such accounts shall be used merely
as a bookkeeping convenience. The Company shall not be required to segregate any
assets that may at any time be represented by cash, Common Stock or rights
thereto, nor shall this Plan be construed as providing for such
E-5
<PAGE> 151
segregation, nor shall the Company nor the Board nor the Committee be deemed to
be a trustee of any cash, Common Stock or rights thereto to be granted under
this Plan. Any liability or obligation of the Company to any Participant with
respect to a grant of cash, Common Stock or rights thereto under this Plan shall
be based solely upon any contractual obligations that may be created by this
Plan and any Award Agreement, and no such liability or obligation of the Company
shall be deemed to be secured by any pledge or other encumbrance on any property
of the Company. Neither the Company nor the Board nor the Committee shall be
required to give any security or bond for the performance of any obligation that
may be created by this Plan.
17. Governing Law. This Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by mandatory provisions of
the Code or the securities laws of the United States, shall be governed by and
construed in accordance with the laws of the State of the State of Texas.
18. Effective Date of Plan. This Plan shall be effective as of June 19,
1996 (the "Effective Date). Notwithstanding the foregoing, the adoption of this
Plan is expressly conditioned upon the approval by the holders of a majority of
shares of Common Stock present, or represented, and entitled to vote at a
meeting of the Company's stockholders held on or before June 19, 1997. If the
stockholders of the Company should fail so to approve this Plan prior to such
date, this Plan shall terminate and cease to be of any further force or effect
and all grant of Awards hereunder shall be null and void.
Zapata Corporation
June 19, 1996
E-6
<PAGE> 152
ANNEX A
<PAGE> 153
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
COMMISSION FILE NUMBER: 1-4219
ZAPATA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
C-74-1339132
STATE OF DELAWARE (I.R.S. EMPLOYER
(STATE OR OTHER JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
77056
1717 ST. JAMES PLACE, SUITE 550 (ZIP CODE)
HOUSTON, TEXAS
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 940-6100
----------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -----------------------
<S> <C>
Common Stock, $0.25 par value........................... New York Stock Exchange
10 1/4% Subordinated Debentures due 1997................ New York Stock Exchange
10 7/8% Subordinated Debentures due 2001................ New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
$2 Noncumulative Convertible Preference Stock, $1 par value.
On December 15, 1995, there were outstanding 29,548,507 shares of the
Company's Common Stock, $0.25 par value. The aggregate market value of the
Company's voting stock held by nonaffiliates of the Company is $64,660,407,
based on the closing price in consolidated trading on December 15, 1995 for the
Company's Common Stock and the value of the number of shares of Common Stock
into which the Company's $2 Noncumulative Convertible Preference Stock was
convertible on such date.
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS, YES X , NO .
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [_]
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934
in connection with the Company's 1996 Annual Meeting of Stockholders are
incorporated by reference into Part III hereof (to the extent set forth in Items
10, 11, 12 and 13 of Part III of this Annual Report on Form 10-K).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 154
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
PART I
Items 1 and 2. Business and Properties.............................. 1
General............................................. 1
Historical Contributions of Major Divisions......... 2
Marine Protein Operations........................... 3
Oil and Gas Operations.............................. 5
Employees........................................... 8
Geographical Information............................ 8
Executive Officers of the Registrant................ 9
Properties.......................................... 10
Item 3. Legal Proceedings.................................... 10
Item 4. Submission of Matters to a Vote of Security Holders.. 11
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters................................. 12
Item 6. Selected Financial Data.............................. 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 14
Item 8. Financial Statements and Supplementary Data.......... 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. 61
PART III
Item 10. Directors and Executive Officers of the Registrant... 61
Item 11. Executive Compensation............................... 61
Item 12. Security Ownership of Certain Beneficial Owners and
Management.......................................... 61
Item 13. Certain Relationships and Related Transactions....... 61
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K......................................... 62
</TABLE>
<PAGE> 155
PART I
ITEM 1 AND 2. BUSINESS AND PROPERTIES
GENERAL
Zapata Corporation is a Delaware corporation organized in 1954. As used
herein, the term "Zapata" or the "Company" refers to Zapata Corporation or to
Zapata Corporation and its consolidated subsidiaries, as applicable.
In fiscal 1993, Zapata began to redirect its operations into the natural gas
services market. The Company acquired the common stock of Cimarron Gas Holding
Company ("Cimarron") in fiscal 1993. Cimarron was engaged in the business of
marketing and trading natural gas liquids, as well as gathering and processing
natural gas and its constituent products. Cimarron was purchased to serve as
the vehicle for Zapata's expansion into the gathering and processing segments
of the natural gas services markets. Since being acquired, Cimarron has
purchased additional gathering and processing assets through the acquisition of
Stellar Energy Corporation and three affiliated companies (collectively,
"Stellar") in September 1993. Zapata acquired the natural gas compression
businesses of Energy Industries, Inc. and certain other affiliated companies
(collectively, "Energy Industries") in November 1993. Energy Industries was
engaged in the business of renting, fabricating, selling, installing and
servicing natural gas compressor packages.
In late 1994 and early 1995, the Company began to develop a strategic plan
involving the repositioning of the Company into the food packaging, food and
food service equipment and supply (collectively, "food services") businesses
and exiting the energy business. The strategic plan that was developed called
for the divestiture of most of the Company's remaining energy operations,
including Energy Industries, Cimarron and the Company's remaining domestic oil
and gas assets, and the acquisition of, or joint ventures with, selected
companies in the food services industry.
In September 1994, Zapata's Board of Directors announced that the Company
would immediately undertake efforts to sell its U.S. natural gas producing
properties. The six properties in the Gulf of Mexico, representing Zapata's
domestic oil and gas producing operations, were sold in fiscal 1995. Zapata
received cash of $4.0 million and recorded an $8.9 million receivable
representing (i) a production payment entitling Zapata to a share of revenues
from certain properties and (ii) a share of future proceeds from a revenue
sharing agreement. No gain or loss resulted from the sales. The decision to
sell its U.S. natural gas producing properties did not impact Zapata's Bolivian
oil and gas operations.
In September 1995, Zapata entered into an agreement (the "Purchase
Agreement") to sell the assets of Energy Industries (the "Energy Industries
Sale") to Weatherford Enterra, Inc. and its wholly owned subsidiary, Enterra
Compression Company (collectively, "Weatherford Enterra"). Pursuant to the
Purchase Agreement, Weatherford Enterra purchased from the Company all of the
assets of Energy Industries for approximately $131 million in cash and assumed
certain liabilities of Energy Industries, subject to final post closing
adjustments. The Energy Industries Sale closed on December 15, 1995 after
receiving stockholder approval. The Energy Industries Sale resulted in an
after-tax gain of approximately $14.0 million, which will be reflected in the
Company's fiscal 1996 financial results. Although a sale price for Cimarron has
not been determined, the Company estimates that, based on preliminary
indications of interest from potential purchasers, the minimum sale price for
Cimarron should be at least equal to book value. The Company expects to
complete the sale of Cimarron in fiscal 1996.
In 1994, the Board of Directors determined that the interests of Zapata's
stockholders would best be served by a sale of the marine protein operations.
In March 1995, the Company executed an agreement to sell its marine protein
operations to an investor group. However, that agreement was terminated in
April 1995 due to the investor group's failure to obtain sufficient financing.
The Company has since decided to retain the marine protein operations.
1
<PAGE> 156
In August 1995, the Company purchased 4,189,298 shares, or 31%, of the common
stock of Envirodyne Industries, Inc. ("Envirodyne") for $18.8 million from a
trust controlled by Malcolm Glazer, Chairman of the Board of the Company and,
through his beneficial ownership of a trust, a major stockholder of the
Company. Mr. Glazer is also a director of Envirodyne. Such shares represented
all of Mr. Glazer's ownership interest in Envirodyne. The Company paid the
purchase price by issuing a subordinated promissory note bearing interest at
the prime rate and maturing in August 1997, subject to prepayment at the
Company's option. The Company has since prepaid approximately $15.6 million on
the promissory note. Envirodyne is a major supplier of food packaging products
and food service supplies and is a leading worldwide producer of cellulosic
casings used in the preparation of packaging of processed meat products. It is
the world's second largest producer of heat shrinkable plastic bags and
specialty films for packaging and preserving fresh and processed meat products,
poultry and cheeses. Envirodyne is also a leading domestic producer of (i)
disposable plastic cutlery, drinking straws, custom dining kits and related
products and (ii) thermo-formed and injection-molded plastic containers and
horticultural trays and inserts. The Company may continue to evaluate the
acquisition of additional shares of Envirodyne common stock or proposing a
merger with, or acquisition of, Envirodyne in the future, although the Company
currently has no plans or proposals to do so.
The Company sold its remaining 673,077 shares of Tidewater Inc. ("Tidewater")
common stock in fiscal 1995. Zapata sold 3.5 million and 4.1 million shares of
Tidewater common stock in 1993 and 1994, respectively.
HISTORICAL CONTRIBUTIONS OF MAJOR DIVISIONS
The following table summarizes historical revenues, operating results (before
net interest expense, other income and income taxes), identifiable assets,
depreciation, depletion and amortization and capital expenditures for the
Company's continuing operations, by major division, for the periods indicated.
As a result of the decision to sell the natural gas compression and natural gas
gathering, processing and marketing operations, the Company's financial
statements have been restated in 1995 to reflect these operations as
discontinued operations, and therefore are not included below.
<TABLE>
<CAPTION>
OPERATING DEPRECIATION,
AS OF OR FOR THE YEAR INCOME IDENTIFIABLE DEPLETION AND CAPITAL
ENDED SEPTEMBER 30, REVENUES (LOSS) ASSETS AMORTIZATION EXPENDITURES
--------------------- -------- --------- ------------ ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1995
Marine protein.......... $ 94,959 $ (6,437)(1) $ 85,012 $14,977(1) $ 5,573
Oil and gas............. 8,109 658 13,571 2,856 1,767
Corporate............... (3,441) 38,914 115 1
-------- -------- -------- ------- -------
$103,068 $ (9,220) $137,497 $17,948 $ 7,341
======== ======== ======== ======= =======
1994
Marine protein.......... $ 96,614 $ 5,445 $ 87,565 $ 4,535 $ 3,671
Oil and gas............. 12,549 (28,285)(3) 20,062 33,770(3) 11,792
Corporate............... (8,767) 44,044(2) 2,321 67
-------- -------- -------- ------- -------
$109,163 $(31,607) $151,671 $40,626 $15,530
======== ======== ======== ======= =======
1993
Marine protein.......... $ 58,565 $ 4,296 $ 92,728 $ 4,510 $ 1,477
Oil and gas............. 20,189 6,032 41,630 7,688 1,327
Corporate............... (6,769) 169,888(2) 378 8
-------- -------- -------- ------- -------
$ 78,754 $ 3,559 $304,246 $12,576 $ 2,812
======== ======== ======== ======= =======
</TABLE>
- - --------
(1) Includes a $12.3 million provision for asset impairment to reduce the
marine protein assets to their fair market value as a result of adopting
Statement of Financial Accounting Standards No. 121.
2
<PAGE> 157
(2) Includes Zapata's investment in Tidewater, which was sold through a series
of transactions effected in fiscal 1995, 1994 and 1993.
(3) Includes a $29.2 million provision for oil and gas property valuation
required as a result of low gas prices and a revision of estimated future
costs.
The net amounts of interest expense (net of interest income), other income
and income tax expense (benefit) from continuing operations are set forth
below.
<TABLE>
<CAPTION>
INCOME
TAX
INTEREST OTHER EXPENSE
YEAR ENDED SEPTEMBER 30, EXPENSE INCOME (BENEFIT)
------------------------ -------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
1995...................................... $1,789 $ 1,986(1) $(3,179)
1994...................................... 2,983 33,161(1) (572)
1993...................................... 12,414 23,523(1) 4,210
</TABLE>
- - --------
(1) Includes pretax gains of $4.8 million, $37.5 million and $32.9 million in
fiscal 1995, 1994 and 1993 respectively, from sales of Tidewater, Inc.
common stock.
MARINE PROTEIN OPERATIONS
The Company's marine protein operations involve the production and sale of a
variety of protein and oil products from menhaden, a species of fish found
along the Gulf of Mexico and Atlantic coasts. Because the magnitude of the fish
catch depends on the availability of the natural resource, which is affected by
various factors beyond the Company's control, and because the prices for the
Company's products are established by worldwide supply and demand relationships
over which the Company has no control, the Company cannot predict the
profitability of this business segment in any given year.
Fishing. The Company owns a fleet of 51 fishing vessels and 27 spotter
aircraft for use in its fishing operations and also leases aircraft where
necessary to facilitate operations. During the 1995 fishing season in the Gulf
of Mexico, where the fishing season runs from mid-April through October, the
Company operated 32 fishing vessels and 26 spotter aircraft. The fishing area
in the Gulf stretches from the south Texas coastline to the panhandle of
western Florida, with a concentration off the Louisiana and Mississippi coasts.
The fishing season on the Atlantic coast begins in early May and usually
extends into December. The Company operated 9 fishing vessels and 8 spotter
aircraft along the mid-Atlantic coast, concentrated in and around the
Chesapeake Bay.
Menhaden usually school in large, tight clusters and are commonly found in
warm, shallow waters. Spotter aircraft locate the schools and direct the
fishing vessels to them. The principal fishing vessels are steamers, which
transport two 40-foot purse boats, each carrying several fishermen and one end
of a 1,500-foot net. The purse boats encircle the school and capture the fish
in the net. The fish are then pumped from the net into refrigerated holds of
the steamer, and then are unloaded at the Company's processing plants.
Processing. The Company owns five processing plants--three in Louisiana, one
in Mississippi and one in Virginia--where the menhaden are processed into fish
meal, fish oil and fish solubles. The fish are unloaded from the vessels into
storage boxes and then conveyed into steam cookers. The fish are then passed
through presses to remove most of the oil and water. The solid portions of the
fish are dried and then ground into fish meal. The liquid that is produced in
the cooking and pressing operations contains oil, water, dissolved protein and
some fish solids. This liquid is decanted to remove the solids and is then put
through a centrifugal oil/water separation process. The separated fish oil is a
finished product. The separated water and protein mixture is further processed
through evaporators to remove the soluble protein, which can be sold as a
finished product or added to the solid portions of the fish for processing into
fish meal.
3
<PAGE> 158
Fish meal, the principal product made from menhaden, is sold primarily as a
high-protein ingredient. It is also used as a protein supplement in feed
formulated for pigs and other livestock. Each use requires certain standards to
be met regarding quality and protein content, which are determined by the
freshness of the fish and by processing conditions such as speed and
temperatures. Fish solubles are a liquid protein product used as an additive in
fish meal and also marketed as an independent product to animal feed
formulators and the fertilizer industry.
Fish oil from menhaden is widely used for human consumption as an edible fat
in Europe. Refined and hydrogenated menhaden oils have a wide variety of
applications as ingredients of margarine, cooking oil and solid cooking fats
used in baked goods. The U.S. Food and Drug Administration has approved the use
of fully hydrogenated menhaden oil and partially hydrogenated menhaden oil for
human consumption in the United States and is considering a petition for use of
refined unhydrogenated menhaden oil for human consumption in the United States.
In October 1995, the Company announced plans to cease processing operations
in 1996 at its Dulac, Louisiana plant. The Company's decision was based on the
anticipated capital expenditures and operating capital requirements necessary
to maintain the long-term viability of the Dulac processing operation. The
entire harvesting effort previously managed from this location, as well as a
significant portion of the processing assets, will be redeployed to other
Company facilities. Therefore, the Company's harvesting efforts in future years
are expected to remain comparable to recent years, and the Company's processing
capabilities will not be significantly changed.
In August 1993, the Company acquired a 60% equity interest in Venture Milling
Company ("Venture"), a Delaware corporation involved in the milling of animal
feeds and protein-ingredient products for the poultry, hog and dairy
industries. Venture leases and operates a feed mill in Seaford, Delaware and
manages its processing operations and sales activities independently of the
Company. The Company consolidates the financial results of Venture. The
Company's financial results for the 1995 or 1994 fiscal years were not
materially impacted by activity related to Venture.
Marketing. Most of the Company's marine protein products are sold directly to
about 300 customers by the Company's marketing department, while a smaller
amount is sold through independent sales agents. Total product inventory (at
the lower of average cost or market) was $22,947,000 as of September 30, 1995
compared to $34,143,000 on September 30, 1994. While the fishing season usually
extends from April into December, sales from inventory continue throughout the
year.
The Company's fish meal is primarily sold to domestic feed producers for
utilization as a high-protein ingredient for the poultry industry. Fish oil
sales primarily involve export markets where the fish oil is refined for use as
an edible oil. One customer for fish oil, Unilever Raw Material B.V., accounted
for approximately 11.9% of the Company's consolidated revenues in fiscal 1995,
and lesser amounts in the two preceding years. Sales to Unilever Raw Material
B.V. were approximately $12.3 million in 1995.
Competition. The principal competition for the Company's fish meal and fish
solubles is from other protein sources such as soybean meal and other vegetable
or animal products. The Company believes, however, that these other sources are
not complete substitutes because fish meal offers nutritional values not
contained in such sources. Vegetable fats and oils, such as soybean and palm
oils, provide the primary market competition for fish oil. In addition, the
Company competes against domestic, privately owned menhaden fishing companies
as well as international producers of fish meal and fish oil derived from
species such as anchovy and mackerel.
Fish meal prices generally bear a direct relationship to prevailing soybean
meal prices, while prices for fish oil are generally influenced by prices for
vegetable fats and oils, such as soybean and palm oils. Thus, the prices for
the Company's products are established by worldwide supply and demand
relationships over which the Company has no control and tend to fluctuate to a
significant extent over the course of a year and from year to year.
4
<PAGE> 159
Regulation. The Company's marine protein operations are subject to federal,
state and local laws and regulations relating to the location and periods in
which fishing may be conducted, as well as environmental and safety matters.
The Company, through its operation of fishing vessels, is subject to the
jurisdiction of the U.S. Coast Guard, the National Transportation Safety Board
and the U.S. Customs Service. The U.S. Coast Guard and the National
Transportation Safety Board set safety standards and are authorized to
investigate vessel accidents and recommend improved safety standards. The U.S.
Customs Service is authorized to inspect vessels at will.
The marine protein operations of the Company also are subject to federal,
state and local laws and regulations relating to the protection of the
environment, including the federal Water Pollution Control Act of 1972, which
was significantly modified in 1977 to deal with toxic water pollutants and re-
named as the Clean Water Act, and which imposes strict controls against the
discharge of oil and other water pollutants into navigable waters. The Clean
Water Act provides penalties for any discharge of pollutants in reportable
quantities and, along with the Oil Pollution Act of 1990, imposes substantial
liability for the costs of oil removal, remediation and damages. The Company's
marine protein operations also are subject to the federal Clean Air Act, as
amended; the federal Resource Conservation and Recovery Act, which regulates
treatment, storage and disposal of hazardous wastes; the federal Comprehensive
Environmental Response, Compensation, and Liability Act, which imposes
liability, without regard to fault, on certain classes of persons that
contributed to the release of any "hazardous substance" into the environment;
and the federal Occupational Safety and Health Act ("OSHA"). The OSHA hazard
communications standard, the Environmental Protection Agency community right-
to-know regulations under Title III of the federal Superfund Amendment and
Reauthorization Act and similar state statutes require the Company to organize
information about hazardous materials used or produced in its operations.
Certain of this information must be provided to employees, state and local
governmental authorities and local citizens. Numerous other environmental laws
and regulations, along with similar state laws, also apply to the marine
protein operations of the Company, and all such laws and regulations are
subject to change.
The Company has made, and anticipates that it will make in the future,
expenditures in the ordinary course of its business in connection with
environmental matters. Such expenditures have not been material in the past and
are not expected to be material in the future. However, there is no assurance
that environmental laws and regulations enacted in the future will not
adversely affect the Company's marine protein operations.
OIL AND GAS OPERATIONS
The Company's only significant remaining oil and gas exploration and
production activity is the production of natural gas in Bolivia. During fiscal
1995, the Company sold its U.S. oil and gas properties in the Gulf of Mexico
for $4.0 million cash and an $8.9 million receivable representing (i) a
production payment entitling Zapata to a share of revenues from certain
properties and (ii) a share of future proceeds from a revenuing sharing
agreement. No gain or loss resulted from the sales. The Company conducts oil
and gas operations through its wholly owned subsidiary, Zapata Exploration
Company ("Zapex").
The Company's decision to sell its U.S. properties did not impact its
Bolivian oil and gas operations. The Company believes the value of the Bolivian
operation would be enhanced by the construction of a proposed gas pipeline
connecting Bolivia's gas producing regions to gas markets in Brazil. The
governments of Bolivia and Brazil currently support this project and a multi-
national group has been formed to construct and operate the pipeline. The
project is progressing toward commencement of construction. Pipeline operations
are currently projected to commence during the late 1990s.
In 1987, the Company wrote off its remaining investment in its oil and gas
properties in Bolivia (held by a joint venture in which the Company has an
approximate 25% interest), and all cash proceeds received by the Company
thereafter that relate to periods prior to 1988 have been recognized as
revenues. The write-off resulted from the failure of the Bolivian state-owned
petroleum company to honor its commitment to pay the joint venture for gas
deliveries on a timely basis and to remit past-due payments on an agreed
schedule. The
5
<PAGE> 160
Bolivian properties continue to be operated by the joint venture, which began
receiving payments with respect to current and past-due invoices on June 30,
1991. Based on the Bolivian oil and gas company's performance under
renegotiated contracts and improved operating conditions, Zapata returned to
the accrual method of accounting for its Bolivian oil and gas operations
beginning in October 1993. The Company recorded revenues of $4.1 million in
fiscal 1994 from its Bolivian interest. During 1995, the Company recorded
revenues of $2.7 million.
Since 1993, the Company committed to participate in the drilling of four
exploratory wells in its Bolivian operation, two of which were drilled in 1994,
one during 1995 and the fourth is scheduled to be drilled during 1996.
The Company's oil and gas operations are subject to all of the risks and
hazards typically associated with the exploration for, and production of, oil
and gas, including blowouts, cratering, oil spills and fires, as well as
political, each of which could result in damage to or destruction of oil and
gas wells, production facilities or other property or the environment or injury
to persons. Although the Company maintains customary insurance coverage, it is
not fully insured against such risks, either because such insurance is not
available or because of high premium costs. In addition, the Company's
investment in its Bolivian oil and gas properties is that of a minority
interest owner. Accordingly, the majority owner has the right to determine the
details of any exploration and development drilling program.
Oil and Gas Reserves. The following table sets forth information as to the
Company's proved and proved developed reserves of oil and natural gas as of
September 30, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
UNITED STATES BOLIVIA
-------------- --------------
GAS LIQUIDS GAS LIQUIDS
(MMCF) (MBBL) (MMCF) (MBBL)
------ ------- ------ -------
<S> <C> <C> <C> <C>
TOTAL PROVED RESERVES AS OF:
September 30, 1995....................... -- -- 29,552 683.5
September 30, 1994....................... 34,736 366.8 27,317 744.4
September 30, 1993....................... 40,735 360.4 22,534 721.9
TOTAL PROVED DEVELOPED RESERVES AS OF:
September 30, 1995....................... -- -- 29,552 683.5
September 30, 1994....................... 27,386 221.3 27,317 744.4
September 30, 1993....................... 28,181 200.9 22,534 721.9
</TABLE>
As used herein, the term "Mcf" means thousand cubic feet, the term "MMcf"
means million cubic feet, the term "Bbl" means barrel and the term "MBbl" means
thousand barrels. Liquids include crude oil, condensate and natural gas
liquids.
The reserve estimates presented herein were prepared by Huddleston & Co.,
Inc. ("Huddleston"), independent petroleum reserve engineers. Since September
30, 1995, no major favorable or adverse event has occurred which the Company
believes significantly affects or changes estimated reserve quantities as of
that date. Zapata is not a party to any contracts that include an obligation to
provide a fixed and determinable quantity of oil and gas in the future. No
estimates of the Company's proved net oil or gas reserves have been filed with
or included in reports to any federal authority or agency other than the
Securities and Exchange Commission since October 1, 1994.
There are numerous uncertainties inherent in estimating quantities of proved
reserves, including many factors beyond the control of the producer. The
reserve data set forth herein represent only estimates. Reserve engineering is
a subjective process of estimating underground accumulations of crude oil and
natural gas that cannot be measured in an exact manner, and the accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. As a result, estimates
of
6
<PAGE> 161
different engineers often vary. In addition, results of drilling, testing and
production subsequent to the date of an estimate may justify revision of such
estimate. Accordingly, reserve estimates are often different from the
quantities of crude oil and natural gas that are ultimately recovered. The
meaningfulness of such estimates is highly dependent upon the accuracy of the
assumptions upon which they were based.
Production and Sales. The following table sets forth the Company's production
of oil and gas, net of all royalties, overriding royalties and other
outstanding interests, for the three years ended September 30, 1995, 1994 and
1993. Natural gas production refers only to marketable production of gas on an
"as sold" basis.
<TABLE>
<CAPTION>
UNITED STATES BOLIVIA
-------------- --------------
GAS LIQUIDS GAS LIQUIDS
(MMCF) (MBBL) (MMCF) (MBBL)
------ ------- ------ -------
<S> <C> <C> <C> <C>
PRODUCTION VOLUMES FOR THE YEAR ENDED:
September 30, 1995...................... 2,996 44.7 1,724 53.3
September 30, 1994...................... 3,456 73.0 1,967 68.9
September 30, 1993...................... 7,067 47.1 1,665 55.3
</TABLE>
The following table shows the average sales prices received by the Company
for its production for the three years ended September 30, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
UNITED STATES BOLIVIA
------------- -------------
GAS LIQUIDS GAS LIQUIDS
(MCF) (BBL) (MCF) (BBL)
----- ------- ----- -------
<S> <C> <C> <C> <C>
AVERAGE SALES PRICES FOR THE YEAR ENDED:
September 30, 1995........................ $1.54 $15.21 $1.28 $18.98
September 30, 1994........................ 2.08 14.67 1.34 12.64
September 30, 1993........................ 2.32 16.53 1.15 17.41
</TABLE>
The following table shows the average production (lifting) costs per unit of
production of liquids and gas based on equivalent Mcf for the three years ended
September 30, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
UNITED
STATES BOLIVIA
------ --------
<S> <C> <C> <C>
AVERAGE PRODUCTION COSTS FOR THE YEAR ENDED:
September 30, 1995.................................... $ .96 $.54
September 30, 1994.................................... 1.42 .22
September 30, 1993.................................... .77 .05
</TABLE>
Production (lifting) costs are costs incurred to operate, maintain and
workover certain wells and related equipment and facilities. They do not
include depreciation, depletion and amortization of capitalized acquisition,
exploration and development costs, exploration expenses, general and
administrative expenses, interest expense or income tax. Production costs for
fiscal 1994 include the effects of $600,000 in workover expense incurred as a
part of the Wisdom gas field workover and recompletion programs completed in
September 1994. Differences between sales prices and production (lifting) costs
do not represent profit.
Productive Wells and Acreage. On September 30, 1995, the Company's Bolivian
oil and gas properties consisted of working interests in 18 gross gas wells
(4.65 net wells) capable of production. The Company does not operate any wells.
The following table shows the number of producing wells and wells capable of
production as of September 30, 1995:
<TABLE>
<CAPTION>
BOLIVIA
--------
OIL GAS
--- ----
<S> <C> <C>
PRODUCTIVE OIL AND GAS WELLS:
Gross.......................................................... -- 18
Net............................................................ -- 4.65
</TABLE>
7
<PAGE> 162
One or more completions in the same bore hole are counted as one well. Twelve
gross (3.00 net) gas wells in Bolivia are dual completions. A "gross well" is a
well in which the Company owns a working interest. A "net well" is deemed to
exist when the sum of the fractional working interests owned by the Company in
gross wells equals one.
The following table sets forth certain information with respect to the
developed and undeveloped acreage of the Company as of September 30, 1995:
<TABLE>
<CAPTION>
DEVELOPED(1) UNDEVELOPED(2) TOTAL
--------------- ----------------- -----------------
GROSS(3) NET(4) GROSS(3) NET(4) GROSS(3) NET(4)
-------- ------ --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
ACREAGE
Bolivia................... 5,760 1,456 1,261,920 337,628 1,267,680 339,084
</TABLE>
- - --------
(1) Developed acreage is acreage spaced or assignable to productive wells.
(2) Undeveloped acreage is acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial
quantities of oil and gas, regardless of whether such acreage contains
proved reserves.
(3) A "gross acre" is an acre in which a working interest is owned. The number
of gross acres represents the sum of acres in which a working interest is
owned.
(4) A "net acre" is deemed to exist when the sum of the fractional working
interests in gross acres equals one. The number of net acres is the sum of
the fractional working interests in gross acres expressed in whole numbers
or fractions thereof.
Drilling Activity. Since September 30, 1993, the Company has participated in
drilling three exploratory wells in its Bolivian operation that achieved total
depth. The first and third wells, the Los Suris #2 and the Palo Marcado #1,
were successful in discovering gas reserves. The second well, the San Antonio
#1, has been temporarily abandoned.
Marketing. The revenues generated by the Company's exploration and production
operations are highly dependent upon the prices of, and demand for, natural
gas, and, to a lesser extent, oil. For the last several years, prices of oil
and gas have reflected the worldwide surplus of supply over demand.
Market conditions for oil and gas are the result of a number of factors
outside the control of the Company, including changing economic conditions,
seasonal weather conditions, loss of markets to alternative fuels, increased
foreign production, government regulation and the failure or success of members
of OPEC to agree to and maintain price and production controls.
EMPLOYEES
At December 18, 1995, the Company and its subsidiaries employed approximately
1,150 persons. Approximately 117 employees of the Company's marine protein
operations are represented by an affiliate of the United Food and Commercial
Workers Union. The Company considers its employee relations to be generally
satisfactory.
GEOGRAPHICAL INFORMATION
Certain geographical information with respect to the Company's business is
set forth in Note 16 of Notes to Consolidated Financial Statements.
8
<PAGE> 163
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and current offices of the executive officers of the Company,
who are to serve until the next annual meeting of the Board of Directors to be
held in 1996, are set forth below. Also indicated is the date when each such
person commenced serving as an executive officer of the Company.
<TABLE>
<CAPTION>
DATE BECAME
NAME AND AGE OFFICE EXECUTIVE OFFICER
------------ ------ -----------------
<C> <S> <C>
President and Chief
Avram A. Glazer (34)............. Executive Officer March 1995
Chairman of the Board of
Malcolm I. Glazer (67)........... Directors July 1994
Ronald C. Lassiter (63).......... Chairman and Chief
Executive Officer of
Zapata Protein, Inc. March 1970
Lamar C. McIntyre (57)........... Vice President, Chief
Financial Officer,
Treasurer and Assistant
Secretary October 1994
Joseph L. von Rosenberg III (37). Executive Vice
President, General
Counsel and Corporate
Secretary August 1994
</TABLE>
A description of the business experience during the past five years for each
of the executive officers of Zapata is set forth below.
Avram A. Glazer, a director since 1993, has served as President and Chief
Executive Officer of the Company since March 1995. For the past five years, he
has been employed by, and has worked on behalf of, Malcolm I. Glazer and a
number of entities owned and controlled by Malcolm I. Glazer, including Florida
Management Office, TV Management Office, Farmington Mobile Home Park, Inc.,
Century Development Corporation d/b/a KGNS Laredo, and Canadaigua Mobile Park.
Mr. Glazer's principal responsibilities include identifying, implementing,
monitoring and disposing of Malcolm I. Glazer's investment interests. Mr.
Glazer also serves as director of the Houlihan's Restaurant Group, Inc. and is
a director of Specialty Equipment Companies, Inc. and Envirodyne Industries,
Inc. Avram A. Glazer is the son of Malcolm I. Glazer.
Malcolm I. Glazer, a director since 1993, has served as Chairman of the Board
of Directors since July 1994 and served as President and Chief Executive
Officer from August 1994 until March 1995. Mr. Glazer has been a self-employed,
private investor whose diversified portfolio consists of investments in a
National Football League football team, television broadcasting, restaurants,
restaurant equipment, health care, banking, real estate, stocks, government
securities and corporate bonds, for more than the past five years. He is a
director and Chairman of the Board of the Houlihan's Restaurant Group, Inc. and
also is a director of Specialty Equipment Companies, Inc. and Envirodyne
Industries, Inc. He serves on the Executive Committee and Nominating Committee
of the Company's Board of Directors. His current term of office as a director
expires in 1996. Malcolm I. Glazer is the father of Avram A. Glazer.
Ronald C. Lassiter has been a director since 1974. Mr. Lassiter served as
Acting Chief Operating Officer of the Company from December 1994 to March 1995.
He served as Chairman of the Board of Directors of Zapata from December 1985 to
July 1994. From January 1983 to July 1994, he served as Chief Executive Officer
of Zapata, and from July 1994 until December 1994, he served as Chairman and
Chief Executive Officer of Zapata Protein, Inc. In December 1994, Mr. Lassiter
withdrew from an active management role with Zapata Protein, Inc. as a result
of his participation in a group seeking to acquire that subsidiary. That
proposed acquisition was not consummated, and Mr. Lassiter resumed his active
management role as Chairman and Chief Executive Officer of Zapata Protein, Inc.
pursuant to the consulting agreement described under "Employment Agreements and
Other Incentive Plans." He has served in various positions with Zapata since
1970, and he served as a director of Zapata Gulf Marine Corporation from
November 1984 to January 1992. Mr. Lassiter also serves as a director of Daniel
Industries, Inc.
9
<PAGE> 164
Lamar C. McIntyre has served as Vice President, Chief Financial Officer and
Treasurer since October 1994. He served as Vice President, Tax from October
1990 through November 1991, and Vice President, Tax and Treasurer from December
1991 through September 1994.
Joseph L. von Rosenberg III has served as Executive Vice President since
November 1995. He has served as General Counsel since August 1994 and Corporate
Secretary since June 1993. From August 1994 through November 1995, Mr. von
Rosenberg also held the position of Vice President of the Company. Prior to
joining Zapata in June 1993, he served as General Counsel and Corporate
Secretary of both The Permian Corporation and Simmons Corporation.
PROPERTIES
In addition to the properties discussed above with respect to each business
segment, the Company leases office space in Houston, Texas for its executive
offices pursuant to a lease which will expire in 2000. The Company believes its
facilities are adequate and suitable for its current level of operations. The
Company maintains customary compensation, liability, property and marine
insurance for all of its operations.
ITEM 3. LEGAL PROCEEDINGS
On August 11, 1995, a purported derivative lawsuit was filed in a case styled
Harwin v. Glazer, et al., in the Court of Chancery of the State of Delaware in
and for New Castle County. The complaint names the Company and each of its
directors as defendants and generally alleges that the Company's directors
engaged in conduct constituting breach of fiduciary duty and waste of the
Company's assets in connection with the Company's investment in Envirodyne (for
information on the Company's investment in Envirodyne, see "Envirodyne
Ownership Interest" above). The complaint alleges, among other things, that the
purchase of the Envirodyne common stock from Malcolm Glazer's affiliate was a
wrongful expenditure of the Company's funds and was designed to permit Malcolm
Glazer to obtain substantial personal financial advantages to the detriment of
the Company. The complaint seeks relief including, among other things,
rescission of the Company's purchase of the shares of Envirodyne common stock
from the trust controlled by Malcolm Glazer, voiding of the election of Robert
V. Leffler, Jr. and W. George Loar (both of whom were elected at the Company's
Annual Meeting of Stockholders held on July 27, 1995) and an award of
unspecified compensatory damages and expenses, including attorneys' fees. The
complaint alleges, among other things, that Messrs. Leffler and Loar (both of
whom served on the special committee of the Company's Board of Directors that
approved the investment in Envirodyne) lack independence from Malcolm Glazer
because, in the case of Mr. Loar, he was employed by a corporation indirectly
controlled by Malcolm Glazer until Mr. Loar's retirement (which occurred more
than five years ago), and in the case of Mr. Leffler, that he has served as a
paid consultant to Malcolm Glazer. The Company believes that the complaint and
allegations contained therein are without merit and intends to defend the case
vigorously.
On November 16, 1995, a petition was filed in the 148th Judicial District
Court of Nueces County, Texas by Peter M. Holt, a former director of the
Company, and certain of his affiliates who sold their interests in Energy
Industries to the Company in November 1993 (collectively, with Mr. Holt, the
"Holt Affiliates"). The petition lists the Company, Malcolm Glazer and Avram
Glazer as defendants and alleges several causes of action based on alleged
misrepresentations on the part of the Company and the other defendants
concerning the Company's intent to follow a long-term development strategy
focusing its efforts on the natural gas services business. The petition did not
allege a breach of any provision of the purchase agreement pursuant to which
the Company acquired Energy Industries from the Holt Affiliates, but alleged
that various representatives of Zapata and Malcolm Glazer made representations
to Mr. Holt regarding Zapata's intention to continue in the natural gas
services industry. Among the remedies sought by the petition are the following
requests: (i) the Company's repurchase of the approximately 2.8 million shares
of Zapata common stock owned by the Holt Affiliates for $15.6 million, an
amount that represents a premium of approximately $4.7
10
<PAGE> 165
million, or more than 40%, over the market value of such number of shares based
on the closing price of Zapata's common stock on November 16, 1995; (ii) the
disgorgement to the Holt Affiliates of Zapata's profit to be made on its sale
of Energy Industries; or (iii) money damages based on the alleged lower value
of the Common Stock had the alleged misrepresentations not been made. The
Company believes that the petition and the allegations made therein are without
merit and intends to defend the case vigorously.
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of its business. The Company
maintains insurance coverage against potential claims in an amount which it
believes to be adequate. In the opinion of management, uninsured losses, if
any, resulting from these matters and from the matters discussed above will not
have a material adverse effect on Zapata's results of operations, cash flows or
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The information set forth in Item 4 of Zapata's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1995, as amended by a Form 10-Q/A filed
on November 13, 1995, is incorporated herein by reference.
11
<PAGE> 166
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Zapata's Common Stock is listed on the New York Stock Exchange. On April 27,
1994, Zapata's stockholders approved a one-for-five reverse stock split (the
"Reverse Stock Split") effective May 3, 1994, which reduced the number of
common shares outstanding from approximately 158.3 million to approximately
31.7 million. The number of authorized shares remained at 165.0 million and par
value of the Common Stock was unchanged. Unless the context otherwise requires,
all references in this Report to Common Stock share and per share amounts
reflect the Reverse Stock Split. The high and low sales prices for the Common
Stock, as reported in the consolidated transactions reporting system and
adjusted to reflect the reverse stock split for each quarterly period for the
last two fiscal years, as well as the amount per share of dividends declared
with respect to the Common Stock during such periods, are shown in the
following table.
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
QUARTER ENDED: 1995 1995 1995 1994 1994 1994 1994 1993
- - -------------- ------------- -------- --------- ------------ ------------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High sales price........ $4.63 $4.38 $4.13 $4.50 $5.50 $6.25 $6.88 $8.13
Low sales price......... 2.88 2.50 3.25 3.25 4.00 4.00 5.63 5.00
Dividends declared...... -- -- -- -- 0.035 0.035 -- --
</TABLE>
The Company announced in December 1994 that its Board of Directors had
determined to discontinue indefinitely the payment of dividends on its Common
Stock and $2 Noncumulative Convertible Preference Stock ("Preference Stock").
The rights of holders of the Common Stock to receive dividends or other
payments with respect thereto are subject to the prior and superior rights of
holders of Zapata's Preferred Stock and Preference Stock, then outstanding. As
of the date of this Report, Zapata had outstanding 2,627 shares of Preference
Stock.
As of June 30, 1994, Zapata redeemed one-half of the approximately 45,000
outstanding shares of the Company's $6 Cumulative Preferred Stock at $100 per
share. The Company redeemed the balance of its outstanding $6 Cumulative
Preferred Stock in January 1995.
On December 15, 1995, there were 9,694 holders of record of Common Stock.
12
<PAGE> 167
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial information for the
periods presented and should be read in conjunction with the Consolidated
Financial Statements of the Company and the related notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this Report. The selected financial information
contained herein has been restated to reflect the Company's marine protein
operations as a continued operation as a result of the Company's decision to
retain these operations. The Company's Form 10-K for the fiscal year ended
September 30, 1994 reflected the marine protein operations as a discontinued
operation. The Company's financial statements were also restated in 1995 to
reflect the Company's natural gas compression and natural gas gathering,
processing and marketing operations as discontinued operations.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.............. $103,068 $109,163 $78,754 $106,413 $93,410
Operating income
(loss)............... (9,220)(1) (31,607)(2) 3,559 10,901 3,063
Income (loss) from
continuing
operations........... (5,844) (857)(3) 10,458(4) 2,431 2,087
Per share income
(loss) from
continuing
operations........... (0.19) (0.04) 0.37 0.08 0.07
Cash dividends paid... 1,153 1,566 2,933 -- --
Common Stock,
dividends declared,
per share............ -- 0.07 -- -- --
CASH FLOW DATA:
Capital expenditures.. 7,341 15,530 2,812 11,595 8,730
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............... $113,536 $139,526 $136,493(5) $30,281 $ 48,054
Property and equipment, net... 39,238 48,642 86,372 97,768 101,156
Assets of discontinued
operations................... 101,894 103,117 17,827 -- --
Total assets.................. 239,391 254,788 322,073 304,339 318,021
Current maturities of long-
term debt.................... 16,148 531 330 19,652 10,671
Long-term debt................ 37,468 52,581 135,659 120,298 139,951
Stockholders' equity.......... 145,290 154,542 146,264 124,880 122,853
</TABLE>
- - --------
(1) Includes a $12.3 million provision for asset impairment of the Company's
marine protein assets.
(2) Includes a $29.2 million oil and gas valuation provision.
(3) Includes a $37.5 million pretax gain from the sale of 4.1 million shares of
Tidewater common stock and expenses of $7.4 million related to the
prepayment of indebtedness.
(4) Includes a $32.9 million pretax gain from the sale of 3.5 million shares of
Tidewater common stock, a $6.4 million prepayment penalty in connection
with the senior debt refinancing and a $5.7 million pretax loss resulting
from the disposition of Zapata's investment in Arethusa (Offshore) Limited.
(5) Includes $75.1 million of restricted cash primarily generated from the sale
of Tidewater common stock in June 1993 which was subsequently used to fund
the cash portion of the purchase price for the acquisition of Energy
Industries.
13
<PAGE> 168
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the Company's financial condition and
results of operations. This discussion should be read in conjunction with the
Consolidated Financial Statements of the Company appearing under Item 8 herein.
BACKGROUND
Zapata Corporation has undergone a significant transformation during the last
several years. The Company was previously engaged in the operation of offshore
drilling rigs and marine service and supply vessels and oil and gas operations.
All of these operations have been divested in the last few years, with the
exception of the Company's remaining interest in a Bolivian oil and gas
operation.
In fiscal 1993, the Company began to narrow the focus of its operations to
the natural gas services market. In connection with that strategy, the Company
acquired Cimarron Gas Holding Company and its subsidiaries (collectively,
"Cimarron") early in fiscal 1993 for $3.8 million, consisting of $2.5 million
in cash and 437,333 shares of the Company's Common Stock ("Common Stock").
Cimarron was purchased to serve as the vehicle for the Company's expansion into
the gathering and processing segments of the natural gas services markets. In
September 1993, the Company, through Cimarron, acquired the interests of
Stellar Energy Corporation and three affiliated companies (collectively,
"Stellar") engaged in natural gas gathering and processing for $16.4 million.
The purchase price included $6.3 million in cash, the redemption of $3.7
million of notes payable to former Stellar shareholders and the assumption of
$6.4 million of indebtedness of Stellar. The cash portions of the purchase
prices were financed with working capital.
Zapata completed a refinancing of its senior debt in fiscal 1993 which
enabled the Company to move forward with its plan to redirect its focus into
the natural gas services market. Zapata raised a total of $111.4 million from
the issuance of debt and equity pursuant to an agreement (the "Norex
Agreement") with Norex Drilling Ltd. ("Norex Drilling"), a wholly owned
subsidiary of Norex America, Inc. ("Norex America" and collectively with Norex
Drilling and other affiliates, "Norex"). The Norex Agreement enabled the
Company to refinance its then-outstanding senior debt. Such refinancing is
collectively referred to as the "Norex Refinancing."
The Company sold 3.5 million shares of its Tidewater Inc. ("Tidewater")
common stock in June 1993 in an underwritten public offering for net proceeds
of $73.5 million. In November 1993, Zapata used the proceeds to purchase the
natural gas compression businesses of Energy Industries, Inc. and certain other
affiliated companies (collectively, "Energy Industries") as well as certain
real estate used by the business. Total consideration paid for the purchase of
Energy Industries, the related real estate and for a related noncompetition
agreement (collectively, the "Energy Industries Acquisition") was $90.2
million. The purchase price consisted of $74.5 million in cash and 2.7 million
shares of the Common Stock valued at $5.80 per share, which approximated the
average trading price prior to closing of the acquisition.
In late 1994 and early 1995, the Company began to develop a strategic plan
involving the repositioning of the Company into the food packaging, food and
food service equipment and supply (collectively, "food services") businesses
and exiting the energy business. The strategic plan that was developed called
for the divestiture of most of the Company's remaining energy operations,
including Energy Industries, Cimarron and the Company's remaining domestic oil
and gas assets, and the acquisition of, or joint ventures with, selected
companies in the food services industry.
In September 1994, Zapata's Board of Directors announced that the Company
would immediately undertake efforts to sell its U.S. natural gas producing
properties. The six properties in the Gulf of Mexico, representing Zapata's
domestic oil and gas producing operations, were sold in fiscal 1995. Zapata
received cash of $4.0 million and recorded an $8.9 million receivable
representing (i) a production payment entitling Zapata to a share of revenues
from certain properties and (ii) a share of future proceeds from a revenue
sharing agreement. No gain or loss resulted from the sales. The decision to
sell its U.S. natural gas producing properties did not impact Zapata's Bolivian
oil and gas operations.
14
<PAGE> 169
In September 1995, Zapata entered into an agreement (the "Purchase
Agreement") to sell the assets of Energy Industries (the "Energy Industries
Sale") to Weatherford Enterra, Inc. and its wholly owned subsidiary, Enterra
Compression Company (collectively, "Weatherford Enterra"). Pursuant to the
Purchase Agreement, Weatherford Enterra purchased from the Company all of the
assets of Energy Industries for approximately $131 million in cash and assumed
certain liabilities of Energy Industries, subject to final post-closing
adjustments. The Energy Industries Sale closed on December 15, 1995 after
receiving stockholder approval. The Energy Industries Sale resulted in an
after-tax gain of approximately $14.0 million which will be reflected in the
Company's fiscal 1996 financial results. Although a sale price for Cimarron has
not been determined, the Company estimates that, based on preliminary
indications of interest from potential purchasers, the minimum sales price for
Cimarron should be at least equal to book value. The Company expects to
complete the sale of Cimarron in fiscal 1996.
In 1994, the Board of Directors determined that the interests of Zapata's
stockholders would best be served by a sale of the marine protein operations.
Based on preliminary offers to purchase the marine protein operations, the
Company recorded an $8.9 million after-tax book loss in fiscal 1994. On May 5,
1995, Zapata decided to retain the marine protein operations. Zapata had
previously announced that an agreement to sell its marine protein operations
had been reached. However, the acquisition group failed to close the
transaction. The Company subsequently determined to retain these operations. As
a result, the marine protein net assets, results of operations and cash flows
have been reclassified from discontinued operations to continuing operations,
and the $8.9 million after-tax book loss on disposition was reversed in fiscal
1995.
In August 1995, Zapata acquired 31% of the outstanding common stock of
Envirodyne Industries, Inc. ("Envirodyne") for $18.8 million from a trust
controlled by Malcolm Glazer, Chairman of the Board of Zapata and a director of
Envirodyne. Zapata paid the purchase price by issuing to the seller a
subordinated promissory note bearing interest at the prime rate and maturing in
August 1997, subject to prepayment at the Company's option. The Company has
since prepaid approximately $15.6 million on the promissory note. Envirodyne is
one of the world's major suppliers of food packaging products and food service
supplies. This investment was the first step in the transformation of Zapata
into the food-services businesses.
The Energy Industries Sale is another significant step in the Company's
transition from an energy company to a food services company. Of the
approximately $131 million in cash proceeds received from the Energy Industries
Sale, the Company has used approximately $26 million to repay certain bank
debt. See "Liquidity and Capital Resources." Additionally, approximately $1
million was used to pay commissions and fees associated with the sale. The
Company intends to use the remaining net proceeds from the sale for general
corporate purposes, which may include further repayment of debt, and for future
expansion into the food services industry. While the Company is actively
seeking acquisition and joint venture opportunities in the food services
industry, there can be no assurances that the Company will succeed in
consummating any such opportunities or that acquisitions or joint ventures, if
consummated, will be successful. Zapata's Board of Directors has established a
special committee for the purpose of investigating the legal and financial
considerations of one or more merger or acquisition transactions involving the
Company and Houlihan's Restaurant Group, Inc. ("Houlihan's") and Specialty
Equipment Companies, Inc. ("Specialty"). Malcolm Glazer and members of his
family beneficially own approximately 73% and 45% of the outstanding common
stock of Houlihan's and Specialty, respectively, and Malcolm Glazer, Avram
Glazer (the Company's President and Chief Executive Officer) and other members
of their family serve as directors of both of those companies. The Special
Committee was charged with recommending to the Board of Directors what further
steps should be taken by the Company in connection with the above
considerations. To date, the Special Committee has not issued any
recommendations with respect to its consideration of possible transactions
involving either Houlihan's or Specialty.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1995, Zapata's long-term debt of $37.5 million compared
favorably to working capital of $113.5 million and stockholders' equity of
$145.3 million. At September 30, 1994, the Company's long-
15
<PAGE> 170
term debt of $52.6 million also compared favorably to working capital of $139.5
million and stockholder's equity of $154.5 million.
In November 1993 Zapata sold 3.75 million shares of its Tidewater common
stock for $77.8 million. The proceeds were used to prepay $68.5 million of the
13% senior indebtedness to Norex, along with accrued interest, and to pay a
related $3.5 million prepayment premium. In September 1994, the Company prepaid
the remaining $17.3 million of its 13% senior convertible indebtedness to Norex
that was due in 1996. The prepayment was facilitated by the initial drawdown of
$15 million from a $30 million bank credit facility with Texas Commerce Bank
Association (the "TCB Loan Agreement") that Zapata arranged for Energy
Industries in September 1994. In connection with the Energy Industries Sale,
the TCB Loan Agreement was terminated and the outstanding indebtedness
outstanding thereunder was repaid.
In March 1994, Zapata sold 375,175 additional shares of its Tidewater common
stock for a net price of $21.34 per share, generating $8.0 million. The Company
sold its remaining 673,077 shares of Tidewater common stock in March 1995 and
used the $12.7 million proceeds to reduce the Company's $17.5 million in notes
that are due to Norex in 1996.
In fiscal 1994, Zapata redeemed one-half of the approximately 45,000
outstanding shares of the Company's $6 Cumulative Preferred Stock at $100 per
share. The Company redeemed the balance of its outstanding $6 Cumulative
Preferred Stock in January 1995 at $100 per share.
In April 1995, Zapata repurchased 2.25 million shares of Common Stock from
Norex for $4.00 per share. The shares repurchased by Zapata represented 7% of
the Company's then-outstanding Common Stock. Following the repurchase of these
shares, Zapata had approximately 29.5 million shares of Common Stock
outstanding.
In fiscal 1995 and 1994, operating activities generated net cash flows of
$7.4 million and $9.9 million, respectively, as compared to the fiscal 1993
activities that consumed $22.3 million. The fiscal 1993 use of cash was
attributable to the combination of the following: higher interest expense,
expenses related to the Norex Refinancing and increased working capital
requirements.
Fiscal 1995 investing activities provided $16.7 million as compared to the
fiscal 1994 activities that provided $74.9 million. The decrease in 1995 was
primarily attributable to a reduction in proceeds from sales of Tidewater
common stock.
Due to the significant transactions that occurred during fiscal years 1994
and 1993, cash flow from investing activities is combined with financing
activities for the following analysis. On a combined basis, these activities
used $13.1 million during fiscal 1994 and $297,000 during fiscal 1993. The
increase usage in fiscal 1994 can be attributed to higher capital expenditures
and to the redemption of $6 Cumulative Preferred Stock. Capital expenditures
increased in 1994 due primarily to workover projects in certain U.S. oil and
gas operations.
Net cash from financing activities consumed $31.4 million in fiscal 1995 as
compared to $88.0 million in fiscal 1994. The higher use of cash in fiscal 1994
was primarily attributable to the prepayments of Norex indebtedness.
The Company's capital expenditures for fiscal 1996 are currently projected to
be approximately $4.4 million.
Although Zapata currently has only one working capital facility, the Company
considers its current liquidity position to be adequate. A $15.0 million
working capital based loan agreement ("ING Loan Agreement") between
International Nederlanden (U.S.) Capital Corporation and two subsidiaries of
the Company, Zapata Protein, Inc. and Zapata Protein (USA), Inc. (collectively,
"Zapata Protein") provides the marine protein operation with financial
flexibility.
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<PAGE> 171
The ING Loan Agreement provides Zapata Protein with a revolving credit
facility that is due June 30, 1997. The ING Loan Agreement bears interest at a
variable interest rate that is adjusted periodically based on the prime
interest rate. Pursuant to the ING Loan Agreement, Zapata Protein agreed to
maintain certain financial covenants and to limit additional indebtedness,
dividends, dispositions and acquisitions. The amount of restricted net assets
for Zapata Protein at September 30, 1995 was approximately $47.7 million.
Zapata Corporation has guaranteed up to $10.0 million of the outstanding
balance of debt related to the ING Loan Agreement. Pursuant to the ING Loan
Agreement, Zapata Protein's ability to transfer funds to Zapata Corporation is
limited to $10.0 million. As of September 30, 1995, Zapata Protein had already
transferred the maximum amount of $10.0 million to Zapata Corporation. The
Company remains subject to a covenant in the Norex Agreement that requires
Zapata to maintain a consolidated tangible net worth as defined in such
agreement of at least $100 million. Effective September 30, 1995, the Company
was in compliance with all provisions governing its outstanding indebtedness.
RESULTS OF OPERATIONS
General
Reflecting the Company's decision to retain the marine protein operations and
to sell the natural gas compression and natural gas gathering, processing and
marketing operations, the Company's results from continuing operations include
the marine protein and oil and gas operations and results from discontinued
operations include the natural gas compression and natural gas gathering,
processing and marketing operations.
Fiscal 1995--1994
Zapata's fiscal 1995 net income of $4.2 million improved substantially from
the fiscal 1994 net loss of $8.3 million. The Company's discontinued natural
gas compression and natural gas gathering, processing and marketing operations
contributed net income of $1.2 million in fiscal 1995 and $1.4 million in
fiscal 1994. The discontinued operating results include pretax allocations of
interest on general corporate debt of $2.1 million and $4.3 million in 1995 and
1994, respectively. Fiscal 1995 discontinued operations also include net income
of $8.9 million reflecting the reversal of the estimated loss on the
disposition of the marine protein operations that was recorded in fiscal 1994.
The Company recorded a net loss from continuing operations of $5.8 million in
fiscal 1995 as compared to a net loss of $857,000 in 1994. Sales of the
Company's Tidewater common stock generated pretax gains of $4.8 million in
fiscal 1995 and $37.5 million in fiscal 1994. The fiscal 1995 results also
include a $12.3 million pretax provision for asset impairment of the Company's
marine protein assets as a result of adopting Statement of Financial Accounting
Standards No. 121 ("SFAS 121"), while the fiscal 1994 results include a pretax
valuation provision of $29.2 million associated with Company's oil and gas
operations in the Gulf of Mexico as a result of low gas prices and revision of
estimated future costs.
Revenues of $103.1 million and an operating loss of $9.2 million in fiscal
1995 compared to revenues of $109.2 million and an operating loss of $31.6
million in fiscal 1994. The operating losses are due primarily to the valuation
provisions recorded in both years. The 1994 operating loss also includes a $2.4
million expense related to a reduction in staff at the Company's headquarters.
Fiscal 1994--1993
Zapata's net loss of $8.3 million for fiscal 1994 compared unfavorably to net
income of $9.4 million in fiscal 1993. The Company's discontinued natural gas
compression and natural gas gathering, processing and marketing operations
contributed net income of $1.4 million in fiscal 1994 as compared to a $1.1
million net loss in fiscal 1993 from the natural gas gathering, processing and
marketing operations. Discontinued operating results include allocations of
interest on general corporate debt of $4.3 million and $968,000 in
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<PAGE> 172
1994 and 1993, respectively. Fiscal 1994 discontinued operations also includes
the estimated net loss of $8.9 million related to the disposition of the marine
protein operations.
On a continuing operations basis, a net loss of $857,000 in fiscal 1994
compared unfavorably to net income of $10.5 million in fiscal 1993. The fiscal
1994 loss includes the $29.2 million pretax write-down of the Company's oil and
gas properties in the Gulf of Mexico. Sales of Tidewater common stock generated
pretax gains of $37.5 million in fiscal 1994 and $32.9 million in fiscal 1993.
The fiscal 1994 gain was partially offset by a $7.4 million expense associated
with the Norex debt prepayments; this expense was comprised of debt prepayment
penalties totalling $4.1 million and a $3.3 million write-off of previously
deferred expenses related to the origination of such indebtedness. The fiscal
1993 gain was partially offset by a $6.4 million prepayment penalty that Zapata
was required to pay in connection with refinancing of senior indebtedness and a
$5.7 million loss from the disposal of Zapata's investment in Arethusa
(Offshore) Limited ("Arethusa"). Interest expense was reduced substantially in
fiscal 1994 as compared to 1993 reflecting the effects of the restructuring of
indebtedness in fiscal 1993 and overall reduction of the Company's indebtedness
in fiscal 1994.
Revenues of $109.2 million and an operating loss of $31.6 million in fiscal
1994 compared to revenues of $78.8 million and operating income of $3.6 million
in fiscal 1993. The 1994 operating loss was primarily attributable to the oil
and gas valuation provision, as well as to a reduced contribution from the
Company's domestic oil and gas operations. The 1994 operating loss also
included a $2.4 million expense related to the reduction in staff at the
Company's corporate headquarters and the related write-off of leasehold
improvements.
Marine Protein
Reflecting the Company's decision to retain the marine protein operations,
the net assets and results of marine protein's operations for all periods have
been reclassified from discontinued operations to continuing operations and the
related $8.9 million after-tax loss on disposition recorded in fiscal 1994 has
been reversed in fiscal 1995. As a result of adopting SFAS 121, in April 1995
the Company recorded a $12.3 million pretax provision for asset impairment to
reduce its marine protein assets to their estimated fair market value. The fair
market value of the marine protein assets was determined based on the highest
third-party competitive bid that had been received by the Company. SFAS 121
requires companies to write down assets to their estimated fair market value
when assets are determined to be impaired.
Revenues of $95.0 million and operating loss of $6.4 million in fiscal 1995
compared unfavorably to revenues of $96.6 million and operating income of $5.4
million in fiscal 1994, reflecting the effects of the provision for asset
impairment and a lower fish catch in fiscal 1995. Fiscal 1995 sales volume of
fish meal declined 11% from the fiscal 1994 level while the average per-ton
price of $350 was approximately 2% higher. The decline in fish meal sales
volume was attributable to a 22% drop in the fiscal 1995 fish catch as compared
to the fiscal 1994 fish catch. Sales volume of fish oil increased 4% in 1995 as
compared to 1994 while the average per ton price of $321 was 7% higher.
Reflecting the lower fish catch, the Company's product inventories at September
30, 1995 for fish meal and fish oil were approximately 37% and 45% lower,
respectively, than the September 30, 1994 inventory levels.
Fiscal 1994 revenues of $96.6 million and operating income of $5.4 million
compared favorably to the fiscal 1993 revenues of $58.6 million and operating
income of $4.3 million. The improved results were achieved by increased sales
volumes that resulted from the combination of a 37% increase in the fiscal 1994
fish catch as compared to 1993 and to higher levels of inventories that were
carried over from the fiscal 1993 fishing season. Compared to the prior year,
sales volume of fish meal during fiscal 1994 was 55% higher while the average
per-ton price of $344 was 9% lower. Likewise, fish oil volumes doubled during
1994 as compared to 1993 while the average per-ton price of $300 was 6% lower.
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<PAGE> 173
The price for fish meal generally bears a relationship to prevailing soybean
meal prices, while prices for fish oil are usually based on prices for
vegetable fats and oils, such as soybean and palm oils. Thus, the prices for
the Company's products are significantly influenced by worldwide supply and
demand relationships over which the Company has no control and tend to
fluctuate to a significant extent over the course of a year and from year to
year.
The Company's total fish catch dropped in fiscal 1995 after improving during
fiscal 1994 but remained at a higher level than the 1993 catch. The fiscal 1995
fish catch dropped approximately 22% from the 1994 level while the fiscal 1994
catch improved approximately 37% from the catch in fiscal 1993. The annual fish
catch can vary from year to year depending on weather conditions and other
factors outside the Company's control; the Company cannot predict future fish
catch.
Oil and Gas Operations
In September 1994, Zapata's Board of Directors announced that the Company
would immediately undertake efforts to sell its U.S. natural gas producing
properties. The six properties in the Gulf of Mexico, representing Zapata's
domestic oil and gas producing operations, were sold in fiscal 1995. Zapata
received cash of $4.0 million and recorded an $8.9 million receivable
representing (i) a production payment entitling Zapata to a share of revenues
from certain properties and (ii) a share of future proceeds from a revenue
sharing agreement. No gain or loss was recorded from the sales. The decision to
sell its U.S. natural gas properties did not impact Zapata's Bolivian oil and
gas operations.
Revenues of $8.1 million and operating income of $658,000 for fiscal 1995
compared to revenues of $12.6 million and an operating loss of $28.3 million in
fiscal 1994. The decline in fiscal 1995 revenues reflects the sales of the
Company's domestic oil and gas properties during the third and fourth quarters
of fiscal 1995. The fiscal 1994 operating results include the $29.2 million
property valuation provision.
Bolivian operations contributed revenues of $2.7 million and operating income
of $1.4 million in fiscal 1995 as compared to revenues of $4.1 million and
operating income of $3.5 million in fiscal 1994. In fiscal 1994 Zapata returned
to the accrual method of accounting for its Bolivian oil and gas operations
based on the Bolivian oil and gas company's performance under negotiated
contracts and improved operating conditions.
Reflecting the $29.2 million property valuation provision, as well as lower
prices for U.S. natural gas and lower U.S. natural gas production, revenues of
$12.5 million and an operating loss of $28.3 million for fiscal 1994 compared
unfavorably to the fiscal 1993 revenues of $20.2 million and operating income
of $6.0 million. The valuation provision was the result of several factors:
lower natural gas prices, additional capitalized costs incurred in connection
with several workover wells at the Company's Wisdom gas field and an increase
in estimated future costs. The Bolivian operations contributed $3.5 million and
$3.1 million to operating income in fiscal 1994 and 1993, respectively.
The Company's domestic natural gas production for fiscal 1995 was
approximately 14% lower than the fiscal 1994 level of production as a result of
the sale of its domestic properties. Zapata's domestic natural gas production
for fiscal 1994 was approximately one-half of the fiscal 1993 period's level of
production due to production difficulties encountered at the Wisdom gas field
which was the Company's most significant domestic oil and gas property.
Tidewater
In June 1993, Zapata completed the sale of 3.5 million of its shares of
Tidewater common stock through an underwritten public offering. The shares were
sold for a net price of $21.25 per share or $73.5 million and the sale
generated a 1993 pretax gain of $32.9 million. In November 1993, Zapata sold an
additional 3.75
19
<PAGE> 174
million shares of its Tidewater common stock for a net price of $20.75 per
share or $77.8 million and in March 1994, Zapata sold 375,175 additional shares
of its Tidewater stock for a net price of $21.34 per share or $8.0 million. The
fiscal 1994 sales generated pretax gains totaling $37.5 million. In March 1995,
the Company sold its remaining 673,077 shares of Tidewater common stock for a
net price of $18.87 per share or $12.7 million resulting in a $4.8 million
pretax gain. All gains from the sales of Tidewater common stock are reflected
on the statement of operations as other income.
As a result of its decision to sell a portion of its Tidewater common stock,
effective January 1, 1993, Zapata changed from the equity to the cost method of
accounting for its investment in Tidewater. Consequently, Zapata has not
included its percentage of Tidewater's results as equity income since December
31, 1992. Instead, Tidewater dividends to Zapata have been included as other
income when declared. For fiscal 1993, Zapata's reported equity income of $1.1
million was based on 15.6% of Tidewater's results for the three months ended
December 31, 1992. Such percentage represented Zapata's ownership percentage of
Tidewater.
Envirodyne
For fiscal 1995, Zapata's reported equity loss of $719,000 was based on 31%
of Envirodyne's results for the three months ended September 28, 1995 prorated
to Zapata's August 1995 acquisition.
OTHER INCOME (EXPENSE)
Other expense of $2.1 million in fiscal 1995 includes a $2.8 million loss
related to an investment in subordinated debentures of Wherehouse
Entertainment, Inc. This loss was partially offset by a $453,000 gain from the
sale of the Company's corporate aircraft and the receipt of $595,000 from a
note that was written down in previous years.
Other expense of $4.3 million in fiscal 1994 includes expenses of $7.4
million related to the prepayment of the Norex indebtedness, a $2.8 million
gain related to the settlement of a coal note receivable that had previously
been written off and $719,000 dividend income from Zapata's Tidewater common
stock. Also, fiscal 1994 other expense includes a $1.4 million expense related
to a terminated pension plan.
Other expense of $10.5 million incurred during fiscal 1993 includes three
significant items: a $6.4 million prepayment penalty incurred in connection
with the refinancing of the Company's senior debt in May 1993, a $5.7 million
loss resulting from the disposition of the Company's investment in Arethusa
which Zapata was required to make when the Company's offshore drilling rig
fleet was sold, and $1.3 million dividend income generated by Tidewater common
stock.
TAXES
The provisions for U.S. income tax for 1995 and 1994 reflect a benefit
resulting from pretax losses from consolidated operations. In 1993, the
provision reflects expense resulting from pretax consolidated income.
DISCONTINUED OPERATIONS--NATURAL GAS SERVICES OPERATIONS--COMPRESSION
In June 1995, Zapata announced that it had entered into an agreement to sell
the assets of its natural gas compression division for $130 million. The sale
(which was approved by Zapata's stockholders) was finalized in December 1995.
As a result, these operations are reflected as a discontinued operation in the
Company financial statements. The gain from the sale will be reflected in the
Company's fiscal 1996 financial statements.
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<PAGE> 175
The major segments of Energy Industries' natural gas compression revenues and
operating results for the twelve-month period ended September 30, 1995 and the
eleven-month period ended September 30, 1994, in thousands, are identified
below.
<TABLE>
<CAPTION>
REVENUES OPERATING RESULTS
--------------------------- ---------------------------
TWELVE MONTHS ELEVEN MONTHS TWELVE MONTHS ELEVEN MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Compressor Rental....... $17,706 $16,252 $4,858 $4,866
Fabrication and Sales... 24,358 27,560 2,095 5,384
Parts and Service....... 19,805 19,608 3,853 3,958
Other................... 4,766 9,102 732 1,492
Selling &
Administrative......... -- -- (5,521) (7,730)
------- ------- ------ ------
$66,635 $72,522 $6,017 $7,970
======= ======= ====== ======
</TABLE>
Natural gas compressor package rental utilization is affected by the number
and age of producing oil and gas wells, the volume of natural gas consumed and
natural gas prices. Rental rates are determined by the demand for compressor
packages and vary by size and horsepower of a compressor package. Utilization
of the Company's rental units improved during fiscal 1995 and 1994 due
primarily to a greater emphasis being placed on rental operations and to the
changes in the size of the compressor packages in the rental fleet. Rental
rates declined in fiscal 1995 as a result of lower prices for U.S. natural gas.
For the same reason, revenues and operating results from compressor package
sales declined in fiscal 1995 as compared to fiscal 1994. Energy Industries'
utilization, rental rates and fleet size as of September 30, 1995 and 1994 are
set forth in the following table.
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1995 1994
------- -------
<S> <C> <C>
Fleet utilization:
Horsepower............................................ 83.5% 82.6%
Monthly rental rate, based on:
Horsepower............................................ $ 15.40 $ 16.61
Fleet size:
Number of units....................................... 785 706
Horsepower............................................ 131,382 113,786
</TABLE>
Energy Industry disposed of its heat exchanger manufacturing operation in
fiscal 1995. The sale of the heat exchanger operation did not have a material
impact on Energy Industries' results of operations or financial position.
DISCONTINUED OPERATIONS--NATURAL GAS SERVICES OPERATIONS--GATHERING, PROCESSING
AND MARKETING
In late 1994 and early 1995, the Company began to develop a strategic plan
that called for the divesture of most of the Company's remaining energy
operations, including the Company's natural gas gathering, processing and
marketing operations. Although a sales price has not been determined, the
Company estimates that, based on preliminary indications of interest from
potential purchasers, the minimum sales price for these operations should be at
least equal to book value. The Company expects to complete the sale in fiscal
1996. As a result of the Company's decision to sell, these operations are
reported as a discontinued operation.
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<PAGE> 176
Revenues and operating results for fiscal 1995, 1994 and 1993 are presented
in the following table by major category, in thousands.
<TABLE>
<CAPTION>
REVENUES OPERATING RESULTS
------------------------- -------------------------
1995 1994 1993 1995 1994 1993
------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Gathering and Processing... $18,080 $ 22,867 $ 11,671 $ 442 $ 718 $ 427
NGL Marketing.............. 49,749 133,274 174,620 21 703 1,345
Selling & Administrative... -- -- -- (1,193) (2,484) (2,324)
------- -------- -------- ------- ------- -------
$67,829 $156,141 $186,291 $ (730) $(1,063) $ (552)
======= ======== ======== ======= ======= =======
</TABLE>
For fiscal 1995, gathering and processing revenues and operating results were
lower than the prior year as a result of the negative impact of lower natural
gas prices. Marketing revenues and operating results declined in fiscal 1995 as
compared to 1994, due to the Company's decision to reduce its natural gas
trading activities.
For fiscal 1994, gathering and processing revenues and operating results
increased as a result of the expansion of the division's gathering and
processing operations during fiscal 1994 and 1993 while marketing revenues and
operating results declined primarily due to the Company's decision to reduce
its natural gas trading activities.
RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1995, Zapata adopted SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. As a result of adopting SFAS 121 in April 1995 the Company
recorded a $12.3 million pretax provision for asset impairment to reduce its
marine protein assets to their estimated fair market value. The fair market
value of the marine protein assets was determined based upon the highest third-
party competitive bid that had been received by the Company.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"). The Company does not intend to adopt the
recognition provisions of the statement but will adopt the disclosure
requirements in fiscal year 1997. The Company does not expect that the adoption
of SFAS 123's disclosure requirements will have a significant effect on the
Company's financial statements.
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<PAGE> 177
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
Zapata Corporation:
We have audited the accompanying consolidated balance sheets of Zapata
Corporation and subsidiaries as of September 30, 1995 and 1994 and the related
consolidated statements of operations, cash flows and stockholders' equity for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Zapata
Corporation and subsidiaries as of September 30, 1995 and 1994 and the
consolidated results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles. We
also audited the adjustments for discontinued operations described in Note 5
that were applied to restate the 1993 financial statements. In our opinion,
such adjustments are appropriate and have been properly applied to those
financial statements.
As described in Notes 1 and 10, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" and No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" in 1994 and
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," in 1995.
COOPERS & LYBRAND L.L.P.
Houston, Texas
December 15, 1995
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<PAGE> 178
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
Zapata Corporation:
We have audited the accompanying income statement, statement of cash flows
and reinvested earnings (deficit) and capital in excess of par value of Zapata
Corporation (a Delaware corporation) and subsidiary companies for the year
ended September 30, 1993 prior to restatement (and, therefore, are not
presented herein) for discontinued operations as described in Note 5 to the
restated financial statements. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Zapata
Corporation and subsidiary companies for the year ended September 30, 1993, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
December 17, 1993
24
<PAGE> 179
ZAPATA CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 2,488 $ 9,717
Receivables...................................... 17,550 17,996
Inventories:
Fish products.................................. 22,947 34,143
Materials, parts and supplies.................. 3,358 3,601
Prepaid expenses and other current assets........ 2,400 2,478
Net assets of discontinued operations............ 101,894 103,117
-------- --------
Total current assets......................... 150,637 171,052
-------- --------
Investments and other assets:
Notes receivable (net of a $4.3 million
allowance)...................................... -- 1,925
Production payment and other receivable.......... 8,864 --
Investments in unconsolidated affiliates and
equity securities............................... 18,235 14,471
Deferred income taxes............................ 6,247 2,915
Other assets..................................... 16,170 15,783
-------- --------
Total investments and other assets........... 49,516 35,094
-------- --------
Property and equipment:
Marine protein................................... 67,553 60,188
Oil and gas, full cost method.................... 3,359 77,066
Corporate........................................ 3,363 5,213
-------- --------
74,275 142,467
Accumulated depreciation, depletion and
amortization.................................... (35,037) (93,825)
-------- --------
39,238 48,642
-------- --------
Total assets................................. $239,391 $254,788
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE> 180
ZAPATA CORPORATION
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt............. $ 16,148 $ 531
Accounts payable................................. 2,356 4,804
Accrued liabilities:
Compensation and employee benefits............. 9,102 9,960
Insurance...................................... 2,851 4,774
Other.......................................... 6,644 11,457
-------- --------
Total current liabilities.................... 37,101 31,526
-------- --------
Long-term debt..................................... 37,468 52,581
-------- --------
Other liabilities.................................. 19,532 16,139
-------- --------
Commitments and contingencies (Note 11)
Stockholders' equity:
$6.00 cumulative preferred stock (no par),
outstanding: 22,498 shares (1994)............... -- 2,255
$2.00 noncumulative convertible preference stock
($1.00 par), outstanding: 2,627 shares (1995 and
1994)........................................... 3 3
Common Stock ($0.25 par), outstanding: 29,548,407
shares (1995) and 31,716,991 shares (1994)...... 7,387 7,929
Capital in excess of par value................... 131,962 138,294
Reinvested earnings, from October 1, 1990
(deficit balance prior to quasi-reorganization
at September 30, 1990: $296,850,000)............ 5,938 1,785
Investment in equity securities-unrealized gain,
net of taxes.................................... -- 4,276
-------- --------
Total stockholders' equity................... 145,290 154,542
-------- --------
Total liabilities and stockholders' equity... $239,391 $254,788
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE> 181
ZAPATA CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------
1995 1994 1993
-------- -------- -------
(IN THOSUANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues.......................................... $103,068 $109,163 $78,754
-------- -------- -------
Expenses:
Operating....................................... 86,739 88,148 51,704
Provision for asset write-downs................. 12,341 29,152 --
Depreciation, depletion and amortization........ 5,607 11,474 12,576
Selling, general and administrative............. 7,601 11,996 10,915
-------- -------- -------
112,288 140,770 75,195
-------- -------- -------
Operating income (loss)........................... (9,220) (31,607) 3,559
-------- -------- -------
Other income (expense):
Interest income................................. 905 1,653 2,322
Interest expense................................ (2,694) (4,636) (14,736)
Gain on sale of Tidewater common stock.......... 4,811 37,457 32,928
Equity in income (loss) of unconsolidated
affiliates..................................... (719) -- 1,125
Other........................................... (2,106) (4,296) (10,530)
-------- -------- -------
197 30,178 11,109
-------- -------- -------
Income (loss) from continuing operations before
income taxes..................................... (9,023) (1,429) 14,668
Provision (benefit) for income taxes.............. (3,179) (572) 4,210
-------- -------- -------
Income (loss) from continuing operations.......... (5,844) (857) 10,458
-------- -------- -------
Discontinued operations (Notes 2, 4 and 5):
Income (loss) from discontinued operations, net
of income taxes................................ 1,151 1,435 (1,085)
Reversal (recognition) of loss on disposition,
net of income taxes............................ 8,897 (8,897) --
-------- -------- -------
10,048 (7,462) (1,085)
-------- -------- -------
Net income (loss)................................. 4,204 (8,319) 9,373
Preferred and preference stock dividends.......... 51 356 404
-------- -------- -------
Net income (loss) to Common Stockholders.......... $ 4,153 $ (8,675) $ 8,969
======== ======== =======
Per share data:
Income (loss) from continuing operations........ $ (0.19) $ (0.04) $ 0.37
Income (loss) from discontinued operations...... 0.33 (0.24) (0.04)
-------- -------- -------
Net income (loss) per share..................... $ 0.14 $ (0.28) $ 0.33
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE> 182
ZAPATA CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER
30,
--------------------------
1995 1994 1993
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flow provided (used) by operating activities:
Continuing operations:
Net income (loss) from continuing operations..... $(5,844) $ (857) $ 10,458
------- ------- --------
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation, amortization and valuation
provision...................................... 17,948 40,848 12,576
Gain on sale of assets, net..................... (5,268) (37,457) (27,303)
Equity in (income) loss of unconsolidated
affiliates..................................... 719 -- (1,125)
Cash dividends received......................... -- -- 1,238
Changes in assets and liabilities:
Receivables.................................... (446) (7,008) 3,893
Inventories.................................... 11,439 (1,236) (13,880)
Accounts payable and accrued liabilities....... (9,347) 10,616 (445)
Deferred income taxes.......................... (2,828) (3,608) 3,006
Other assets and liabilities................... (1,320) 3,528 (5,263)
------- ------- --------
Total adjustments............................. 10,897 5,683 (27,303)
------- ------- --------
Cash flow provided (used) by continuing
operations.................................... 5,053 4,826 (16,845)
------- ------- --------
Discontinued operations:
Income (loss) from discontinued operations....... 1,151 1,435 (1,085)
Decrease (increase) in net assets of discontinued
operations...................................... 1,223 3,592 (4,400)
------- ------- --------
Cash flow provided (used) by discontinued
operations..................................... 2,374 5,027 (5,485)
------- ------- --------
Net cash provided (used) by operating
activities.................................... 7,427 9,853 (22,330)
------- ------- --------
Cash flow provided (used) by investing activities:
Proceeds from disposition of investments and
other............................................ 18,546 88,533 85,245
Restricted cash investments....................... -- 74,083 (74,083)
Proceeds from notes receivable.................... 5,505 1,061 994
Discontinued business acquisitions, net of cash
acquired......................................... -- (73,222) (12,139)
Capital expenditures.............................. (7,341) (15,530) (2,812)
------- ------- --------
Net cash provided (used) by investing
activities................................... 16,710 74,925 (2,795)
------- ------- --------
Cash flow provided (used) by financing activities:
Borrowings........................................ 11,439 1,873 101,375
Proceeds from issuance of Common Stock............ -- -- 11,250
Principal payments of long-term obligations....... (29,889) (86,040) (107,194)
Preferred stock redemption........................ (2,255) (2,245) --
Common Stock buyback.............................. (9,508) -- --
Dividend payments................................. (1,153) (1,566) (2,933)
------- ------- --------
Net cash provided (used) by financing
activities................................... (31,366) (87,978) 2,498
------- ------- --------
Net decrease in cash and cash equivalents.......... (7,229) (3,200) (22,627)
Cash and cash equivalents at beginning of year..... 9,717 12,917 35,544
------- ------- --------
Cash and cash equivalents at end of year........... $ 2,488 $ 9,717 $ 12,917
======= ======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE> 183
ZAPATA CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL
IN
EXCESS INVETMENTS
PREFERRED PREFERENCE COMMON OF PAR REINVESTED IN EQUITY
STOCK STOCK STOCK VALUE EARNINGS SECURITIES
--------- ---------- ------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1992................... $4,500 $ 3 $31,697 $ 84,970 $3,710
Net income.............. 9,373
Preferred stock
dividends declared..... (404)
Refinancing of bank debt
(3.0 million shares)... 3,750 7,041
Acquisition of Cimarron
(437,333 shares)....... 547 741
Other................... 182 154
------ --- ------- -------- ------ ------
Balance at September 30,
1993................... 4,500 3 36,176 92,906 12,679
Net loss................ (8,319)
Cash dividends declared:
Common Stock.......... (2,219)
Preferred stock....... (354)
Preference stock...... (2)
Common Stock one-for-
five reverse split..... (31,657) 31,657
Preferred stock
redemption............. (2,245)
Unrealized gain (net of
taxes)................. $4,276
Reclassification of
deferred tax asset..... 1,585
Acquisition of Energy
Industries
(2.7 million shares)... 3,375 12,285
Other................... 35 (139)
------ --- ------- -------- ------ ------
Balance at September 30,
1994................... 2,255 3 7,929 138,294 1,785 4,276
Net income.............. 4,204
Preferred stock dividend
declared............... (51)
Preferred stock
redemption............. (2,255)
Common Stock buyback.... (23) (485)
Repurchase Common Stock
(2.25 million shares)
from Norex............. (563) (8,438)
Reverse unrealized gain
(net of taxes)......... (4,276)
Reclassification of
deferred tax asset..... 2,573
Other................... 44 18
------ --- ------- -------- ------ ------
Balance at September 30,
1995................... $ -- $ 3 $ 7,387 $131,962 $5,938 $ --
====== === ======= ======== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE> 184
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The financial statements include Zapata Corporation and its wholly and
majority-owned domestic and foreign subsidiaries (collectively, "Zapata" or the
"Company"). Investments in affiliated companies and joint ventures representing
a 20% to 50% voting interest are accounted for using the equity method, while
interests of less than 20% are accounted for using the cost method, except for
investments in oil and gas properties. All investments in oil and gas
properties and joint ventures are proportionately consolidated. All significant
intercompany accounts and transactions are eliminated in consolidation. Certain
reclassifications of prior year information have been made to conform with the
current year presentation. Additionally, prior year information and footnotes
have been restated to reflect the Company's natural gas compression and natural
gas gathering, processing and marketing operations as discontinued operations.
Inventories
Materials, parts and supplies are stated at average cost. Fish product
inventories are stated at the lower of average cost or market.
The marine protein division allocates costs to production from its fish catch
on a basis of total fish catch and total costs associated with each fishing
season. The marine protein inventory is calculated on a standard cost basis
each month and adjusted to an actual cost basis quarterly. The costs incurred
during the off-season period of January through mid-April are deferred to the
next fishing season (mid-April through December) and allocated to production as
the fish catch is processed. The off-season deferred cost was approximately
$2.2 million and $1.9 million at September 30, 1995 and 1994, respectively.
Investments in unconsolidated affiliates and equity securities
In fiscal 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and
Equity Securities," which addresses the accounting and reporting for
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. At September 30, 1994, Zapata owned
673,077 shares of Tidewater Inc. ("Tidewater") common stock. These securities
were considered available for sale and reported at fair value with any
unrealized gain or loss recorded as a separate component of stockholders'
equity (net of deferred income taxes). Cost of the Tidewater common stock was
determined on the average cost method. In March 1995, Zapata sold its remaining
shares of Tidewater common stock.
In August 1995, Zapata acquired 4,189,298 common shares of Envirodyne
Industries, Inc. ("Envirodyne"), representing 31% of the then-outstanding
common stock of Envirodyne. Zapata's investment in Envirodyne is accounted for
using the equity method of accounting. Envirodyne is one of the world's major
suppliers of food packaging products and food service supplies.
Investment in Debentures
In May 1995, Zapata acquired $7,000,000 of 13% Wherehouse Entertainment
senior subordinated debentures due August 1, 2002 ("Wherehouse Debentures") for
$3,238,750 plus accrued interest. At September 30, 1995, Zapata's investment in
the Wherehouse Debentures has been written down to its estimated fair market
value of $910,000. The write-down was based on quoted prices of the Wherehouse
Debentures and the current financial condition of Wherehouse Entertainment,
Inc. which is currently operating as a debtor in possession under Chapter 11 of
the U.S. Bankruptcy Code.
30
<PAGE> 185
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Property, equipment and depreciation
Property and equipment are recorded at cost except as adjusted by the quasi-
reorganization as of October 1, 1990. As a result of the quasi-reorganization
the carrying value of the assets utilized in the marine protein operations was
reduced to estimated fair value.
In April 1995, Zapata adopted Statement of Financial Accounting Standards No.
121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which established accounting standards
for the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used or to be disposed of. As a
result of adopting SFAS 121, in April 1995 the Company recorded a $12.3 million
pretax provision for asset impairment to reduce its marine protein assets to
their estimated fair market value. The fair market value of the marine protein
assets was determined based upon the highest third-party competitive bid which
had been received by the Company in connection with a contemplated sale of the
marine protein operations in 1995. In accordance with SFAS 121, the Company
periodically evaluates its long-lived assets, except for its oil and gas
properties, for impairment if events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Oil and gas properties
are evaluated in accordance with the full cost ceiling test as described below.
Depreciation of property and equipment, other than that related to oil and
gas operations, is provided using the straight-line method over the estimated
useful lives of the assets. Estimated useful lives of assets acquired new,
determined as of the date of acquisition, are as follows:
<TABLE>
<CAPTION>
USEFUL LIVES
------------
(YEARS)
<S> <C>
Fishing vessels and fish processing plants................... 15-20
Furniture and fixtures....................................... 3-10
</TABLE>
Losses resulting from sales and retirements of property and equipment are
included in operating income while gains are included in other income. Property
and equipment no longer in service pending disposition are classified as other
assets and recorded at estimated net realizable value.
Oil and gas operations
Under the full cost accounting method all costs associated with property
acquisition and exploration for, and development of, oil and gas reserves are
capitalized within cost centers established on a country-by-country basis.
Capitalized costs within a cost center as well as the estimated future
expenditures to develop proved reserves and estimated net costs of
dismantlement and abandonment are amortized using the unit-of-production method
based on estimated proved oil and gas reserves. All costs relating to
production activities are charged to expense as incurred.
Capitalized oil and gas property costs, less accumulated depreciation,
depletion and amortization and related deferred income taxes, are limited to an
amount (the ceiling limitation) equal to the sum of (a) the present value
(discounted at 10%) of estimated future net revenues from the projected
production of proved oil and gas reserves, calculated at prices in effect as of
the balance sheet date (with consideration of price changes only to the extent
provided by fixed and determinable contractual arrangements), and (b) the lower
of cost or estimated fair value of unproved and unevaluated properties, less
(c) income tax effects related to differences in the book and tax basis of the
oil and gas properties.
31
<PAGE> 186
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Revenue recognition
The Company utilizes the sales method of accounting for sales of natural gas
whereby revenues are recognized based on the amount of gas sold to purchasers.
The amount of natural gas sold may differ from
the amount to which the Company is entitled based on its working interests in
the properties. The Company's reserve estimates are adjusted accordingly to
reflect any imbalance positions. The gas imbalance position was not significant
to the Company's financial position at September 30, 1995.
All of the Company's oil and gas production from its Bolivian properties is
sold to Yacimientos Petroliferos Fiscales Bolivianos ("YPFB"), Bolivia's state-
owned oil company. Because of YPFB's improved performance under renegotiated
contracts and improved operating conditions in Bolivia, Zapata returned to the
accrual method of accounting for its Bolivian oil and gas operations in fiscal
1994. Prior to 1994, the Company used cash-basis revenue recognition for sales
from its Bolivian oil and gas properties. The effect of changing to accrual
accounting in 1994 increased revenues by $1.8 million. The Bolivian oil and gas
properties contributed revenues and operating income as follows (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues................................................... $2.7 $4.1 $3.2
Operating income........................................... 1.4 3.5 3.1
</TABLE>
Income taxes
Zapata adopted Statement of Financial Accounting Standards No. 109 ("SFAS
109"), "Accounting for Income Taxes," as of October 1, 1993. The adoption of
SFAS 109 changed Zapata's method of accounting for income taxes to the asset
and liability approach. This approach requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of existing
temporary differences between the financial reporting and tax reporting basis
of assets and liabilities, and operating loss and tax credit carryforwards for
tax purposes.
Earnings per share
Income per share is based on the weighted average number of common shares and
common share equivalents outstanding during each year. Common share equivalents
include the average shares issuable for convertible preference stock and stock
options. Income used for purposes of this calculation has been reduced by
accruals for preferred and preference stock dividends.
Loss per share is based on the weighted average number of common shares
outstanding during each year. No common share equivalents are incorporated in
fiscal 1994 calculations because to do so would be antidilutive. Preferred
stock dividends are considered as their effect is to increase the loss per
share.
The average shares used in the per share calculations were 30,706,256 in
fiscal 1995, 31,377,498 in fiscal 1994 and 27,324,993 in fiscal 1993.
Quasi-reorganization
In connection with the comprehensive restructuring accomplished in 1991, the
Company implemented, for accounting purposes, a "quasi-reorganization," an
elective accounting procedure that permits a company that has emerged from
previous financial difficulty to restate its accounts and establish a fresh
start in an accounting sense. After implementation of the accounting quasi-
reorganization, the Company's assets and
32
<PAGE> 187
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
liabilities were revalued and its deficit in reinvested earnings was charged to
capital in excess of par value. The Company effected the accounting quasi-
reorganization as of October 1, 1990. Capital in excess of par value may be
adjusted in the future as a result of the resolution of pre-quasi
reorganization liabilities.
Common Stock
On April 27, 1994, Zapata's stockholders approved a one-for-five reverse
stock split of Zapata's outstanding common stock (the "Common Stock") effective
May 3, 1994 which reduced the number of common shares outstanding from
approximately 158.3 million to approximately 31.7 million. The number of
authorized shares remained at 165.0 million and the par value of the Common
Stock was unchanged. All references to Common Stock, earnings per share, per
share price and average number of common shares outstanding have been restated
to reflect the reverse stock split.
NOTE 2. DISCONTINUED MARINE PROTEIN OPERATIONS SUBSEQUENTLY RETAINED
In July 1994, Zapata announced that it intended to separate its marine
protein operations from its energy-related businesses. In September 1994, the
Board of Directors determined that the interests of Zapata's stockholders would
best be served by a sale of the marine protein operations. This determination
resulted in the 1993 and 1992 consolidated financial statements being restated
to present the net assets and operating results of the marine protein
operations as a discontinued operation. Additionally, based on preliminary
offers received in 1994 to purchase the marine protein operations, the Company
recorded an $8.9 million after-tax book loss in fiscal 1994 to reflect the
estimated loss on disposition of the marine protein operations.
On May 5, 1995, the Board of Directors decided to retain the marine protein
operations. Zapata had previously announced that an agreement to sell its
marine protein operations had been reached. However, the acquisition group
failed to close the transaction. As a result, the marine protein net assets and
results of operations and cash flows for all periods have been reclassified
from discontinued operations to continuing operations. Additionally, the $8.9
million after-tax book loss that was recorded in fiscal 1994 was reversed in
fiscal 1995.
The following is a summary of certain selected financial data for the marine
protein operations for the periods presented herein in which these operations
were previously reported as a discontinued operation (amounts in millions):
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER
30,
-----------
1994 1993
----- -----
<S> <C> <C>
FINANCIAL RESULTS
Revenues.................................................. $96.6 $58.6
Expenses.................................................. 94.3 59.2
----- -----
Income (loss) before taxes................................ 2.3 (.6)
Income tax provision...................................... 1.1 (.2)
----- -----
Net income (loss) *..................................... $ 1.2 $ (.4)
===== =====
</TABLE>
33
<PAGE> 188
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. DISCONTINUED MARINE PROTEIN OPERATIONS SUBSEQUENTLY RETAINED--
(CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994
-------------
<S> <C>
FINANCIAL POSITION
Current assets............................................ $49.0
Investments and other..................................... 8.0
Property and equipment, net............................... 30.5
-----
87.5
-----
Debt...................................................... 9.7
Other liabilities and deferred income taxes............... 26.5
-----
36.2
-----
Net book value.......................................... $51.3
=====
</TABLE>
- - --------
* Net income (loss) includes allocations of interest expense on general
corporate debt of $2.5 million in 1994 and $3.9 million in 1993. Interest
expense was allocated to discontinued operations based on a ratio of net
assets to be sold to the sum of total net assets of the Company plus general
corporate debt.
NOTE 3. DISPOSITION OF DOMESTIC OIL & GAS ASSETS
In September 1994, the Board of Directors determined that the Company would
immediately undertake efforts to sell its U.S. natural gas producing
properties. Zapata's Bolivian oil and gas operations were not impacted by this
decision. The six properties in the Gulf of Mexico, representing Zapata's
domestic oil and gas producing operations, were sold during fiscal 1995. Zapata
received cash of $4.0 million and an $8.9 million production payment and other
receivable. No gain or loss was recorded from the sales.
The production payment and other receivable received in partial consideration
for the sale of the domestic oil and gas properties consists of a $6.1 million
production payment receivable and a $2.8 million receivable related to future
proceeds from a revenue sharing agreement. The Company will begin collecting
the production payment receivable only after certain cumulative production
volumes have been achieved; collection will cease upon the earlier of (i)
receipt of $13.5 million or (ii) when the designated oil and gas reserves have
been depleted. The $2.8 million receivable related to the revenue sharing
agreement will be collected based on payments made by a third party for the use
of a platform and related facilities. Receipts under the revenue sharing
agreement are expected to begin in 1996 and will cease at the earlier of (i)
the receipt of $6.0 million or (ii) the cessation of payments made by a third
party for usage of the platform and related facilities. The receivable's
estimated fair market value of $8.9 million is based on discounted expected
cash flows and approximates book value at September 30, 1995.
Following is a summary of the results of operations of the Company's domestic
oil and gas operations (amounts in millions):
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1995
-------------
<S> <C>
Revenues.................................................... $ 5.4
Expenses.................................................... (9.2)
-----
Loss before income taxes.................................... $(3.8)
=====
</TABLE>
34
<PAGE> 189
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. DISCONTINUED NATURAL GAS COMPRESSION OPERATIONS
Acquisition
In November 1993, Zapata purchased the natural gas compression business of
Energy Industries, Inc. and certain other affiliated companies ("Energy
Industries"), as well as certain real estate used by the business. Total
consideration paid for the purchase of Energy Industries and certain real
estate, and for a related noncompetition agreement (collectively, the "Energy
Industries Acquisition"), was $90.2 million, consisting of $74.5 million in
cash and 2.7 million shares of Common Stock based on an assigned value of $5.80
per share which approximated the average trading price prior to the closing of
the acquisition. Additionally, the Company incurred approximately $2.0 million
in fees associated with the Energy Industries Acquisition. Zapata accounted for
the acquisition using the purchase method of accounting and recorded $19.3
million of goodwill in connection therewith. The goodwill was being amortized
over 40 years.
The following assets and liabilities were acquired in connection with the
Energy Industries Acquisition effective November 1, 1993 (in millions):
<TABLE>
<S> <C>
Cash............................................................... $ 3.5
Receivables........................................................ 9.3
Inventory.......................................................... 16.2
-----
29.0
Goodwill & other assets............................................ 19.7
Property & equipment, net.......................................... 49.6
-----
$98.3
=====
Current liabilities................................................ $ 5.8
Long-term debt..................................................... .2
-----
$ 6.0
=====
</TABLE>
Disposition
In late 1994 and early 1995, the Company began to develop a strategic plan
which involves repositioning the Company in the food packaging, food and food
service equipment and supply (collectively, "food services") businesses and
exiting the energy business. The strategic plan that was developed called for
the divestiture of most of the Company's remaining energy operations, including
Energy Industries, and the acquisition of, or joint ventures with, selected
companies in the food services industry.
In September 1995, Zapata entered into an agreement (the "Purchase
Agreement") to sell the assets of Energy Industries (the "Energy Industries
Sale") to Weatherford Enterra, Inc. and its wholly owned subsidiary, Enterra
Compression Company (collectively, "Weatherford Enterra"). Pursuant to the
Purchase Agreement, Weatherford Enterra purchased from the Company all of the
assets of Energy Industries for approximately $131 million in cash, and assumed
certain liabilities of Energy Industries, subject to final post closing
adjustments. The Energy Industries Sale closed in December 1995 after receiving
stockholder approval. The Energy Industries Sale resulted in an after-tax gain
of approximately $14.0 million, which will be reflected in the Company's fiscal
1996 financial results.
35
<PAGE> 190
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. DISCONTINUED NATURAL GAS COMPRESSION OPERATIONS--(CONTINUED)
The consolidated financial statements have been restated to report the net
assets and operating results of the Energy Industries operations as a
discontinued operation. Summarized results and financial position of the Energy
Industries discontinued operations are shown below (amounts in millions):
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
-------------
1995 1994
------ ------
<S> <C> <C>
FINANCIAL RESULTS
Revenues................................................. $ 66.6 $ 72.5
Expenses................................................. 63.2 67.7
------ ------
Income before taxes...................................... 3.4 4.8
Income tax provision..................................... 1.4 1.9
------ ------
Net income*.............................................. $ 2.0 $ 2.9
====== ======
<CAPTION>
SEPTEMBER 30,
-------------
1995 1994
------ ------
<S> <C> <C>
FINANCIAL POSITION
Current assets........................................... $ 32.1 $ 30.7
Investments and other assets............................. 20.3 19.4
Property and equipment, net.............................. 61.5 52.5
------ ------
113.9 102.6
------ ------
Debt..................................................... 27.8 15.2
Other liabilities........................................ 5.6 6.7
------ ------
33.4 21.9
------ ------
Net book value......................................... $ 80.5 $ 80.7
====== ======
</TABLE>
- - --------
* Net income includes allocations of interest expense on general corporate
debt of $1.7 million in 1995, and $3.4 million in 1994. Interest expense was
allocated to discontinued operations based on a ratio of net assets to be
sold to the sum of total net assets of the Company plus general corporate
debt.
NOTE 5. DISCONTINUED NATURAL GAS GATHERING, PROCESSING AND MARKETING OPERATIONS
Acquisition
During the first quarter of fiscal 1993, Zapata acquired the common stock of
Cimarron Gas Holding Company ("Cimarron") for $3.8 million consisting of $2.5
million in cash and 437,333 shares of Common Stock. Zapata accounted for the
acquisition using the purchase method of accounting and recorded $2.0 million
of goodwill in connection therewith. The goodwill was being amortized over 20
years. The following assets and liabilities were acquired effective October 1,
1992 (in millions):
<TABLE>
<S> <C>
Current assets..................................................... $20.3
Property and equipment, net........................................ 2.0
-----
$22.3
=====
Current liabilities................................................ $19.6
Long-term debt..................................................... .7
-----
$20.3
=====
</TABLE>
36
<PAGE> 191
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. DISCONTINUED NATURAL GAS GATHERING, PROCESSING AND MARKETING
OPERATIONS--(CONTINUED)
In September 1993, Cimarron acquired the natural gas gathering and processing
plant interests of Stellar Energy Corporation and three affiliated companies
(collectively, "Stellar") for approximately $16.4 million. The acquisition was
financed through the use of working capital cash and assumption of certain
indebtedness of Stellar. Zapata accounted for the acquisition using the
purchase method of accounting and recorded $5.5 million of goodwill in
connection therewith. The goodwill was being amortized over 20 years.
Proposed Disposition
In late 1994 and early 1995, the Company developed a strategic plan that
calls for the divesture of substantially all of the Company's remaining energy
operations including Cimarron. Although a sales price for Cimarron has not been
determined, the Company estimates that, based on preliminary indications of
interest from potential purchasers, the sales price for Cimarron should be at
least book value. The Company expects to complete the sale of Cimarron in
fiscal 1996.
The consolidated financial statements have been restated to report the net
assets and operating results of Cimarron's operations as a discontinued
operation. Summarized results and financial position of Cimarron's discontinued
operations are shown below (amounts in millions):
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
---------------------
1995 1994 1993
----- ------ ------
<S> <C> <C> <C>
FINANCIAL RESULTS
Revenues......................................... $67.8 $156.1 $186.3
Expenses......................................... 69.1 158.4 187.9
----- ------ ------
Loss before taxes................................ (1.3) (2.3) (1.6)
Income tax benefit............................... (0.5) (0.8) (0.5)
----- ------ ------
Net loss*...................................... $(0.8) $ (1.5) $ (1.1)
===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER
30,
-----------
1995 1994
----- -----
<S> <C> <C>
FINANCIAL POSITION
Current assets............................................. $ 9.6 $13.2
Other assets............................................... 6.7 7.0
Property and equipment, net................................ 16.9 16.5
----- -----
33.2 36.7
----- -----
Debt....................................................... 2.2 3.8
Other liabilities.......................................... 9.6 10.5
----- -----
11.8 14.3
----- -----
Net book value............................................. $21.4 $22.4
===== =====
</TABLE>
- - --------
* Net loss includes allocations of interest expense on general corporate debt
of $452,000 in 1995, $932,000 in 1994 and $968,000 in 1993. Interest expense
was allocated to discontinued operations based on a ratio of net assets to
be sold to the sum of total net assets of the Company plus general corporate
debt.
37
<PAGE> 192
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. UNCONSOLIDATED AFFILIATES
In August 1995, Zapata acquired 4,189,298 common shares of Envirodyne,
representing 31% of the outstanding common stock of Envirodyne, for $18.8
million from a trust controlled by Malcolm Glazer, Chairman of the Board of
Zapata and a director of Envirodyne. Zapata paid the purchase price by issuing
to the seller a subordinated promissory note bearing interest at prime and
maturing in August 1997, subject to prepayment at the Company's option.
Subsequently, the Company prepaid approximately $15.6 million on the promissory
note. Zapata follows the equity method of accounting for its investment in
Envirodyne. The difference between Zapata's share of Envirodyne's equity and
Zapata's recorded investment in Envirodyne is being amortized over 15 years. At
September 30, 1995, the unamortized balance of this difference was $19.3
million. The aggregate market value of Zapata's shares of Envirodyne's common
stock as of September 30, 1995 was $18.9 million based on the closing price of
$4.50 per publicly traded share on that date.
Due to the significance of the Company's investment, the unaudited financial
position and results of operations of Envirodyne are summarized below. The
financial statement information presented below for Envirodyne is based upon
its interim report for the quarter ended September 28, 1995 (unaudited, in
millions, except per share amounts):
ENVIRODYNE INDUSTRIES, INC.
<TABLE>
<CAPTION>
SEPTEMBER 28,
1995
-------------
<S> <C>
BALANCE SHEET
Current assets.............................................. $255.3
Other....................................................... 190.0
Property and equipment, net................................. 467.4
------
Total assets.............................................. $912.7
======
Current liabilities......................................... $129.8
Long-term debt.............................................. 529.7
Deferred income taxes and other............................. 132.1
Stockholders' equity........................................ 121.1
------
Total liabilities and stockholders' equity................ $912.7
======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 28,
1995
-------------
<S> <C>
INCOME STATEMENT
Revenues.................................................... $167.7
======
Loss before income taxes.................................... $ (7.5)
======
Net loss.................................................... $ (4.5)
======
Net loss per share.......................................... $(0.33)
======
</TABLE>
In January 1992, Zapata exchanged its 34.7% interest in Zapata Gulf Marine
Corporation ("Zapata Gulf") for approximately 8.3 million shares of Tidewater
common stock. Zapata sold 673,077, 4.1 million and 3.5 million shares of its
Tidewater common stock in fiscal 1995, 1994 and 1993, respectively. Initially,
38
<PAGE> 193
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. UNCONSOLIDATED AFFILIATES--(CONTINUED)
Zapata followed the equity method of accounting for its investment in Tidewater
based on its percentage ownership and proxies that allowed the Company to have
voting control of 20% of the total shares of Tidewater common stock
outstanding.
Effective January 1, 1993, Zapata changed from the equity to the cost method
of accounting for its investment in Tidewater as a result of Zapata's decision
to sell 3.5 million of its shares of Tidewater common stock. Consequently,
Zapata has not reported its percentage of Tidewater's results since such time.
Instead, Tidewater's dividends of approximately $135,000, $719,000 and $1.3
million were included in other income in 1995, 1994 and 1993, respectively.
Zapata received dividends from Tidewater totalling $135,000, $719,000 and $2.5
million in fiscal 1995, 1994 and 1993, respectively.
The Company was also engaged directly in the offshore drilling business until
October 31, 1990, when its offshore drilling rigs were sold to Arethusa
(Offshore) Limited ("Arethusa"). In conjunction with the sale, the Company made
a $17.5 million investment in Arethusa. In fiscal 1993, the Company disposed of
its investment in Arethusa for $11.8 million, resulting in a pretax loss of
$5.7 million. The Company accounted for its investment in Arethusa using the
cost method of accounting.
A summary of equity in net income (loss) of and investments in unconsolidated
affiliates is shown below:
<TABLE>
<CAPTION>
INVESTMENTS
EQUITY IN NET AS OF
INCOME (LOSS) SEPTEMBER 30
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
1995
Envirodyne..................................... $ (719) $18,235
====== =======
1994
Tidewater...................................... $ ---- $14,471
====== =======
1993
Tidewater...................................... $1,125 $56,289
====== =======
</TABLE>
In June 1993, Zapata completed a sale of 3.5 million shares of its Tidewater
stock through an underwritten public offering. The Tidewater shares were sold
at a net price of $21.25 per share, or $73.5 million, and the sale generated a
third-quarter 1993 pretax gain of $32.9 million. In November 1993, Zapata sold
3.75 million shares of its Tidewater common stock through an underwritten
public offering for a net price of $20.75 per share, or $77.8 million, and the
sale resulted in a pretax gain of $33.9 million. Additionally, in March 1994,
Zapata sold 375,175 shares of its Tidewater common stock for a net price of
$21.34 per share, or $8.0 million, resulting in a pretax gain of $3.6 million.
In March 1995, Zapata sold its remaining 673,077 shares of Tidewater common
stock for a net price of $18.87 per share, or $12.7 million, resulting in a
pretax gain of $4.8 million. These gains are reflected on the statement of
operations as other income.
39
<PAGE> 194
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. DEBT
At September 30, 1995 and 1994, Zapata's consolidated debt consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Senior debt:
Norex unsecured notes due in 1996 interest at 8.5%............ $ 4,796 $17,500
ING Bank revolving credit facility for marine protein due June
30, 1997 interest at prime plus 1%, 9.75% at September 30,
1995, collateralized by certain current assets............... 10,000 --
U.S. government-guaranteed obligations:
Amounts due in installments through 2009, interest from 6.63%
to 6.85%.................................................... 7,626 7,961
Amounts due in installments through 2014, interest at
Eurodollar rates plus .45%, 6.33% and 5.51% at September 30,
1995 and 1994, respectively................................. 1,528 1,588
Other debt at 8.1% and 7.7% at September 30, 1995 and 1994,
respectively................................................. 992 200
------- -------
24,942 27,249
------- -------
Subordinated debt:
10 1/4% debentures due 1997................................... 15,621 15,621
10 7/8% debentures due 2001................................... 9,872 10,242
Malcolm I. Glazer Trust unsecured subordinated promissory note
due in 1997 at prime, 8.75% at September 30, 1995............ 3,181 --
------- -------
28,674 25,863
------- -------
Total debt...................................................... 53,616 53,112
------- -------
Less current maturities......................................... 16,148 531
------- -------
Long-term debt.................................................. $37,468 $52,581
======= =======
</TABLE>
The fair value of total long-term debt at September 30, 1995 and 1994
approximates book value.
On May 17, 1993, Zapata completed certain financial transactions with Norex
Drilling Ltd. ("Norex Drilling"), a wholly owned subsidiary of Norex America,
Inc. ("Norex America" and, collectively with Norex Drilling and other
affiliates, "Norex"), through which Zapata raised $111.4 million from the
issuance of debt and equity pursuant to a Second Amended and Restated Master
Restructuring Agreement dated as of April 16, 1993, as amended (the "Norex
Agreement"). The Norex Agreement enabled Zapata to refinance its then-
outstanding senior debt and substantially reduce the amount of required debt
service payments for the following two years.
Under the terms of the Norex Agreement, Zapata issued $50.0 million of senior
secured notes and $32.6 million of senior convertible notes to Norex, each
bearing interest at 13%. In addition, Norex purchased 3 million shares of
Common Stock for $11.25 million and 17.5 million shares of $1 Preference Stock
for $17.5 million. The $1 Preference Stock was to pay dividends at an annual
rate of 8.5% and was exchangeable into 673,077 shares of Zapata's Tidewater
common stock at the option of Norex. In August 1993, Norex exchanged all of its
$1 Preference Stock for $17.5 million aggregate principal amount of 8.5%
unsecured exchangeable note, maturing May 16, 1996. An officer of Norex was
elected to the Zapata Board of Directors in July 1993 and was an executive
officer of Zapata from July 1994 to December 1994.
In December 1993, $73.7 million of the proceeds from the sale of 3.75 million
shares of Zapata's Tidewater common stock were used to prepay $68.5 million of
the Company's 13% senior indebtedness to
40
<PAGE> 195
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. DEBT--(CONTINUED)
Norex, along with accrued interest, and to pay a $3.5 million prepayment
premium. Also, Zapata wrote off $3.3 million of previously deferred expenses
related to the origination of such indebtedness. In September 1994, Zapata
repaid the remaining balance of its 13% senior convertible indebtedness to
Norex and a required prepayment penalty of $655,000 with proceeds from the
initial drawdown of $15 million from a $30 million bank credit facility
provided by Texas Commerce Bank National Association (the "TCB Loan
Agreement").
In April 1995, Zapata used proceeds of $12.7 million from the sale of its
remaining 673,077 shares of Tidewater common stock to reduce the Company's
$17.5 million in notes due to Norex in May 1996.
In 1995, two of the Company's subsidiaries, Zapata Protein, Inc. and Zapata
Protein (USA), Inc. (collectively "Zapata Protein") entered into a loan
agreement with Internationale Nederlanden (U.S.) Capital Corporation ("ING Loan
Agreement"). The ING Loan Agreement provides Zapata Protein with a $15 million
revolving credit facility that is due June 30, 1997. The ING Loan Agreement
bears interest at a variable interest rate that is adjusted periodically based
on prime interest rate plus 1%. Pursuant to the ING Loan Agreement, Zapata
Protein agreed to maintain certain financial covenants and to limit additional
indebtedness, dividends, dispositions and acquisitions. Zapata Corporation has
guaranteed up to $10.0 million of the outstanding balance of debt related to
the ING Loan Agreement. The amount of restricted net assets for Zapata Protein
at September 30, 1995 was approximately $47.7 million. Pursuant to the ING Loan
Agreement, Zapata Protein's ability to transfer funds to Zapata Corporation is
limited to $10.0 million. As of September 30, 1995, Zapata Protein had already
transferred the maximum amount of $10.0 million to Zapata Corporation. The
Company remains subject to a covenant in the Norex debt agreement that requires
Zapata to maintain a consolidated tangible net worth as defined in such
agreement of at least $100 million. Effective September 30, 1995, the Company
was in compliance with all provisions governing its outstanding indebtedness.
In August 1995, Zapata acquired 31% of the outstanding common stock of
Envirodyne for $18.8 million from a trust controlled by Malcolm Glazer,
Chairman of the Board of Zapata and a director of Envirodyne. Zapata paid the
purchase price by issuing to the seller a subordinated promissory note bearing
interest at prime and maturing in August 1997, subject to prepayment at the
Company's option. The Company has since prepaid approximately $15.6 million on
the promissory note.
During 1993, the Company refinanced its U.S. government-guaranteed debt in
order to achieve lower interest rates; other significant terms were unchanged.
The U.S. government-guaranteed debt is collateralized by a first lien on all of
the vessels refurbished by the refinancing proceeds and certain plant assets.
Annual maturities
The annual maturities of long-term debt for the five years ending September
30, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
---- ------- ---- ---- ----
<S> <C> <C> <C> <C>
$16,148 $19,288 $514 $537 $555
</TABLE>
41
<PAGE> 196
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. CASH FLOW INFORMATION
For purposes of the statement of cash flows, all highly liquid investments
with an original maturity of three months or less are considered to be cash
equivalents.
Net cash provided (used) by operating activities reflects cash payments of
interest and income taxes.
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid during the fiscal year for:
Interest......................................... $6,609 $7,142 $12,836
Income tax payments (refund)..................... 544 4,507 (10)
</TABLE>
In fiscal 1994 and 1993, interest expense of $1.3 million and $1.7 million,
respectively, associated with the Norex senior secured and convertible notes,
was deferred to the maturity date of such notes. As discussed in Note 7, these
notes were prepaid in full in fiscal 1994.
During fiscal 1995, the Company exchanged certain other assets held for sale
for property and equipment and also exercised an option to purchase certain
real estate resulting in the reclassification of a deposit from other assets to
property and equipment. These transactions resulted in the reclassification of
approximately $2.0 million from other assets to property and equipment.
NOTE 9. PREFERRED, PREFERENCE AND COMMON STOCK
Preferred stock
Zapata has authorized two million shares of preferred stock issuable in one
or more series. In 1994, Zapata redeemed one-half of the approximately 45,000
outstanding shares of the Company's preferred stock and redeemed the balance of
its outstanding preferred stock in January 1995. The preferred stock was
redeemed at $100 a share. Quarterly dividends of $2.25 per share were declared
and paid in fiscal 1995 and 1994.
Preference stock
Zapata has authorized 18 million shares of preference stock issuable in one
or more series. The 2,627 outstanding shares are entitled to vote on all
matters submitted to stockholders, are redeemable at $80.00 per share and
$30.00 per share in liquidation. The stated quarterly dividend, which is
noncumulative, is $.50 per share. Dividends were paid July 1, 1994 and October
1, 1994, the first such quarterly dividends since the second quarter of 1986.
Each outstanding share is convertible at any time into 2.1 shares of Common
Stock. The Company announced in December 1994 that its Board of Directors had
determined to discontinue the payment of dividends on its preference stock.
Common stock
Zapata has authorized 165 million shares of Common Stock, of which 29,548,407
were issued and outstanding at September 30, 1995.
42
<PAGE> 197
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. PREFERRED, PREFERENCE AND COMMON STOCK--(CONTINUED)
In April 1995, Zapata repurchased 2.25 million shares of Common Stock from
Norex for $4.00 per share. The shares repurchased by Zapata represented 7% of
the Company's then-outstanding Common Stock. Following the repurchase of these
shares, Zapata had approximately 29.5 million shares of Common Stock
outstanding.
On April 27, 1994, Zapata's stockholders approved a one-for-five reverse
stock split of the Company's outstanding Common Stock effective May 3, 1994
that reduced the number of shares of Common Stock outstanding from
approximately 158.3 million to approximately 31.7 million. The number of
authorized shares remained at 165.0 million and par value of the Common Stock
was unchanged.
Under the Company's 1981 Stock Incentive Plan (the "1981 Plan"), options may
be granted at prices equivalent to the market value of the Company's Common
Stock at the date of the grant. Options become exercisable in annual
installments equal to one-third of the shares covered by the grant beginning
one year from the grant date. Options not exercised in the period they become
exercisable may be carried forward and exercised in subsequent periods.
During 1986, the Company amended and restated the 1981 Plan to provide for
the award of restricted shares of Common Stock. All shares of Common Stock
awarded to participants as restricted stock are subject to certain conditions.
At the time of each award, the Compensation Committee of the Board of Directors
(the "Committee") establishes a restricted period of not less than one and not
more than five years within which the shares covered by the award cannot be
sold, assigned, transferred, pledged or otherwise encumbered. Except for such
transfer restrictions, the participant as the owner of such shares has all the
rights of a holder of Common Stock, including the right to receive dividends
paid on such shares and the right to vote the shares. The total of restricted
shares issued and shares issued upon the exercise of options granted under the
1981 Plan cannot exceed 140,000, which was the number of shares authorized for
issuance prior to the amendment and restatement. No shares of Common Stock are
available for further grants of stock options or awards of restricted stock
under the 1981 Plan. During 1995, options to purchase 18,000 shares under the
1981 Plan were exercised at $3.13. At September 30, 1995, options to purchase
12,000 shares under the 1981 Plan at $3.13 were outstanding and exercisable.
Zapata's Special Incentive Plan (the "1987 Plan") provides for the granting
of stock options and the awarding of restricted stock. Under the 1987 Plan,
options may be granted at prices equivalent to the market value of the Common
Stock at the date of grant. Options become exercisable on dates as determined
by the Committee, provided that the earliest such date cannot occur before six
months after the date of grant. Unexercised options will expire on varying
dates, up to a maximum of ten years from the date of grant. The awards of
restricted stock have a restriction period of not less than six months and not
more than five years. The 1987 Plan provided for the issuance of up to 600,000
shares of the Common Stock. During 1992, the stockholders approved an amendment
to the 1987 Plan that provides for the automatic grant of a nonqualified stock
option to directors of Zapata who are not employees of Zapata or any subsidiary
of Zapata. At September 30, 1995, a total of 203,666 shares of Common Stock
were reserved for the future granting of stock options or the awarding of
restricted stock under the 1987 Plan. During 1995, options to purchase 80,000
shares under the 1987 Plan at prices ranging from $3.38 to $3.94 were granted
and options to purchase 120,000 shares at prices ranging from $3.94 to $4.22
were cancelled. At September 30, 1995, 132,000 options were outstanding under
the 1987 Plan at prices ranging from $3.13 to $7.19 and 58,667 options were
exercisable.
On December 6, 1990, the Company's stockholders approved a new stock option
plan (the "1990 Plan"). The 1990 Plan provides for the granting of nonqualified
stock options to key employees of the Company. Under the 1990 Plan, options may
be granted by the Committee at prices equivalent to the market value of
43
<PAGE> 198
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. PREFERRED, PREFERENCE AND COMMON STOCK--(CONTINUED)
the Common Stock on the date of grant. Options become exercisable in one or
more installments on such dates as the Committee may determine, provided that
such date cannot occur prior to the expiration of one year of continued
employment with the Company following the date of grant. Unexercised options
will expire on varying dates up to a maximum of ten years from the date of
grant. The 1990 Plan provides for the issuance of options to purchase up to
1,000,000 shares of Common Stock. At September 30, 1995, a total of 32,666
shares of Common Stock were reserved for the future granting of stock options
under the 1990 Plan. During 1995, options to purchase 621,900 shares under the
1990 Plan at $3.13 were exercised. At September 30, 1995, a total of 42,000
options at a price of $3.13 were outstanding and exercisable under the 1990
Plan. No options were granted in 1995 under the 1990 Plan.
NOTE 10. INCOME TAXES
Zapata adopted Statement of Financial Accounting Standards No. 109 ("SFAS
109"), "Accounting for Income Taxes" as of October 1, 1993. The adoption of
SFAS 109 changed Zapata's method of accounting for income taxes to the asset
and liability approach. This approach requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of existing
temporary differences between the financial reporting and tax reporting base of
assets and liabilities, and operating loss and tax credit carryforwards for tax
purposes. Due to the implementation of the quasi-reorganization as of October
1, 1990, the Company was required to adjust capital in excess of par value for
the recognition of deductible temporary differences and credit carryforward
items which existed at the date of the quasi-reorganization. Future reductions,
if any, in the deferred tax valuation allowance relating to tax attributes that
existed at the time of the quasi-reorganization will also be allocated to
capital in excess of par value.
Zapata and its domestic subsidiaries file a consolidated U.S. federal income
tax return. The provision for income tax expense (benefit) consisted of the
following:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
State........................................... $ 268 $ 507 $ 75
U.S............................................. -- 5,403 619
Deferred
State........................................... (300) 150 --
U.S............................................. (3,147) (6,632) 3,516
------- ------ ------
$(3,179) $ (572) $4,210
======= ====== ======
</TABLE>
Income tax expense (benefit) was allocated to operations as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Continuing Operations
Domestic operations........................... $(3,676) $(1,812) $3,135
Foreign operations............................ 497 1,240 1,075
------- ------- ------
Total....................................... (3,179) (572) 4,210
Discontinued Operations......................... 4,579 (2,564) (560)
------- ------- ------
Total....................................... $ 1,400 $(3,136) $3,650
======= ======= ======
</TABLE>
44
<PAGE> 199
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. INCOME TAXES--(CONTINUED)
The provision for deferred taxes results from timing differences in the
recognition of revenues and expenses for tax and financial reporting purposes.
The sources and income tax effects of these differences were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Book depreciation in excess of tax depreciation... $ (4,292) $ (1,145) $(1,468)
Tax deduction related to oil and gas exploration
and production over (under) book expenses........ 2,825 (6,277) (163)
Tax gain in excess of book gain on stock sale..... (1,650) (10,116) (8,065)
Changes to tax carryforwards and other............ (330) 8,266 13,212
Charge off uncollectible note..................... -- 2,790 --
-------- -------- -------
$(3,447) $ (6,482) $ 3,516
======== ======== =======
</TABLE>
For federal income tax purposes, Zapata has $12.1 million of net operating
losses expiring in 2010, $17.5 million of investment tax credit carryforwards
expiring in 1997 through 2001, and $10.9 million of alternative minimum tax
credit carryforwards. The use of some of the tax credits may be limited as a
result of a change of ownership as calculated for tax purposes. Investment tax
credit carryforwards are reflected in the balance sheet as a reduction of
deferred taxes using the flow-through method.
The following table reconciles the income tax provisions for fiscal 1995,
1994 and 1993 computed using the U.S. statutory rate of 35%, 35% and 34%,
respectively, to the provisions from continuing operations as reflected in the
financial statements.
<TABLE>
<CAPTION>
1995 1994 1993
-------- ----- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Taxes at statutory rate............................... $ (3,158) $(500) $4,987
Recovery of nondeductible book losses................. -- -- (259)
Amortization of intangibles not deductible for tax.... 11 10 --
Other................................................. 33 (563) (26)
Equity/dividend income not recognized for tax
purposes............................................. (33) (176) (567)
State taxes........................................... (32) 657 75
-------- ----- ------
$(3,179) $(572) $4,210
======== ===== ======
</TABLE>
45
<PAGE> 200
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. INCOME TAXES--(CONTINUED)
Temporary differences and tax credit carryforwards that gave rise to
significant portions of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Assets:
Asset write-downs not yet
deductible............... $ 4,956 $ 5,150
Net operating loss
carryforwards............ 4,246 --
Investment tax credit
carryforwards............ 17,490 17,639
Alternative minimum tax
credit carryforwards..... 10,927 11,683
Other..................... 2,404 2,555
------- -------
Total deferred tax
assets................. 40,023 37,027
Valuation allowance....... (16,857) (19,429)
------- -------
Net deferred tax assets. 23,166 17,598
------- -------
Deferred Tax Liabilities:
Property and equipment.... (9,628) (3,477)
Basis difference on stock
investment............... -- (1,650)
Pension................... (3,554) (3,356)
Unrealized investment gain
on Tidewater common
stock.................... -- (2,302)
Other..................... (3,737) (3,898)
------- -------
Total deferred tax
liabilities............ (16,919) (14,683)
------- -------
Net deferred tax asset.. $ 6,247 $ 2,915
======= =======
</TABLE>
The valuation allowance represents managements estimates of tax carryforwards
that may not be ultimately utilized given current facts and circumstances.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Operating leases payable
Future minimum payments under non-cancelable operating lease obligations
aggregate $5.8 million. The total future minimum rental payments have not been
reduced by $4.1 million of sublease rentals to be received in the future under
noncancelable subleases. Future minimum payments, net of sublease rentals, for
the five years ending September 30, 2000 are:
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Lease obligations................................ $348 $325 $310 $310 $303
</TABLE>
Rental expenses for operating leases were $1.8 million, $2.3 million and $2.4
million in 1995, 1994 and 1993, respectively.
Litigation
On August 11, 1995, a purported derivative lawsuit was filed in a case styled
Harwin v. Glazer, et al., in the Court of Chancery of the State of Delaware in
and for New Castle County. The complaint names the Company and each of its
directors as defendants and generally alleges that the Company's directors
engaged
46
<PAGE> 201
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
in conduct constituting breach of fiduciary duty and waste of the Company's
assets in connection with the Company's investment in Envirodyne. The complaint
alleges, among other things, that the purchase of the Envirodyne common stock
from Malcolm Glazer's affiliate was a wrongful expenditure of the Company's
funds and was designed to permit Malcolm Glazer to obtain substantial personal
financial advantages to the detriment of the Company. The complaint seeks
relief including, among other things, rescission of the Company's purchase of
the shares of Envirodyne common stock from the trust controlled by Malcolm
Glazer, voiding of the election of Robert V. Leffler, Jr. and W. George Loar
(both of whom were elected at the Company's Annual Meeting of Stockholders held
on July 27, 1995) and an award of unspecified compensatory damages and
expenses, including attorneys' fees. The compliant alleges, among other things,
that Messrs. Leffler and Loar (both of whom served on the special committee of
the Company's Board of Directors that approved the investment in Envirodyne)
lack independence from Malcolm Glazer because, in the case of Mr. Loar, he was
employed by a corporation indirectly controlled by Malcolm Glazer until his
retirement (which occurred more than five years ago), and in the case of Mr.
Leffler, that he has served as a paid consultant to Malcolm Glazer. The Company
believes that the complaint and allegations contained therein are without merit
and intends to defend the case vigorously.
On November 16, 1995, a petition was filed in the 148th Judicial District
Court of Nueces County, Texas by Peter M. Holt, a former director of the
Company, and certain of his affiliates who sold their interests in Energy
Industries to the Company in November 1993 (collectively, with Mr. Holt, the
"Holt Affiliates"). The petition lists the Company, Malcolm Glazer and Avram
Glazer as defendants and alleges several causes of action based on alleged
misrepresentations on the part of the Company and the other defendants
concerning the Company's intent to follow a long-term development strategy
focusing its efforts on the natural gas services business. The petition did not
allege a breach of any provision of the purchase agreement pursuant to which
the Company acquired Energy Industries from the Holt Affiliates, but alleged
that various representatives of Zapata and Malcolm Glazer made representations
to Mr. Holt regarding Zapata's intention to continue in the natural gas
services industry. Among the remedies sought by the petition are the following
requests: (i) the Company's repurchase of the approximately 2.8 million shares
of Zapata common stock owned by the Holt Affiliates for $15.6 million, an
amount that represents a premium of approximately $4.7 million, or more than
40%, over the market value of such number of shares based on the closing price
of Common Stock on November 16, 1995; (ii) the disgorgement to the Holt
Affiliates of Zapata's profit to be made on its sale of Energy Industries; or
(iii) money damages based on the alleged lower value of the Common Stock had
the alleged misrepresentations not been made. The Company believes that the
petition and the allegations made therein are without merit and intends to
defend the case vigorously.
Zapata is defending various claims and litigation arising from continuing and
discontinued operations. In the opinion of management, uninsured losses, if
any, resulting from these matters and from the matters discussed above will not
have a material adverse effect on Zapata's results of operations, cash flows or
financial position.
NOTE 12. FINANCIAL INSTRUMENTS
Concentrations of Credit Risk
As indicated in the industry segment information which appears in Note 16,
the market for the Company's services and products is primarily related to the
marine protein operations whose customers consist primarily of domestic feed
producers. The Company performs ongoing credit evaluations of its customers and
generally does not require material collateral. The Company maintains reserves
for potential credit losses, and such losses have been within management's
expectations.
47
<PAGE> 202
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12. FINANCIAL INSTRUMENTS--(CONTINUED)
At September 30, 1995 and 1994 the Company had cash deposits concentrated
primarily in three major banks. In addition, the Company had certificates of
deposits, commercial paper and Eurodollar time deposits with a variety of
companies and financial institutions with strong credit ratings. As a result of
the foregoing, the Company believes that credit risk in such instruments is
minimal.
NOTE 13. BENEFIT PLANS
Qualified Defined Benefit Plans
Zapata has two noncontributory defined benefit pension plans covering certain
U.S. employees. Plan benefits are generally based on employees' years of
service and compensation level. All of the costs of these plans are borne by
Zapata. The plans have adopted an excess benefit formula integrated with
covered compensation. Participants are 100% vested in the accrued benefit after
five years of service.
Net pension credits for 1995, 1994 and 1993 included the following
components:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during the year... $ 567 $ 692 $ 660
Interest cost on projected benefit obligations.. 2,354 2,278 1,982
Actual loss (gain) on plan assets............... (6,452) (2,730) 1,028
Amortization of transition assets and other
deferrals...................................... 2,864 (546) (5,445)
------ ------ -------
Net pension credit............................ $ (667) $ (306) $(1,775)
====== ====== =======
</TABLE>
The Company's funding policy is to make contributions as required by
applicable regulations. No contributions to the plans have been required since
1984. The plans' funded status and amounts recognized in the Company's balance
sheet at September 30, 1995 and 1994 are presented below:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Fair value of plan assets.............................. $43,242 $38,899
------- -------
Actuarial present value of benefit obligations:
Vested benefits...................................... 33,664 31,503
Nonvested benefits................................... 348 782
------- -------
Accumulated benefit obligation....................... 34,012 32,285
Additional benefits based on projected salary
increases........................................... 1,741 2,126
------- -------
Projected benefit obligations........................ 35,753 34,411
------- -------
Excess of plan assets over projected benefit
obligations........................................... 7,489 4,488
Unrecognized transition asset.......................... (5,861) (6,698)
Unrecognized prior service cost........................ 123 151
Unrecognized net loss.................................. 8,404 11,547
------- -------
Prepaid pension cost................................... $10,155 $ 9,488
======= =======
</TABLE>
The unrecognized transition assets at October 1, 1987, was $10.6 million,
which is being amortized over 15 years. For 1995 and 1994 the actuarial present
value of the projected benefit obligation was based on a 4.75% weighted average
annual increase in salary levels and a 7.5% discount rate. Pension plan assets
are
48
<PAGE> 203
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13. BENEFIT PLANS--(CONTINUED)
invested in cash, common and preferred stocks, short-term investments and
insurance contracts. The projected long-term rate of return on plan assets was
9.0% in 1995 and 1994. The unrecognized net loss of $8.4 million at September
30, 1995 is expected to be reduced by future returns on plan assets and through
decreases in future net pension credits.
In 1986, Zapata terminated the Dredging Pension Plan (the "Dredging Plan") in
connection with the sale of the assets of its dredging operations. Annuities
were purchased with Executive Life Insurance Co. ("Executive Life") for
terminated participants of the Dredging Plan. Subsequently Executive Life
experienced financial difficulties resulting in a reduction of payments to the
former participants of the Dredging Plan. The Company has negotiated a
settlement with the U.S. Department of Labor that the Zapata Corporation
Pension Plan would assume the liability associated with the reduction in
benefits of the Dredging Plan participants. The settlement is subject to
approval of the Internal Revenue Service. The accumulated benefit obligation at
September 30, 1995 that would be assumed by the plan is estimated to be $2.3
million, of which $1.4 million has been expensed in the 1994 income statement
as other expense.
Supplemental Retirement Plan
Effective April 1, 1992, Zapata adopted a supplemental pension plan, which
provides supplemental retirement payments to senior executives of Zapata. The
amounts of such payments will be equal to the difference between the amounts
received under the applicable pension plan, and the amounts that would
otherwise be received if pension plan payments were not reduced as the result
of the limitations upon compensation and benefits imposed by federal law.
Effective December 1994, the supplemental pension plan was frozen.
For 1994 and 1993, the actuarial present value of the projected benefit
obligations was based on weighted-average annual increase in salary levels of
2.1%. For 1995, 1994 and 1993 the discount rate was 7.5%.
Net pension expense for 1995, 1994 and 1993 included the following
components:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during the year............. $-- $ 68 $ 86
Interest cost on projected benefit obligations............ 67 72 53
Amortization of prior service cost........................ -- 487 87
--- ---- ----
Net pension expense..................................... $67 $627 $226
=== ==== ====
</TABLE>
49
<PAGE> 204
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13. BENEFIT PLANS--(CONTINUED)
No contributions to the plan have been required since the plan is unfunded.
The plan's funded status and amounts recognized in the Company's balance sheet
at September 30, 1995 and 1994 are presented below:
<TABLE>
<CAPTION>
1995 1994
----- -----
(IN
THOUSANDS)
<S> <C> <C>
Fair value of plan assets................................... $ -- $ --
----- -----
Actuarial present value of benefit obligations:
Vested benefits........................................... 950 935
Nonvested benefits........................................ -- --
----- -----
Accumulated benefit obligation............................ 950 935
Additional benefits based on projected salary increases... -- --
----- -----
Projected benefit obligation.............................. 950 935
----- -----
Excess of projected benefit obligations over plan assets.... (950) (935)
Unrecognized net loss....................................... -- --
Unrecognized prior service costs............................ -- --
Additional minimum liability................................ -- --
----- -----
Unfunded accrued liability.................................. $(950) $(935)
===== =====
</TABLE>
Qualified Defined Contribution Plan
The Company sponsors a defined contribution plan, the Zapata Profit Sharing
Plan (the "Plan"), for certain eligible employees of the Company. Effective
October 1, 1994, the Company merged a defined contribution plan of Zapata
Protein with and into the Plan. The Company's combined contributions to these
plans totalled $573,225, $577,903 and $473,034 in 1995, 1994 and 1993,
respectively. The Company's contributions are based on employee earnings and
contributions.
NOTE 14. RELATED PARTY TRANSACTIONS
In August 1995, Zapata acquired 31% of the outstanding common stock of
Envirodyne for $18.8 million from a trust controlled by Malcolm Glazer,
Chairman of the Board of Zapata and a director of Envirodyne. Zapata paid the
purchase price by issuing to the seller a subordinated promissory note bearing
interest at prime and maturing in August 1997, subject to prepayment at the
Company's option. The Company has since prepaid approximately $15.6 million on
the promissory note.
During 1995 and 1994, Zapata made purchases totalling $10.4 million and $7.3
million from a company owned by a shareholder and former director of Zapata. At
September 30, 1995, Zapata owed $326,000 related to these purchases.
Zapata received $7,000, $317,000 and $249,000 in 1995, 1994 and 1993,
respectively, from a former director of the Company for use of the Company's
executive aircraft under an arrangement which provided for full recovery of
expenses associated with such use.
During 1995, 1994 and 1993, Zapata received $24,000, $104,000 and $31,000,
respectively, from Norex associated with an administrative services arrangement
pursuant to which Zapata provided office space and certain administrative
services to Norex. See Note 7 and Note 9 for discussions of additional
transactions with Norex.
50
<PAGE> 205
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)
The following information concerning Zapata's oil and gas operations has been
prepared in accordance with Statement of Financial Accounting Standards No. 69,
"Disclosures about Oil and Gas Producing Activities" ("SFAS No. 69"), and
applicable Securities and Exchange Commission (the "SEC") regulations.
In September 1994, Zapata's Board of Directors announced that the Company
would immediately undertake efforts to sell its U.S. natural gas producing
properties. The six properties in the Gulf of Mexico, representing Zapata's
domestic oil and gas producing operations, were sold during fiscal 1995. The
Company completed the sale of its domestic properties in August 1995. Zapata
received cash of $4.0 million and recorded an $8.9 million receivable
representing (i) a production payment entitling Zapata to a share of revenues
from certain properties and (ii) a share of future proceeds from a revenue
sharing agreement. No gain or loss was recorded from the sales. The decision to
sell its U.S. natural gas producing properties did not impact Zapata's Bolivian
oil and gas operations.
The information concerning capitalized costs of oil and gas properties, costs
incurred in property acquisition, exploration and development, and operating
results from oil and gas producing activities is taken from Zapata's accounting
records with the exception of income taxes. Income tax provisions are
calculated using statutory tax rates and reflect permanent differences and tax
credits and allowances relating to oil and gas operations that are reflected in
the Company's consolidated income tax provision for each period. The pretax
income from oil and gas producing activities does not agree with the oil and
gas operations operating income in the industry segment information in Note 16
due to the exclusion of certain nonoperating expenses from the information
shown as required by SFAS No. 69.
51
<PAGE> 206
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
CAPITALIZED COSTS OF OIL AND GAS PROPERTIES
<TABLE>
<CAPTION>
UNITED
STATES BOLIVIA TOTAL
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
1995
Capitalized costs
Evaluated properties............................. $ -- $3,359 $ 3,359
Accumulated depreciation, depletion and
amortization...................................... -- (245) (245)
-------- ------ --------
Net capitalized costs.............................. $ -- $3,114 $ 3,114
======== ====== ========
1994
Capitalized costs
Evaluated properties............................. $ 74,872 $2,194 $ 77,066
Accumulated depreciation, depletion and
amortization...................................... (60,794) (55) (60,849)
-------- ------ --------
Net capitalized costs.............................. $ 14,078 $2,139 $ 16,217
======== ====== ========
</TABLE>
COSTS INCURRED IN PROPERTY ACQUISITION,
EXPLORATION AND DEVELOPMENT ACTIVITIES
<TABLE>
<CAPTION>
UNITED
STATES BOLIVIA TOTAL
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
1995
Expenditures:
Acquisition of unproved properties............... $ -- $ 103 $ 103
Development...................................... 335 1,061 1,396
Sale of proved properties........................ (11,732) -- (11,732)
-------- ------ --------
$(11,397) $1,164 $(10,233)
======== ====== ========
1994
Expenditures:
Development...................................... $ 9,598 $2,194 $ 11,792
======== ====== ========
1993
Expenditures:
Acquisition of unproved properties............... $ 12 $ -- $ 12
Development...................................... (466) -- (466)
-------- ------ --------
$ (454) $ -- $ (454)
======== ====== ========
</TABLE>
52
<PAGE> 207
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
UNITED
STATES BOLIVIA TOTAL
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
1995
Revenues........................................... $ 5,400 $2,709 $ 8,109
Production costs................................... 3,156 1,097 4,253
Depreciation, depletion and amortization........... 2,666 190 2,856
-------- ------ --------
Income before income taxes*........................ (422) 1,422 1,000
Income taxes....................................... (143) 483 340
-------- ------ --------
Net income (loss)*................................. $ (279) $ 939 $ 660
======== ====== ========
1994
Revenues........................................... $ 8,432 $4,117 $ 12,549
Production costs................................... 5,750 518 6,268
Depreciation, depletion and amortization........... 33,715 55 33,770
-------- ------ --------
Income before income taxes*........................ (31,033) 3,544 (27,489)
Income taxes....................................... (10,551) 1,205 (9,346)
-------- ------ --------
Net income (loss)*................................. $(20,482) $2,339 $(18,143)
======== ====== ========
1993
Revenues........................................... $ 17,011 $3,178 $ 20,189
Production costs................................... 5,642 107 5,749
Depreciation, depletion and amortization........... 7,688 -- 7,688
-------- ------ --------
Income before income taxes*........................ 3,681 3,071 6,752
Income taxes....................................... 1,252 1,044 2,296
-------- ------ --------
Net income*........................................ $ 2,429 $2,027 $ 4,456
======== ====== ========
</TABLE>
- - --------
* Before deducting selling, general, administrative and interest expenses.
Oil and gas reserves
During fiscal 1995, the Company sold its U.S. oil and gas properties in the
Gulf of Mexico for $12.9 million which equalled the net book values of the
properties.
The following table contains estimates of proved oil and gas reserves
attributable to Zapata's interest in oil and gas properties, which were
prepared primarily by independent petroleum reserve engineers (Huddleston &
Co., Inc.). Proved reserves are the estimated quantities of natural gas and
liquids (crude oil and condensate) which, based on analysis of geological and
engineering data, appear with reasonable certainty to be recoverable in future
years from known reservoirs under existing economic and operating conditions,
i.e., prices and costs as of the date the estimate is made. Reservoirs are
considered proved if economic productivity is supported by actual production or
conclusive formation testing. Proved developed reserves are reserves that can
be expected to be recovered through existing wells with existing equipment and
operating methods.
It should be stressed that these reserve quantities are estimates and may be
subject to substantial upward or downward revisions as indicated by past
experience. The estimates are based on the most current and reliable
information available; however, additional information obtained through future
production
53
<PAGE> 208
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
experience and additional development of existing reservoirs may significantly
alter previous estimates of proved reserves. Future changes in the level of
hydrocarbon prices relative to the costs to develop and produce reserves can
also result in substantial revisions to proved reserve estimates.
These estimates relate only to those reserves which meet the SEC's definition
of proved reserves and do not consider probable reserves and the likelihood of
their recovery which, if considered, could result in substantial increases in
reported reserves. Future secondary recovery efforts could also yield
additional reserves.
NATURAL GAS AND LIQUIDS RESERVES
<TABLE>
<CAPTION>
UNITED STATES BOLIVIA TOTAL
------------- ------------ -------------
LIQUIDS GAS LIQUIDS GAS LIQUIDS GAS
------- ----- ------- ---- ------- -----
(LIQUIDS IN MILLIONS OF BARRELS, GAS IN
BILLIONS OF CUBIC FEET)
<S> <C> <C> <C> <C> <C> <C>
Proved reserves as of
September 30, 1992................ .4 48.5 .7 21.2 1.1 69.7
Revisions of previous estimates... -- (1.1) -- 3.0 -- 1.9
Production........................ -- (7.0) -- (1.7) -- (8.7)
Purchase of reserves in place..... -- .4 -- -- -- .4
--- ----- --- ---- --- -----
Proved reserves as of
September 30, 1993................ .4 40.8 .7 22.5 1.1 63.3
Revisions of previous estimates... .1 (2.8) .1 6.7 .2 3.9
Production........................ (.1) (3.3) (.1) (1.9) (.2) (5.2)
--- ----- --- ---- --- -----
Proved reserves as of
September 30, 1994................ .4 34.7 .7 27.3 1.1 62.0
Revisions of previous estimates... -- -- -- 3.9 -- 3.9
Production........................ (.1) (3.0) -- (1.7) (.1) (4.7)
Sale of reserves in place......... (.3) (31.7) -- -- (.3) (31.7)
--- ----- --- ---- --- -----
Proved reserves as of
September 30, 1995................ -- -- .7 29.5 .7 29.5
=== ===== === ==== === =====
Proved developed reserves as of
September 30, 1993................ .2 28.2 .7 22.5 .9 50.7
September 30, 1994................ .2 27.4 .7 27.3 .9 54.7
September 30, 1995................ -- -- .7 29.5 .7 29.5
</TABLE>
Standardized measure of discounted future net cash flows
The information presented below concerning the net present value of after-tax
cash flows for Zapata's oil and gas producing operations is required by SFAS
No. 69 in an attempt to make comparable information concerning oil and gas
producing operations available for financial statement users. The information
is based on proved reserves as of September 30 for each fiscal year and has
been prepared in the following manner:
1. Estimates were made of the future periods in which proved reserves
would be produced based on year-end economic conditions.
2. The estimated future production streams of proved reserves have been
priced using year-end prices with the exception that future prices of gas
have been increased for fixed and determinable escalation provisions in
existing contracts.
54
<PAGE> 209
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
3. The resulting future gross cash inflows have been reduced by the
estimated future costs to develop and produce the proved reserves at year-
end cost levels.
4. Income tax payments have been computed at statutory rates based on the
net future cash inflows, the remaining tax basis in oil and gas properties
and permanent differences between book and tax income and tax credits or
other tax benefits available related to the oil and gas operations.
5. The resulting after-tax future net cash flows are discounted to
present value amounts by applying a 10% annual discount factor.
Effective April 1, 1984, the Company changed from accrual to cash basis
revenue recognition for sales from its Bolivia properties in light of economic
and political conditions in Bolivia. Based on the Bolivian oil and gas
company's performance under renegotiated contracts and improved operating
conditions, Zapata returned to the accrual method of accounting for its
Bolivian oil and gas operations in fiscal 1994. In 1994 Zapata participated in
drilling two exploratory wells in its Bolivian operation. In 1995, Zapata
participated in drilling an additional exploratory well. The standardized
measure information below excludes cash flow information relating to the
Bolivian properties prior to 1994.
The net present value of future cash flows, computed as prescribed by SFAS
No. 69, should not be construed as the fair value of Zapata's oil and gas
operations. The computation is based on assumptions that in some cases may not
be realistic and estimates that are subject to substantial uncertainties. Since
the discounted cash flows are based on proved reserves as defined by the SEC,
they are subject to the same uncertainties and limitations inherent in the
reserve estimates, which include among others, no consideration of probable
reserves and stable hydrocarbon prices at year-end levels. The use of a 10%
discount factor by all companies does not provide a basis for quantifying
differences in risk with respect to oil and gas operations among different
companies. The computations also ignore the impact future exploration and
development activities may have on profitability.
55
<PAGE> 210
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED RESERVES
<TABLE>
<CAPTION>
UNITED
STATES BOLIVIA TOTAL
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
1995
Estimated future cash flows
Revenues from hydrocarbon sales.................. $ -- $46,512 $ 46,512
Production costs................................. -- 18,621 18,621
Development costs................................ -- 775 775
-------- ------- --------
Future net cash flows before income taxes.......... -- 27,116 27,116
Estimated income tax payments...................... -- 8,356 8,356
-------- ------- --------
Future net cash flows.............................. -- 18,760 18,760
10% discount....................................... -- 8,359 8,359
-------- ------- --------
Standardized measure of discounted future net cash
flows............................................. $ -- $10,401 $ 10,401
======== ======= ========
1994
Estimated future cash flows
Revenues from hydrocarbon sales.................. $ 51,380 $44,473 $ 95,853
Production costs................................. 19,132 12,010 31,142
Development costs................................ 7,899 825 8,724
Dismantlement and abandonment.................... 7,924 7,924
-------- ------- --------
Future net cash flows before income taxes.......... 16,425 31,638 48,063
Estimated income tax payments...................... 941 10,165 11,106
-------- ------- --------
Future net cash flows.............................. 15,484 21,473 36,957
10% discount....................................... 1,570 10,142 11,712
-------- ------- --------
Standardized measure of discounted future net cash
flows............................................. $ 13,914 $11,331 $ 25,245
======== ======= ========
1993
Estimated future cash flows
Revenues from hydrocarbon sales.................. $104,889 $ -- $104,889
Production costs................................. 28,399 -- 28,399
Development costs................................ 14,960 -- 14,960
-------- ------- --------
Future net cash flows before income taxes.......... 61,530 -- 61,530
Estimated income tax payments...................... 11,283 -- 11,283
-------- ------- --------
Future net cash flows.............................. 50,247 -- 50,247
10% discount....................................... 12,345 -- 12,345
-------- ------- --------
Standardized measure of discounted future net cash
flows............................................. $ 37,902 $ -- $ 37,902
======== ======= ========
</TABLE>
56
<PAGE> 211
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOWS RELATING TO PROVED RESERVES
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure, beginning of year--U.S..... $ 13,914 $ 37,902 $ 47,002
Standardized measure, beginning of year--Bolivia. 11,331 10,312 --
Change in sales prices, net of production
costs......................................... (4,267) (24,990) 8,163
Costs incurred or transferred into the
amortization pool during the period that
reduced estimated future development costs.... 825 4,975 --
Changes in estimated future development and
abandonment costs............................. 9,493 (4,638) (4,679)
Sales, net of production costs................. (3,856) (6,281) (11,369)
Revisions of quantity estimates................ 2,020 3,243 (1,800)
Purchase (sales) of reserves in-place.......... (29,399) 1,098
Accretion of discount.......................... 3,032 4,283 5,397
Net change in income taxes..................... 1,023 (149) 2,048
Changes in production rates and other.......... 6,285 588 (7,958)
-------- -------- --------
Standardized measure, end of year................ $ 10,401 $ 25,245 $ 37,902
======== ======== ========
</TABLE>
NOTE 16. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION (UNAUDITED)
Zapata's continuing businesses are comprised of two industry segments
operating in the U.S. and one foreign country. The marine protein segment is
engaged in menhaden fishing for the production of fish meal and fish oil in the
U.S. The oil and gas segment was engaged in the production of crude oil and
natural gas in the U.S. and Bolivia. In 1995, the Company sold its domestic oil
and gas properties; the Bolivian operations were retained. Export sales of fish
oil and fish meal were approximately $26.7 million, $25.8 million and $12.8
million in 1995, 1994 and 1993, respectively. Such sales were made primarily to
European markets. In 1995, net sales to one customer by the marine protein
segment were approximately $12.3 million.
57
<PAGE> 212
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION (UNAUDITED)--(CONTINUED)
INDUSTRY SEGMENT INFORMATION
<TABLE>
<CAPTION>
OPERATING DEPRECIATION,
INCOME IDENTIFIABLE DEPLETION AND CAPITAL
YEAR ENDED SEPTEMBER 30, REVENUES (LOSS) ASSETS AMORTIZATION EXPENDITURES
- - ------------------------ -------- --------- ------------ ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1995
Marine protein.......... $ 94,959 $ (6,437)(1) $ 85,012 $14,977(1) $ 5,573
Oil and gas............. 8,109 658 13,571 2,856 1,767
Corporate............... -- (3,441) 38,914 115 1
-------- -------- -------- ------- -------
$103,068 $ (9,220) $137,497 $17,948 $ 7,341
======== ======== ======== ======= =======
1994
Marine protein.......... $ 96,614 $ 5,445 $ 87,565 $ 4,535 $ 3,671
Oil and gas............. 12,549 (28,285)(3) 20,062 33,770(3) 11,792
Corporate............... -- (8,767) 44,044(2) 2,321 67
-------- -------- -------- ------- -------
$109,163 $(31,607) $151,671 $40,626 $15,530
======== ======== ======== ======= =======
1993
Marine protein.......... $ 58,565 $ 4,296 $ 92,728 $ 4,510 $ 1,477
Oil and gas............. 20,189 6,032 41,630 7,688 1,327
Corporate............... -- (6,769) 169,888(2) 378 8
-------- -------- -------- ------- -------
$ 78,754 $ 3,559 $304,246 $12,576 $ 2,812
======== ======== ======== ======= =======
</TABLE>
- - --------
(1) Includes a $12.3 million provision for asset impairment to reduce the
marine protein assets to their fair market value as a result of adopting
SFAS 121.
(2) Includes Zapata's investment in Tidewater. See Note 6.
(3) Includes a $29.2 million provision for oil and gas property valuation
required as a result of low gas prices and a revision of estimated future
costs.
58
<PAGE> 213
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED)
CONSOLIDATED QUARTERLY INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
DEC. 31 MAR. 31 JUN. 30 SEP. 30
------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
FISCAL 1995
Revenues...................... $22,357 $22,237 $ 24,199 $ 34,275
======= ======= ======== ========
Operating income (loss)....... $ 311 $ (202) $(11,129)(2) $ 1,800
Other income (expense), net... 145 4,434 (1) (382) (4,000)(4)
Provision (benefit) for income
taxes........................ 181 1,518 (3,964) (914)
------- ------- -------- --------
Income (loss) from continuing
operations................... 275 2,714 (7,547) (1,286)
Income (loss) from
discontinued operations...... 473 217 405 56
Reversal of reserve for loss
on disposition, net of income
taxes........................ -- -- 8,897 (3) --
------- ------- -------- --------
Net income (loss)............. $ 748 $ 2,931 $ 1,755 $ (1,230)
======= ======= ======== ========
Per share:
Income (loss) from continuing
operations................... $ 0.01 $ 0.08 $ (0.25) $ (0.04)
Income from discontinued
operations................... 0.01 0.01 0.31 --
------- ------- -------- --------
Net income (loss)............. $ 0.02 $ 0.09 $ 0.06 $ (0.04)
======= ======= ======== ========
FISCAL 1994
Revenues...................... $24,126 $24,739 $ 22,729 $ 37,569
======= ======= ======== ========
Operating income (loss)....... $ 606 $ 692 $(18,045)(7) $(14,860)(8)
Other income (expense), net... 26,445(5) 3,382 (6) 2,437 (2,086)
Provision (benefit) for income
taxes........................ 9,526 1,668 (5,393) (6,373)
------- ------- -------- --------
Income (loss) from continuing
operations................... 17,525 2,406 (10,215) (10,573)
Income (loss) from
discontinued operations...... (197) (134) 641 1,125
Loss on disposition, net of
income taxes................. -- -- -- (8,897)(9)
------- ------- -------- --------
Net income (loss)............. $17,328 $ 2,272 $ (9,574) $(18,345)
======= ======= ======== ========
Per share:
Income (loss) from continuing
operations................... $ 0.56 $ 0.07 $ (0.33) $ (0.34)
Income (loss) from
discontinued operations...... -- -- 0.02 (0.24)
------- ------- -------- --------
Net income (loss)............. $ 0.56 $ 0.07 $ (0.31) $ (0.58)
======= ======= ======== ========
</TABLE>
- - --------
(1) Includes a pretax gain of $4.8 million from the sale of 673,077 shares of
Tidewater common stock.
(2) Includes a $12.3 million pretax provision for asset impairment to reduce
the marine protein assets to their estimated fair market value that was
recorded in the third and fourth fiscal quarters.
(3) Includes the reversal of an $8.9 million after-tax loss due to the decision
to retain Zapata Protein.
(4) Includes a $2.8 million write-down of an investment in Wherehouse
Entertainment, Inc. debentures.
(5) Includes a pretax gain of $33.9 million from the sale of 3.75 million
shares of Tidewater common stock and a $6.8 million prepayment penalty in
connection with the partial prepayment of Zapata's indebtedness to Norex.
(6) Includes a pretax gain of $3.6 million from the sale of 375,175 shares of
Tidewater common stock.
(7) Includes an $18.8 million valuation provision for oil and gas property
valuation.
(8) Includes a $10.4 million valuation provision for oil and gas property
valuation.
(9) Includes the estimated loss to be realized on disposal of the marine
protein operations.
59
<PAGE> 214
ZAPATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18. SUBSEQUENT EVENT
On December 15, 1995, Zapata completed the Energy Industries Sale after
receiving stockholder approval. Pursuant to the Purchase Agreement, Weatherford
Enterra purchased from the Company all of the assets of Energy Industries.
Consideration received by the Company was approximately $131 million in cash
and the assumption of certain current liabilities of Energy Industries by
Weatherford Enterra, subject to final post-closing adjustments. The cash
portion of the consideration represented a purchase price of $130 million, as
adjusted by a closing date net adjustment provided for in the Purchase
Agreement. The Energy Industries Sale will result in an after-tax book gain of
approximately $14.0 million which will be recognized by the Company in fiscal
1996.
60
<PAGE> 215
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On February 23, 1994, the Board of Directors of Zapata Corporation decided to
change the Company's principal independent accountants from Arthur Andersen &
Co. ("Arthur Andersen") to Coopers & Lybrand L.L.P. During the Company's two
most recently-completed fiscal years and the subsequent interim period
preceding such change there were no disagreements with Arthur Andersen on any
matters of accounting principles or practice, financial statement disclosure,
or auditing scope or procedure, which, if not resolved to the satisfaction of
Arthur Andersen, would have caused it to make a reference to the subject matter
of the disagreement in connection with its report. Arthur Andersen's report on
the Company's financial statements for the two years prior to dismissal did not
contain an adverse opinion or a disclaimer of opinion, nor was it qualified or
modified as to uncertainty, audit scope or accounting principles.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to General Instruction G of Form 10-K, the information called for by
Item 10 of Part III of Form 10-K is incorporated by reference to the
information set forth in the Company's definitive proxy statement relating to
the 1996 Annual Meeting of Stockholders of the Company (the "1996 Proxy
Statement") to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), in response to Items 401
and 405 of Regulation S-K under the Securities Act of 1933, as amended, and the
Exchange Act ("Regulation S-K"), or if the 1996 Proxy Statement is not so filed
within 120 days after September 30, 1995 such information will be included in
an amendment to this report filed not later than the end of such period.
Reference is also made to the information appearing in Item 1 of Part I of this
Annual Report on Form 10-K under the caption "Business and Properties--
Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
Pursuant to General Instruction G of Form 10-K, the information called for by
Item 11 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 1996 Proxy Statement in response to Item 402 of
Regulation S-K, or if the 1996 Proxy Statement is not so filed within 120 days
after September 30, 1995 such information will be included in an amendment to
this report filed not later than the end of such period.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Pursuant to General Instruction G of Form 10-K, the information called for by
Item 12 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 1996 Proxy Statement in response to Item 403 of
Regulation S-K, or if the 1996 Proxy Statement is not so filed within 120 days
after September 30, 1995 such information will be included in an amendment to
this report filed not later than the end of such period.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to General Instruction G of Form 10-K, the information called for by
Item 13 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 1996 Proxy Statement in response to Item 404 of
Regulation S-K, or if the 1996 Proxy Statement is not so filed within 120 days
after September 30, 1995 such information will be included in an amendment to
this report filed not later than the end of such period.
61
<PAGE> 216
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) LIST OF DOCUMENTS FILED.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(1) Consolidated financial statements, Zapata Corporation and
subsidiary companies--
Report of Coopers & Lybrand L.L.P., independent public accountants... 23
Report of Arthur Andersen LLP independent public accountants, dated
December 17, 1993................................................... 24
Consolidated balance sheet--September 30, 1995 and 1994.............. 25
Consolidated statement of operations for the years ended September
30, 1995, 1994 and 1993............................................. 27
Consolidated statement of cash flows for the years ended September
30, 1995, 1994 and 1993............................................. 28
Consolidated statement of stockholders' equity for the years ended
September 30, 1995, 1994 and 1993................................... 29
Notes to consolidated financial statements........................... 30
(2) Supplemental Schedule:
Report of Coopers & Lybrand L.L.P., independent public accountants... 65
I--Zapata Corporation (parent company financial statements)
as of and for the years ended September 30, 1995 and 1994........... 66
</TABLE>
All schedules, except those listed above, have been omitted since the
information required to be submitted has been included in the financial
statements or notes or has been omitted as not applicable or not required.
(3) Exhibits
The exhibits indicated by an asterisk (*) are incorporated by reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2(a)* --Agreement dated as of September 20, 1995 by and among Zapata
Corporation, Energy Industries, Inc., Zapata Energy Industries, L.
P., Enterra Corporation and Enterra Compression Company (Exhibit 2
to Current Report on Form 8-K dated September 20, 1995 (File No.
1-4219)).
3(a)* --Restated Certificate of Incorporation of Zapata filed with
Secretary of State of Delaware May 3, 1994 (Exhibit 3(a) to Current
Report on Form 8-K dated April 27, 1994 (File No. 1-4219)).
3(b)* --Certificate of Designation, Preferences and Rights of $1 Preference
Stock (Exhibit 3(c) to Zapata's Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1993 (File No. 1-4219)).
3(c)* --Certificate of Designation, Preferences and Rights of $100
Preference Stock (Exhibit 3(d) to Zapata's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1993 (File
No. 1-4219)).
3(d) --By-laws of Zapata, as amended effective November 21, 1995.
4(a)* --Second Amended and Restated Master Restructuring Agreement, dated
as of April 16, 1993, between Zapata and Norex Drilling Ltd.
(Exhibit 12 to Zapata's Amendment No. 3 to Schedule 13D dated April
30, 1993).
4(b)* --First Amendment to Second Amended and Restated Master Restructuring
Agreement dated as of May 17, 1993 between Zapata and Norex
Drilling Ltd. (Exhibit 4(c) to Zapata's Registration Statement on
Form S-1 (File No. 33-68034)).
</TABLE>
62
<PAGE> 217
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4(c)* --Second Amendment to Second Amended and Restated Master
Restructuring Agreement, dated as of December 17, 1993, between
Zapata and Norex Drilling Ltd. (Exhibit 4(c) to Zapata's Annual
Report on Form 10-K for the fiscal year ended September 30, 1993
(File No. 1-4219)).
4(d)* --Securities Liquidity Agreement, dated as of December 19, 1990, by
and among Zapata and each of the securities holders party thereto
(Exhibit 4(b) to Zapata's Annual Report on Form 10-K for the fiscal
year ended September 30, 1990 (File No. 1-4219)).
4(e)* --Consent Letter and Waiver dated as of March 7, 1995, by and between
Norex America, Inc. and Zapata (Exhibit 4(e) to Zapata's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1995
(File No. 1-4219)).
</TABLE>
Certain instruments respecting long-term debt of Zapata and its subsidiaries
have been omitted pursuant to Regulation S-K, Item 601. Zapata hereby agrees to
furnish a copy of any such instrument to the Commission upon request.
<TABLE>
<C> <S>
10(a)*+ --Zapata 1990 Stock Option Plan (Exhibit 10(b) to Zapata's Annual
Report on Form 10-K for the fiscal year ended September 30, 1990
(File No. 1-4219)).
10(b)*+ --First Amendment to Zapata 1990 Stock Option Plan (Exhibit 10(c) to
Zapata's Registration Statement on Form S-1 (Registration No. 33-
40286)).
10(c)*+ --Zapata Special Incentive Plan, as amended and restated effective
February 6, 1992 (Exhibit 10(a) to Zapata's Quarterly Report on Form
10-Q for the quarter ended March 31, 1992 (File No. 1-4219)).
10(d)*+ --Zapata 1981 Stock Incentive Plan, as amended and restated effective
February 12, 1986 (Exhibit 19(a) to Zapata's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1986 (File
No. 1-4219)).
10(e)*+ --Zapata Supplemental Pension Plan effective as of April 1, 1992
(Exhibit 10(b) to Zapata's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992 (File No. 1-4219)).
10(f)*+ --Zapata Annual Incentive Plan effective January 1, 1991 (Exhibit
10(h) to Zapata's Registration Statement on Form S-1 (Registration
No. 33-40286)).
10(g)*+ --Cimarron Gas Companies, Inc. Incentive Appreciation Plan, effective
as of September 30, 1992 (Exhibit 2(c) to Zapata's Current Report on
Form 8-K dated November 24, 1992 (File No. 1-4219)).
10(h)*+ --Noncompetition Agreement dated as of November 9, 1993 by and among
Zapata and Peter M. Holt and Benjamin D. Holt, Jr. (Exhibit 10(q) to
Zapata's Annual Report on form 10-K for the fiscal year ended
September 30, 1994 (File No. 1-4219)).
10(i)*+ --Termination Agreement between Cimarron Gas Companies, Inc. and James
C. Jewett dated as of January 24, 1994 (Exhibit 10(a) to Zapata's
Quarterly Report on Form 10-Q for the fiscal quarter ended December
31, 1993 (File No. 1-4219)).
10(j)*+ --Consulting Agreement dated as of July 1, 1994 between Zapata
Corporation and Thomas H. Bowersox (Exhibit 10(w) to Zapata's Annual
Report on Form 10-K for the fiscal year ended September 30, 1994
(File No. 1-4219)).
10(k)*+ --Consulting Agreement between Ronald C. Lassiter and Zapata dated as
of July 15, 1994 (Exhibit 10(a) to Zapata's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1994 (File No. 1-4219)).
10(l)*+ --Employment Agreement between Lamar C. McIntyre and Zapata dated as
of October 1, 1994 (Exhibit 10(v) to Zapata's Annual Report on Form
10-K for the fiscal year ended September 30, 1994 (File
No. 1-4219)).
</TABLE>
63
<PAGE> 218
<TABLE>
<C> <S>
10(m)*+ --Purchase Agreement dated as of April 10, 1995 by and between Norex
America, Inc. and Zapata relating to 2,250,000 shares of Zapata
Common Stock (Exhibit 10(c) to Zapata's Quarterly Report on Form 10-
Q for the fiscal quarter ended March 31, 1995 (File No. 1-4219)).
10(n)*+ --Assignment and Assumption of Consulting Agreement effective as of
July 1, 1995 by and between Zapata and Zapata Protein, Inc. (Exhibit
10(b) to Zapata's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1995 (File No. 1-4219)).
10(o) --Stock Purchase Agreement dated as of August 7, 1995 between Zapata
Corporation and Malcolm I. Glazer.
10(p)+ --Mutual Release Agreement dated as of December 1, 1995 by and among
Zapata Corporation, Cimarron Gas Holding Company, Robert W. Jackson
and the Robert W. Jackson Trust.
21 --Subsidiaries of the Registrant.
23(a) --Consent of Huddleston & Co., Inc.
23(b) --Consent of Coopers & Lybrand L.L.P.
23(c) --Consent of Arthur Andersen LLP.
24 --Powers of attorney.
27 --Financial Data Schedule.
</TABLE>
- - --------
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit pursuant to the requirements of Item 14(c) of Form 10-K.
(B) REPORTS ON FORM 8-K.
Current Report on Form 8-K dated September 20, 1995 announcing (1) that
Zapata, Energy Industries, Inc. and Zapata Energy Industries, L. P.
(collectively "Energy Industries") had entered into an agreement with Enterra
Corporation and Enterra Compression Company (collectively "Enterra") pursuant
to which Enterra agreed to purchase substantially all of the assets, and assume
certain liabilities, of Energy Industries; and (2) that the Malcolm I. Glazer
Trust ("Trust") executed a letter to Enterra Corporation agreeing to vote the
shares owned by the Trust in accordance with the recommendation of the
Company's Board of Directors.
(C) FINANCIAL STATEMENT SCHEDULE.
Filed herewith as a financial statement schedule is the schedule supporting
Zapata's consolidated financial statements listed under paragraph (a) of this
Item, and the Independent Public Accountants' Report with respect thereto.
64
<PAGE> 219
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
Zapata Corporation
Our report on the consolidated financial statements of Zapata Corporation and
subsidiaries as of and for the years ended September 30, 1995 and 1994, is
included on page 23 of this Form 10-K. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule for the year ended September 30, 1995 listed in Item 14(a)(2) of this
Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included herein.
Coopers & Lybrand L.L.P.
Houston, Texas
December 15, 1995
65
<PAGE> 220
SCHEDULE I
ZAPATA CORPORATION
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 1,418 $ 11,096
Receivables.............................................. 1,361 700
Prepaid expenses and other current assets................ 1,961 1,918
-------- --------
Total current assets................................... 4,740 13,714
-------- --------
Investments and other assets:
Investments in and advances to subsidiaries*............. 155,135 175,029
Investments in unconsolidated affiliates and equity
securities.............................................. 18,235 14,471
Other assets............................................. 14,881 5,626
-------- --------
Total investments and other assets..................... 188,251 195,126
-------- --------
Property and equipment:
Cost..................................................... 3,363 5,213
Accumulated depreciation, depletion and amortization..... (3,080) (3,316)
-------- --------
283 1,897
-------- --------
Total assets........................................... $193,274 $210,737
======== ========
Current liabilities:
Notes payable............................................ $ 792 $ --
Current maturities of long-term debt..................... 4,795 --
Accrued liabilities...................................... 1,597 2,871
Accrued interest......................................... 513 533
Income taxes payable..................................... 16 268
-------- --------
Total current liabilities.............................. 7,713 3,672
-------- --------
Long-term debt............................................. 28,674 43,363
-------- --------
Other liabilities.......................................... 11,597 9,160
-------- --------
Stockholders' equity....................................... 145,290 154,542
-------- --------
Total liabilities and stockholders' equity............. $193,274 $210,737
======== ========
</TABLE>
- - --------
* Eliminated in consolidation.
This condensed statement should be read in conjunction with the Consolidated
Financial Statements and Notes thereto which are included in Item 8 herein.
66
<PAGE> 221
SCHEDULE I
(continued)
ZAPATA CORPORATION
(PARENT COMPANY ONLY)
CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1995 1994
------- --------
(IN THOUSANDS)
<S> <C> <C>
Expenses:
Depreciation.............................................. $ 115 $ 2,321
General and administrative................................ 1,693 4,127
------- --------
1,808 6,448
------- --------
Operating loss.............................................. (1,808) (6,448)
------- --------
Other income (expense):
Interest income........................................... 468 841
Interest expense.......................................... (1,586) (3,949)
Gain on sale of Tidewater common stock.................... 4,811 37,457
Equity in income (loss) of subsidiaries................... 1,967 (23,897)
Other..................................................... 1,584 (4,429)
------- --------
7,244 6,023
------- --------
Income (loss) before income taxes........................... 5,436 (425)
Provision (benefit) for income taxes........................ 1,232 7,894
------- --------
Net income (loss)........................................... $ 4,204 $ (8,319)
======= ========
</TABLE>
This condensed statement should be read in conjunction with the
Consolidated Financial Statements and Notes thereto which are included in Item
8 herein.
67
<PAGE> 222
SCHEDULE I
(continued)
ZAPATA CORPORATION
(PARENT COMPANY ONLY)
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flow used by operating activities:
Net income (loss)........................................ $ 4,204 $ (8,319)
-------- --------
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Depreciation........................................... 115 2,321
Gain on sale of assets................................. (5,268) (37,457)
Equity in loss of subsidiaries......................... 2,686 23,897
Changes in assets and liabilities:
Receivables.......................................... (661) (700)
Accounts payable and accrued liabilities............. (444) (991)
Deferred income taxes................................ 1,443 (4,137)
Other assets and liabilities......................... (5,388) 5,844
-------- --------
Total adjustments.................................. (7,517) (11,223)
-------- --------
Net cash provided (used) by operating activities... (3,313) (19,542)
-------- --------
Cash flow provided by investing activities:
Proceeds from sale of assets............................. 14,481 85,853
Restricted cash investments.............................. -- 74,083
Advances from subsidiaries............................... 20,127 23,137
Business acquisitions, net of cash acquired.............. -- (73,222)
Capital expenditures..................................... (1) (67)
-------- --------
Net cash provided by investing activities.......... 34,607 109,784
-------- --------
Cash flow used by financing activities:
Borrowings............................................... 1,419 --
Principal payments of long-term obligations.............. (29,475) (85,524)
Common stock buyback..................................... (9,508) --
Preferred stock redemption............................... (2,255) (2,245)
Dividend payments........................................ (1,153) (1,566)
-------- --------
Net cash used by financing activities.............. (40,972) (89,335)
-------- --------
Net increase (decrease) in cash and cash equivalents....... (9,678) 907
Cash and cash equivalents at beginning of year............. 11,096 10,189
-------- --------
Cash and cash equivalents at end of year................... $ 1,418 $ 11,096
======== ========
</TABLE>
This condensed statement should be read in conjunction with the
Consolidated Financial Statements and Notes thereto which are included in Item
8 herein.
68
<PAGE> 223
SCHEDULE I
(concluded)
ZAPATA CORPORATION
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. LONG-TERM OBLIGATION
Zapata Corporation leases office space in accordance with an agreement that
expires in August 2002. Such office space has been fully subleased. In
accordance with the lease agreement annual payments are approximately $480,000
until August 31, 1997 and approximately $629,000 thereafter, however, the lease
payments are fully offset by the sublease receipts.
NOTE 2. ANNUAL MATURITIES OF LONG-TERM DEBT
The annual maturities of long-term debt for the five years ending September
30, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
---- ------- ---- ---- ----
<S> <C> <C> <C> <C>
$5,587 $18,802 $-- $-- $--
</TABLE>
NOTE 3. RECLASSIFICATIONS
Certain reclassifications of prior year information have been made to conform
with current year presentation. These reclassifications had no effect on net
income (loss), total assets or stockholders' equity.
This condensed statement should be read in conjunction with the
Consolidated Financial Statements and Notes thereto which are included in Item
8 herein.
69
<PAGE> 224
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Zapata Corporation
(Registrant)
By Lamar C. McIntyre
----------------------------------
(Lamar C. McIntyre
Vice President, Chief Financial
Officer, Treasurer and Assistant
Secretary)
December 20, 1995
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Avram A. Glazer* President and Chief December 20, 1995
- - ------------------------------------ Executive Officer (Principal
(Avram A. Glazer) Executive Officer)
Lamar C. McIntyre Vice President, Chief December 20, 1995
- - ------------------------------------ Financial Officer,
(Lamar C. McIntyre) Treasurer and Assistant
Secretary (Principal
Financial and Accounting
Officer)
Malcolm I. Glazer* +++
- - ------------------------------------ +
(Malcolm I. Glazer) +
+
Ronald C. Lassiter* +
- - ------------------------------------ +
(Ronald C. Lassiter) ++ Directors of the Registrant December 20, 1995
+
Robert V. Leffler, Jr.* +
- - ------------------------------------ +
(Robert V. Leffler, Jr.) +
+
W. George Loar* +++
- - ------------------------------------
(W. George Loar)
*By: Lamar C. McIntyre
---------------------------------
(Lamar C. McIntyre,
Attorney-in-Fact)
</TABLE>
70
<PAGE> 225
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended September 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______ to ______
COMMISSION FILE NUMBER: 1-4219
ZAPATA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
STATE OF DELAWARE C-74-1339132
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1717 ST. JAMES PLACE, SUITE 550
HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 940-6100
_________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ---------------------------------
Common Stock, $0.25 par value New York Stock Exchange
10 1/4% Subordinated Debentures due 1997 New York Stock Exchange
10 7/8% Subordinated Debentures due 2001 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
$2 Noncumulative Convertible Preference Stock, $1 par value.
On December 15, 1995, there were outstanding 29,548,407 shares of the
Company's Common Stock, $0.25 par value. The aggregate market value of the
Company's voting stock held by nonaffiliates of the Company is $64,660,407,
based on the closing price in consolidated trading on December 15, 1995, for the
Company's Common Stock and the value of the number of shares of Common Stock
into which the Company's $2 Noncumulative Convertible Preference Stock was
convertible on such date.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X , No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
-----
Documents incorporated by reference: None
<PAGE> 226
The information appearing in Item 3 of Part I of the Company's Annual
Report on Form 10-K for the year ended September 30, 1995 is amended to read in
its entirety as set forth below.
ITEM 3. LEGAL PROCEEDINGS
On August 11, 1995, a purported derivative action (the "Harwin Case")
was filed by Elly Harwin against the Company and its then directors in the Court
of Chancery of the State of Delaware, New Castle County. On January 18, 1996, a
second purported derivative action (the "Crandon Case") was filed by Crandon
Capital Partners against the Company and its directors in the same court.
The complaint filed in the Harwin Case alleges that the Company's directors
engaged in conduct constituting breach of fiduciary duty and waste of the
Company's assets in connection with the Company's investment in Envirodyne. The
complaint filed in the Crandon Case makes similar allegations concerning the
Company's investment in Envirodyne and makes more general allegations of breach
of fiduciary duty and waste in connection with the decision to shift the
Company's business focus from energy to food services. Both complaints allege,
among other things, that the purchase of the Envirodyne common stock from Mr. M.
Glazer's affiliate was a wrongful expenditure of the Company's funds and was
designed to permit Mr. M. Glazer to obtain personal financial advantage to the
detriment of the Company. The complaints also allege that the Company's Board
of Directors is controlled by Mr. M. Glazer, and in that connection, one or both
complaints variously allege that Mr. Loar lacks independence from Mr. M. Glazer
because he was employed by a corporation indirectly controlled by Mr. M. Glazer
until his retirement (which occurred more than five years ago), that Mr. Leffler
lacks such independence because he has served as a paid consultant to Mr. M.
Glazer, that Mr. A. Glazer lacks such independence because of familial
relationship and that Messrs. Lassiter and Holt lack such independence by reason
of employment or consulting relationships with the Company. The complaint filed
in the Harwin Case seeks relief including, among other things, rescission of the
Company's purchase of the shares of Envirodyne common stock from the trust
controlled by Mr. M. Glazer, voiding of the election of Messrs. Leffler and Loar
as directors at the Company's Annual Meeting of Stockholders held on July 27,
1995 and an award of unspecified compensatory damages and expenses, including
attorneys' fees. The complaint filed in the Crandon Case seeks relief
including, among other things, an accounting from the individual defendants for
unspecified damages and profits and an award of costs and disbursements,
including attorneys' fees. The Company believes that both complaints and the
allegations contained therein are without merit and intends to defend both cases
vigorously. In the Harwin Case, the Company and the individual defendants have
filed motions to dismiss on the basis that the plaintiff has neither made the
requisite demand on the Board of Directors prior to filing the lawsuit nor
alleged sufficient grounds for failure to make a demand and that the complaint
fails to state a proper claim for relief. The Company has not yet been served
with legal process in the Crandon Case.
On November 16, 1995, a petition was filed in the 148th Judicial
District Court of Nueces County, Texas by Peter M. Holt, a former director of
the Company, and certain of his affiliates who sold their interests in Energy
Industries to the Company in November 1993 (collectively, with Mr. Holt, the
"Holt Affiliates"). The petition lists the Company, Mr. M. Glazer and Mr. A.
Glazer as defendants and alleges several causes of action based on alleged
misrepresentations on the part of the defendants concerning the Company's intent
to follow a long-term development strategy focusing its efforts on the natural
gas services business. The petition does not allege a breach of any provision of
the purchase agreement pursuant to which the Company acquired Energy Industries
from the Holt Affiliates, but alleged that various representatives of the
Company and Mr. M. Glazer made representations to Mr. Holt regarding Zapata's
intention to continue in the natural gas services industry. Among the remedies
sought by the petition are the following requests: (i) the Company's repurchase
of the approximately 2.8 million shares of Zapata Common Stock owned by the Holt
Affiliates for $15.6 million, an amount that represents a premium of
approximately $4.7 million, or more than 40%, over the market value of such
number of shares based on the closing price of Zapata's Common Stock on November
16, 1995; (ii) the disgorgement to the Holt Affiliates of Zapata's profit on its
sale of Energy Industries; or (iii) money damages based on the alleged lower
value of the Common Stock had the alleged misrepresentations not been made. The
Company believes that the petition and the allegations made therein are without
merit and intends to defend the case vigorously.
2
<PAGE> 227
From time to time, the Company is involved in litigation relating to
claims arising out of its operations in the normal course of its business. The
Company maintains insurance coverage against potential claims in an amount
it believes to be adequate. In the opinion of management, uninsured losses, if
any, resulting from these matters and from the matters discussed above will not
have a material adverse effect on Zapata's results of operations, cash flows or
financial position.
================================================================================
The information appearing in Part III of the Company's Annual Report
on Form 10-K for the year ended September 30, 1995 is amended to read in its
entirety as set forth below.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under "Items 1. and 2. Business and
Properties--Executive Officers of the Registrant" is incorporated herein by
reference.
Set forth below is information respecting the directors of the
Company. Each director is elected for a term of three years and serves until
his successor is elected and qualified. Ages given are as of December 15, 1995.
Malcolm I. Glazer, a director since 1993, has served as Chairman of
the Board of Directors since July 1994, and served as President and Chief
Executive Officer of Zapata from August 1994 until March 1995. He also has been
a self-employed, private investor for more than the past five years. His
diversified portfolio consists of ownership of the Tampa Bay Buccaneers National
Football League franchise and investments in television broadcasting,
restaurants, food services equipment, health care, banking, real estate, stocks,
government securities and corporate bonds. He is a director and Chairman of the
Board of The Houlihan's Restaurant Group, Inc., and also is a director of
Specialty Equipment Companies, Inc. and Envirodyne Industries, Inc. He is 67
years of age and serves on the Nominating Committee of the Company's Board of
Directors. His current term of office as a director expires in 1996.
Avram A. Glazer, a director since 1993, has served as President and
Chief Executive Officer of the Company since March 1995. For the past five
years, he has been employed by, and has worked on behalf of, Malcolm I. Glazer
and a number of entities owned and controlled by Malcolm I. Glazer. He also
serves as a director of Envirodyne Industries, Inc., The Houlihan's Restaurant
Group, Inc. and Specialty Equipment Companies, Inc. He is 35 years of age and
his current term of office as a director expires in 1997. Avram A. Glazer is
the son of Malcolm I. Glazer.
Ronald C. Lassiter, a director since 1974, has been the Chairman and
Chief Executive Officer of Zapata Protein, Inc. (a wholly owned subsidiary of
the Company) since January 1993. He served as Acting Chief Operating Officer of
Zapata from December 1994 to March 1995, Chairman of the Board of Directors of
Zapata from December 1985 to July 1994, Chief Executive Officer of Zapata from
January 1983 to July 1994, and various other positions with Zapata since 1970.
Mr. Lassiter is also a director of Daniel Industries, Inc. He is 63 years of
age and serves on the Compensation Committee of the Company's Board of
Directors. His current term of office as a director expires in 1996.
Robert V. Leffler, Jr. has served as a director since May 1995. For
more than the past five years, he has operated the Leffler Agency, an
advertising and marketing/public relations firm in Baltimore, Maryland that
specializes in sports, rental real estate and medical areas. Mr. Leffler is 50
years of age and serves on the Audit Committee and the Compensation Committee of
the Company's Board of Directors. His current term of office as a director
expires in 1998.
3
<PAGE> 228
W. George Loar has served as a director since May 1995. Mr. Loar has
been retired for the past five years from his position as Vice President and
General Manager of KQTV, a St. Joseph, Missouri ABC-affiliated television
station. He is 73 years of age and serves on the Audit Committee and the
Nominating Committee of the Company's Board of Directors. His current term of
office as a director expires in 1998.
Based solely upon a review of copies of Forms 3 and 4 and amendments
thereto furnished to the Company during the fiscal year ended September 30, 1995
and Forms 5 and amendments thereto with respect to such year and certain written
representations that no Form 5 is required, the Company is not aware of any
failure on the part of any person subject to Section 16 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), with respect to the
Company during fiscal 1995 to file on a timely basis any form or report required
by Section 16(a) of the Exchange Act during such fiscal year or prior fiscal
years. However, the Company has not received copies of Form 5s from any of the
following former officers and directors of the Company with respect to fiscal
1995 (each of whom served as an officer, director or both of Zapata for all or a
part of fiscal 1995), and has not received a written representation from any of
such persons that no Form 5 was required with respect to such fiscal year: Peter
M. Holt, Robert W. Jackson, Joseph B. Mokry and Kristian Siem.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth information regarding compensation with
respect to the fiscal years ended September 30, 1995, 1994 and 1993 for services
in all capacities rendered to the Company and its subsidiaries by the persons
who served as chief executive officer during fiscal 1995, the four most highly
compensated executive officers of the Company other than the chief executive
officer who were serving as executive officers on September 30, 1995 and one
additional individual who would have been in that category but for the fact that
he was not serving as an executive officer on September 30, 1995 (the "Named
Officers").
4
<PAGE> 229
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------ ALL OTHER
SALARY BONUS COMP.
NAME AND PRINCIPAL POSITION YEAR $ $ ($)
- - ---------------------------------------- ---- -------- -------- ---------
<S> <C> <C> <C> <C>
Avram A. Glazer, President and 1995 192,634 -- --
Chief Executive Officer (1)
Malcolm I. Glazer, Chairman (2) 1995 11,250 -- --
1994 29,800 -- --
Ronald C. Lassiter, Chairman and 1995 196,220 -- --
Chief Executive Officer of 1994 361,779 -- --
Zapata Protein, Inc. (3) 1993 358,600 175,000 2,100 (8)
Robert W. Jackson, President and 1995 200,000 -- --
Chief Executive Officer of 1994 200,000 -- --
Cimarron (4) 1993 200,000 -- --
Joseph B. Mokry, President and 1995 192,855 83,460 --
Chief Operating Officer of 1994 172,260 100,080 8,512 (8)
Energy Industries, Inc. (5)
Lamar C. McIntyre, Vice President, 1995 131,943 -- 7,800 (8)
Chief Financial Officer and 1994 113,881 -- 2,230 (8)
Assistant Secretary (6) 1993 108,964 18,000 2,382 (8)
Bruce K. Williams, Chairman, President 1995 140,434 -- 22,645 (7)
and Chief Executive Officer of 1994 160,824 39,000 3,596 (8)
Zapata Exploration Company (7) 1993 156,240 54,684 3,193 (8)
</TABLE>
________________
(1) In March 1995, Mr. A. Glazer was elected as President and Chief Executive
Officer. In addition to regular salary, the amount shown in the "Salary"
column includes director and board committee fees for the portion of the
fiscal year during which Mr. A. Glazer was not an executive officer.
(2) Mr. M. Glazer currently serves as Chairman, and served as President and
Chief Executive Officer from August 1994 to March 1995. He received no
compensation during the period for acting in these capacities other than
director and board committee fees, which are included in the "Salary"
column.
(3) Amounts in the "Salary" column include amounts paid to Mr. Lassiter under
the consulting agreement described below under "Employment Agreements and
Other Incentive Plans."
(4) Mr. Jackson ceased serving as an executive officer effective December 1,
1995.
(5) In connection with the sale of the assets of Energy Industries, Mr. Mokry
ceased serving as an executive officer in December 1995.
(6) Mr. McIntyre ceased serving as an executive officer of the Company
effective January 15, 1996.
5
<PAGE> 230
(7) In connection with the closing of the sale of the assets of Zapata
Exploration Company, Mr. Williams ceased serving as an executive officer on
August 14, 1995. The amount included in the "All Other Compensation"
column for 1995 includes amounts paid to Mr. Williams under the Consulting
Agreement described below under "Employment Agreements and Other Incentive
Plans."
(8) The amounts indicated represent the Company's contributions to its profit-
sharing plan.
While the officers of the Company receive benefits in the form of
certain perquisites, none of the Named Officers has received perquisites which
exceed in value the lessor of $50,000 or 10% of such officer's salary and bonus
for any of the fiscal years shown in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE MONEY OPTIONS
SHARES UNEXERCISED OPTIONS AT FISCAL YEAR-END
ACQUIRED VALUE AT FISCAL YEAR-END -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- - ----------------------- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Avram A. Glazer........ 0 0 13,333/6,667 0/0
Malcolm I. Glazer...... 0 0 13,333/6,667 0/0
Ronald C. Lassiter..... 244,000 $289,750 0/0 0/0
Robert W. Jackson...... 0 0 0/0 0/0
Lamar C. McIntyre...... 0 0 42,000/0 $52,500/0
Joseph B. Mokry........ 0 0 0/0 0/0
Bruce K. Williams...... 98,000 $122,500 0/0 0/0
</TABLE>
The options included in the foregoing table were granted in 1990 under
Zapata's 1990 Stock Option Plan, except in the case of Messrs. A. Glazer and M.
Glazer, whose options were granted in 1993 under the Company's Amended and
Restated Special Incentive Plan with respect to their service as nonemployee
directors. The options were granted at market value on the date of grant and are
exercisable in cumulative one-third installments commencing one year from the
date of grant, with full vesting occurring on the third anniversary of the grant
date. On September 30, 1995, the closing price of Common Stock on the NYSE was
$4.375 per share. No options were granted to any of the Named Officers in fiscal
1995.
PENSION PLAN INFORMATION
Effective January 15, 1995, the Company amended its Pension Plan to
provide that highly compensated employees (those having covered annual
compensation in excess of $66,000) will not earn additional benefits under the
plan after that date. In addition, the Company terminated its Supplemental
Pension Plan except with respect to benefits already accrued. Messrs. A.
Glazer, M. Glazer, Jackson and Mokry are not participants in the Pension Plan
or the Supplemental Pension Plan. Mr. Lassiter retired for purposes of the
Pension Plan effective August 1, 1994 and receives annual benefits of $87,860
under the Pension Plan and $101,512 under the Supplemental Pension Plan. Mr.
McIntyre's estimated annual benefit under the Pension Plan is $48,941.00
(assuming payments commence after Mr. McIntyre reaches age 61 on a single-life
annuity basis). Mr. Williams will be eligible to receive annual benefits under
the Pension Plan when he turns 55 years of age.
EMPLOYMENT AGREEMENTS AND OTHER INCENTIVE PLANS
Effective as of March 15, 1991, Zapata entered into an employment
agreement with Mr. Lassiter. The agreement provided for continuation of salary
for a three-year period following termination of
6
<PAGE> 231
employment under certain circumstances occurring within two years after a change
of control. A "change of control" for purposes of this provision occurred in
July 1992. As a result of the change in Mr. Lassiter's responsibilities in July
1994, Mr. Lassiter terminated his employment under this provision of his
contract. Subsequently, Mr. Lassiter entered into a consulting agreement (the
"Consulting Agreement") with the Company under which he agreed to serve as
Chairman and Chief Executive Officer of Zapata Protein, Inc. for the same
aggregate compensation he would have been entitled to receive under the
termination provisions of the employment agreement, with the payment schedule
deferred over a more extended period of time so long as Mr. Lassiter continues
to serve under the Consulting Agreement. The payments to Mr. Lassiter under the
provisions of the Consulting Agreement are included in the "Salary" column of
the Summary Compensation Table.
Effective as of September 30, 1992, Cimarron entered into an
employment agreement with Robert W. Jackson (the "Jackson Agreement"). The
Jackson Agreement provided for Mr. Jackson's continuing employment as President,
Chief Executive Officer and Director of Cimarron for a period of five years and
contained provisions requiring salary continuation payments for the remainder of
the term of the agreement in the event of a termination without cause or a
voluntary resignation for "good reason." On December 1, 1995, the Company and
Cimarron entered into a Mutual Release Agreement (the "Mutual Release
Agreement") with Mr. Jackson, pursuant to which Mr. Jackson resigned from his
position as Chairman, President and Chief Executive Officer of Cimarron, and the
parties compromised, settled and resolved all rights and obligations pursuant to
all contracts, agreements or benefit plans by or among the parties, as well as
all controversies among them. Under the Mutual Release Agreement, the Jackson
Agreement was terminated and Zapata and Cimarron agreed to make a one-time
payment of $306,534 to Mr. Jackson, representing the present value of the
continuing payments that would have been due under the Jackson Agreement, less a
negotiated amount reflecting settlement of certain unresolved disputes and early
termination of certain other various agreements.
Effective October 1, 1994, the Company entered into an employment
agreement with Mr. McIntyre. The agreement provided for continuing employment of
Mr. McIntyre as Vice President, Treasurer and Chief Financial Officer until
December 17, 1998 at a compensation level at least equal to Mr. McIntyre's base
salary as of October 1, 1994. The agreement provided that if Zapata terminated
Mr. McIntyre's employment for any reason other than for cause, Zapata would be
obligated to pay Mr. McIntyre's base salary in effect on September 30, 1994
(approximately $8,825 per month) until December 17, 1998. The Company
terminated Mr. McIntyre's employment effective January 15, 1996, thereby
triggering the Company's obligation to make such payments through December 17,
1998.
Effective March 15, 1991, the Company entered into an employment
agreement with Mr. Williams. As a result of the termination of his employment on
August 14, 1995, Mr. Williams will receive payments for three years equivalent
to his base salary in effect at the time of the termination ($163,116 annually).
Effective August 16, 1995, Zapata Exploration Company, a wholly owned subsidiary
of the Company ("Zapex"), entered into a consulting agreement (the "Consulting
Agreement") with Mr. Williams whereby he agreed to provide services including
operational oversight for Zapex's Bolivia investment, direction of the winding-
down of Zapex's domestic oil and gas operations, and other services in exchange
for a monthly payment equal to a retainer plus an hourly fee. The Consulting
Agreement is terminable by either Zapex or Mr. Williams upon written notice of
an election to terminate which such termination shall be effective upon the last
day of the month following the month during which any such notice is given.
Payments to Mr. Williams under the provisions of the Consulting Agreement during
the portion of fiscal 1995 following the termination of his employment are
included in the "All Other Compensation" column of the Summary Compensation
Table.
COMPENSATION OF DIRECTORS
During the year ended September 30, 1995, those members of Zapata's
Board of Directors who were not employees of the Company were paid an annual
retainer of $20,000, plus $1,000 for each Committee of the Board on which a
Board member served. Effective April 1, 1995, the Company changed the payment
schedule of directors' fees from an annual payment of $20,000 to a quarterly
retainer of $5,000. Those directors who are also Zapata employees do not
receive any additional compensation for their services as directors.
7
<PAGE> 232
Pursuant to the Company's Amended and Restated Special Incentive Plan,
each nonemployee director of the Company automatically receives, following
initial appointment or election to the Board of Directors, a grant of options to
purchase 20,000 shares of the Company's Common Stock at the fair market value on
the date of the grant. Each such option is exercisable in three equal annual
installments after the date of the grant.
In November 1993, Peter M. Holt and Zapata entered into a three-year
Consulting Agreement pursuant to which Zapata agreed to pay Mr. Holt an annual
consulting fee of $200,000 for the first year, $150,000 for the second year and
$130,000 for the third year. Pursuant to the Consulting Agreement, during the
first 18 months of its term, Mr. Holt served in the capacity of Chairman and
Chief Executive Officer of the divisions or subsidiaries of the Company engaged
in the natural gas compression business, and had the title of Chairman and Chief
Executive Officer. The Consulting Agreement provided that, commencing in May
1995 and for the remaining 18 months of the term of the Consulting Agreement,
Mr. Holt would serve as Chairman of such divisions or subsidiaries. Mr. Holt
also served as the Chief Executive Officer of such divisions or subsidiaries.
In November 1995, Mr. Holt resigned from the Board of Directors of the Company
and from all of his management and board positions with affiliates of the
Company, thereby terminating the Company's remaining obligations under the
Consulting Agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the fiscal year ended September 30, 1995, the Compensation
Committee of the Board of Directors (the "Committee") was initially comprised of
Malcolm I. Glazer, Avram A. Glazer, Peter M. Holt, Daniel P. Whitty and Ronald
C. Lassiter (as a nonvoting member). Mr. Whitty served on the Committee until
his resignation from the Board of Directors in November 1994. Mr. M. Glazer
resigned from the Committee on December 29, 1994 and was replaced by Myrl S.
Gelb, who served on the committee from that date until his resignation from the
Board of Directors in May 1995. Mr. Robert V. Leffler, Jr. became a member of
the Committee in May 1995. Mr. Lassiter became a voting member of the Committee
in September 1995. Mr. Holt's membership on the Committee ceased when he
resigned from the Board in November 1995. Mr. A. Glazer resigned from the
Committee in January 1996. Committee members M. Glazer, A. Glazer, Holt and
Lassiter were officers of the Company (or one or more of its subsidiaries)
during the fiscal year ended September 30, 1995.
In November 1993, the Company purchased the natural gas compression
business of Energy Industries for an aggregate of $74 million in cash and
2,700,000 shares of the Company's Common Stock. At the time of the acquisition,
Mr. Holt was the chief executive officer of Energy Industries, as well as its
majority shareholder. In fiscal 1995, the Company made indemnification claims
against Mr. Holt and the other sellers aggregating approximately $7 million
under the purchase agreement relating to the Company's acquisition of Energy
Industries. As of January 26, 1996, such claims remained unresolved. In
connection with the acquisition of Energy Industries, the Company entered into a
three-year noncompetition agreement and a three-year Consulting Agreement with
Mr. Holt. These agreements were not affected by the Energy Industries Sale.
However, as a result of Mr. Holt's resignation in November 1995, the Company's
obligations under the Consulting Agreement were terminated. See "Compensation of
Directors," above.
During fiscal 1995, Energy Industries purchased Caterpillar engines
and parts from Holt Company of Texas, a corporation owned by Mr. Holt, for
consideration totalling $10.4 million. At September 30, 1995, Energy Industries
owed $326,000 related to these purchases. The Company believes that such
payments are comparable to those that would have been made to nonaffiliated
entities for comparable products.
For information on a lawsuit filed by Mr. Holt against the Company,
see, Part I, Item 3. "Legal Proceedings," above.
On February 14, 1995, the Company entered into a stock purchase
agreement with ZP Acquisition Corp. ("ZP") for the sale of Zapata Protein, Inc.
R. C. Lassiter held an ownership interest in ZP, which
8
<PAGE> 233
committed to buy all of the issued and outstanding shares of Zapata Protein for
$56 million. ZP and its guarantors failed to close the transaction and perform
their obligations under the purchase agreement and related guaranty agreement.
The Company has filed a lawsuit in the District Court of Harris County, Texas,
number 95-26579, styled Zapata Corporation v. ZP Acquisition Corp., et al,
seeking to recover all damages arising from the failure to close the Zapata
Protein transaction.
In August 1995, the Company purchased 4,189,298 shares, or 31%, of the
common stock of Envirodyne for $18.8 million from a trust controlled by Malcolm
I. Glazer. Mr. M. Glazer is also a director of Envirodyne. Such shares
represented all of Mr. M. Glazer's ownership interest in Envirodyne. The
Company paid the purchase price by issuing a subordinated promissory note in a
principal amount of $18.8 million, bearing interest at the prime rate and
maturing in August 1997, subject to prepayment at the Company's option. This
transaction was approved by a special committee of the Company's Board of
Directors comprised of Messrs. Lassiter, Leffler and Loar. The Company prepaid
the entire principal amount of the promissory note during the first quarter of
fiscal 1996.
In September 1995, Zapata's Board of Directors established a Special
Committee for the purpose of investigating the legal and financial
considerations of one or more merger or acquisition transactions involving the
Company and Houlihan's Restaurant Group, Inc. ("Houlihan's") and Speciality
Equipment Companies, Inc. ("Specialty"). Mr. M. Glazer and members of his family
beneficially own approximately 73% and 45% of the outstanding common stock of
Houlihan's and Specialty, respectively, and Mr. M. Glazer, Mr. A. Glazer and
other members of their family serve as directors of both of those companies. The
Special Committee, consisting of Messrs. Lassiter, Leffler and Loar, was charged
with determining what further steps, if any, should be taken by the Company to
pursue any such transaction. The Special Committee's investigation is
continuing, but it has made no determination with respect to possible
transactions involving either Houlihan's or Specialty.
9
<PAGE> 234
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as to persons known by
Zapata to be the beneficial owners of more than 5% of any class of Zapata's
outstanding voting securities as of December 31, 1995. For purposes of this
Item 12, beneficial ownership of securities is defined in accordance with the
applicable rules of the Securities and Exchange Commission (the "Commission") to
mean generally the power to vote or dispose of securities, regardless of any
economic interest therein.
<TABLE>
<CAPTION>
SHARES OWNED PERCENT
TITLE OF CLASS NAME AND ADDRESS BENEFICIALLY OF CLASS
- - --------------------- --------------------------- -------------- ---------
<S> <C> <C> <C>
Common Stock......... The Malcolm I. Glazer Trust 10,408,717 (1) 35.3%
and Malcolm I. Glazer
1482 South Ocean Boulevard
Palm Beach, Florida
Peter M. Holt 2,824,289 (2) 9.6%
c/o Holt Company of Texas
S.W.W. White at Holt Avenue
San Antonio, Texas 78222
$2 Preference Stock.. Larry A. Reiten 150 5.7%
Route 1, Box 297
Bayfield, Wisconsin 54814-9701
</TABLE>
________________
(1) Based on information contained in a Schedule 13D, as amended as of April
27, 1993, which was filed with the Commission by The Malcolm I. Glazer
Trust and Mr. M. Glazer. The Schedule 13D states that Mr. M. Glazer
contributed all of his shares of Common Stock to such trust and that, as
trustee and beneficiary of such trust, Mr. M. Glazer is a beneficial owner
of the shares of Common Stock held by such trust. The amount in the table
also includes 13,333 shares of Common Stock that Mr. M. Glazer has the
right to acquire within 60 days of December 31, 1995 through the exercise
of nonqualified stock options.
(2) Based on (i) information contained in a Schedule 13D, which was filed with
the Commission by Mr. Holt, and (ii) additional information provided to the
Company by Mr. Holt. The Schedule 13D and the additional information
indicate ownership as follows: 1,021,967 shares held by Mr. Holt,
individually; 115,960 shares held by the Peter M. Holt Grantor Trust;
28,032 shares held by the Hawn-Holt Trust; 220,478 shares held by the S
Stock GST Trust for Peter M. Holt; 55,478 shares held by the S Stock GST
Trust for Benjamin D. Holt III; 120,478 shares held by the S Stock GST
Trust for Anne Holt; 207,581 shares held by the Holt Corporate Stock
Marital Trust--1985; 200,885 shares held by the Holt Corporate Stock Life
Trust--1985 and 840,097 shares held by Benjamin D. Holt, Jr. Peter M. Holt
disclaims beneficial ownership as to all of the shares held by the S Stock
GST Trust for Benjamin D. Holt III and the S Stock GST Trust for Anne Holt.
The amount in the table also includes 13,333 shares of Common Stock that
Mr. Holt has the right to acquire within 60 days of December 31, 1995
through the exercise of nonqualified stock options.
10
<PAGE> 235
The directors and the executive officers of Zapata named in the
Summary Compensation Table in Item 11 and the directors and the executive
officers of Zapata as a group beneficially owned the following amounts of equity
securities of Zapata as of December 31, 1995:
<TABLE>
<CAPTION>
SHARES OWNED PERCENT
TITLE OF CLASS NAME BENEFICIALLY(1) OF CLASS
- - ---------------- -------------------------------- ---------------- --------
<S> <C> <C> <C>
Common Stock Avram A. Glazer 13,333 *
Malcolm I. Glazer 10,408,717 (2) 35.3
Peter M. Holt 2,824,289 (3) 9.6
R. C. Lassiter 78,477 *
Robert V. Leffler, Jr. 0 *
W. George Loar 0 *
Robert W. Jackson 350,436 (4) 1.2
Joseph B. Mokry 0 *
Lamar C. McIntyre 42,026 *
Bruce Williams 0 0
Directors and executive officers
as a group (10 persons) 13,717,278 46.5
</TABLE>
________________
* Less than 1%
(1) Except as otherwise noted, individuals listed in the table have sole voting
and investment power with respect to the indicated shares. Investment
power with respect to certain shares held by certain officers of the
Company under the Company's Profit Sharing Plan is limited; such shares
amount to less than 1% of the total number of shares of Common Stock held
by all officers and directors as a group. Included in the amounts
indicated are shares that are subject to options exercisable within 60 days
of December 31, 1995. The number of such shares is 13,333 for each of
Messrs. A. Glazer, M. Glazer and Holt; 42,000 for Mr. McIntyre; and 88,665
shares for the directors and executive officers as a group.
(2) Based on information contained in a Schedule 13D, as amended as of April
27, 1993, which was filed with the Commission by The Malcolm I. Glazer
Trust and Mr. M. Glazer. The Schedule 13D states that Mr. M. Glazer
contributed all of his shares of Common Stock to such trust and that, as
trustee and beneficiary of such trust, Mr. M. Glazer is a beneficial owner
of the shares of Common Stock held by such trust. The amount in the table
also includes 13,333 shares of Common Stock that Mr. M. Glazer has the
right to acquire within 60 days of December 31, 1995 through the exercise
of nonqualified stock options.
(3) Based on (i) information contained in a Schedule 13D, which was filed with
the Commission by Mr. Holt, and (ii) additional information provided to the
Company by Mr. Holt. The Schedule 13D and the additional information
indicate ownership as follows: 1,021,967 shares held by Mr. Holt,
individually; 115,960 shares held by the Peter M. Holt Grantor Trust;
28,032 shares held by the Hawn-Holt Trust; 220,478 shares held by the S
Stock GST Trust for Peter M. Holt; 55,478 shares held by the S Stock GST
Trust for Benjamin D. Holt III; 120,478 shares held by the S Stock GST
Trust for Anne Holt; 207,581 shares held by the Holt Corporate Stock
Marital Trust--1985; 200,885 shares held by the Holt Corporate Stock Life
Trust--1985 and 840,097 shares held by Benjamin D. Holt, Jr. Peter M. Holt
disclaims beneficial ownership as to all of the shares held by the S Stock
GST Trust for Benjamin D. Holt III and the S Stock GST Trust for Anne Holt.
The amount in the table also includes 13,333 shares of Common Stock, that
Mr. Holt has the right to acquire within 60 days of December 31, 1995
through the exercise of nonqualified stock options.
(4) All such shares are owned by the Robert W. Jackson Trust.
11
<PAGE> 236
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Mr. Kristian Siem served as a director of the Company from 1993 until
his resignation in April 1995. On May 17, 1993, Zapata completed certain
financial transactions with Norex Drilling Ltd. ("Norex Drilling"), a wholly
owned subsidiary of Norex America, Inc. ("Norex America" and, collectively with
Norex Drilling and other affiliates, "Norex"), a company of which Mr. Siem was
the Chairman and Chief Executive Officer. In these transactions, Zapata raised
$111.4 million from the issuance of debt and equity securities pursuant to a
Second Amended and Restated Master Restructuring Agreement dated as of April 16,
1993, as amended (the "Norex Agreement"). Under the terms of the Norex
Agreement, Zapata issued $50.0 million of senior secured notes and $32.6 million
of senior convertible notes to Norex. In addition, Norex purchased three
million shares of Common Stock for $11.25 million and 17.5 million shares of $1
Preference Stock for $17.5 million. The $1 Preference Stock was to pay
dividends at an annual rate of 8.5% and was exchangeable into 673,077 shares of
Zapata's Tidewater common stock at the option of Norex. In August 1993, Norex
exchanged all of its $1 Preference Stock for $17.5 million aggregate principal
amount of 8.5% unsecured exchangeable notes, maturing May 16, 1996. The 8.5%
unsecured notes were exchangeable into the 673,077 shares of Tidewater common
stock for which the $1 Preference Stock had previously been exchangeable. In
March 1995, the Company entered into an agreement with Norex under which the
Company was permitted to sell the shares of Tidewater, Inc. common stock and
apply the net proceeds toward repayment of the 8.5% unsecured notes. All of
such shares were sold in March 1995 for $12.7 million and the proceeds applied
to reduce the outstanding principal amount of the 8.5% unsecured notes from
$17.5 million to $4.8 million in April 1995. On April 10, 1995, Zapata
repurchased from Norex 2,250,000 shares of the Company's Common Stock for an
aggregate purchase price of $9,000,000. Pursuant to a conditional resignation
letter dated March 7, 1995, Mr. Siem's resignation from the Company's Board of
Directors became effective when the repurchase of the 2,250,000 shares of the
Company's Common Stock from Norex, the receipt by Norex of the proceeds of the
sale of the Tidewater, Inc. common stock and the payment to Mr. Siem of certain
unpaid directors' fees and reimbursed expenses had all been completed. As a
result, Mr. Siem's resignation from the Board of Directors became effective on
April 10, 1995.
For further information concerning certain transactions and
relationships of Peter M. Holt, Ronald C. Lassiter and Malcolm I. Glazer with
the Company, see Item 11. "Executive Compensation--Compensation Committee
Interlocks and Insider Participation," above.
12
<PAGE> 237
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
ZAPATA CORPORATION
(Registrant)
By: /s/ Joseph L. von Rosenberg III
------------------------------------------
(Joseph L. von Rosenberg III,
Executive Vice President,
General Counsel and Corporate Secretary)
January 29, 1996
13
<PAGE> 238
ANNEX B
<PAGE> 239
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
COMMISSION FILE NUMBER: 1-4219
ZAPATA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
STATE OF DELAWARE C-74-1339132
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1717 ST. JAMES PLACE, SUITE 550
HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 940-6100
---------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK, PAR
VALUE $0.25 PER SHARE, ON AUGUST 9, 1996: 29,548,707.
================================================================================
<PAGE> 240
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Zapata Corporation
Condensed Consolidated Balance Sheet . . . . . . . . . . . . 3
Condensed Consolidated Income Statement . . . . . . . . . . 4
Condensed Consolidated Statement of Cash Flows . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . 6
</TABLE>
2
<PAGE> 241
ZAPATA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
ASSETS 1996 1995
-------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $103,378 $ 2,488
Restricted cash 260 ---
Receivables 8,295 17,550
Inventories:
Fish products 28,904 22,947
Materials, parts and supplies 3,454 3,358
Prepaid expenses and other current assets 3,478 2,400
Net assets of discontinued operations --- 101,894
-------- --------
Total current assets 147,769 150,637
-------- --------
Investments and other assets:
Notes receivable 8,864 8,864
Investments in unconsolidated affiliates 18,837 18,235
Deferred income taxes 2,338 6,247
Other assets 15,556 16,170
-------- --------
45,595 49,516
-------- --------
Property and Equipment 76,661 74,275
Accumulated depreciation (35,218) (35,037)
-------- --------
41,443 39,238
-------- --------
Total assets $234,807 $239,391
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 22,602 $ 16,148
Accounts payable and accrued liabilities 19,513 20,953
-------- --------
Total current liabilities 42,115 37,101
-------- --------
Long-term debt 18,283 37,468
-------- --------
Other liabilities 17,649 19,532
-------- --------
Stockholders' equity:
Preference stock ($1.00 par); 2,627 issued and outstanding 3 3
Common stock ($0.25 par); 165,000,000 shares
authorized; 29,548,707 shares issued and out-
standing at June 30, 1996; 29,548,407 shares
issued and outstanding at September 30, 1995 7,387 7,387
Capital in excess of par value 131,963 131,962
Reinvested earnings from October 1, 1990 17,407 5,938
-------- --------
156,760 145,290
-------- --------
Total liabilities and stockholders' equity $234,807 $239,391
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 242
ZAPATA CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENT
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ --------------------------
1996 1995 1996 1995
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 21,531 $ 24,199 $ 60,273 $ 68,793
-------- -------- ---------- ----------
Expenses:
Operating 15,369 19,050 45,336 56,391
Provision for asset write-down --- 12,607 --- 12,607
Depreciation, depletion and amortization 889 1,660 2,442 4,978
Selling, general and administrative 1,802 2,011 5,232 5,837
-------- -------- ---------- ----------
18,060 35,328 53,010 79,813
-------- -------- ---------- ----------
Operating income (loss) 3,471 (11,129) 7,263 (11,020)
-------- -------- ---------- ----------
Other income (expense):
Interest income 1,383 286 2,985 756
Interest expense (949) (553) (2,847) (1,823)
Gain on sale of Tidewater common stock --- --- --- 4,811
Equity in loss of unconsolidated affiliate (1,403) --- (2,841) ---
Other (595) (115) (613) 453
-------- -------- ---------- ----------
(1,564) (382) (3,316) 4,197
-------- -------- ---------- ----------
Income (loss) from continuing operations
before taxes 1,907 (11,511) 3,947 (6,823)
-------- -------- ---------- ----------
Provision for income taxes
State 91 97 265 186
Federal 635 (4,061) 1,289 (2,451)
-------- -------- ---------- ----------
726 (3,964) 1,554 (2,265)
-------- -------- ---------- ----------
Income (loss) from continuing operations 1,181 (7,547) 2,393 (4,558)
Discontinued operations:
Income (loss) from discontinued operations,
net of income taxes --- 405 (42) 1,095
Gain on disposition of Energy Industries,
net of income taxes --- --- 12,618 ---
Loss on sale of Cimarron, net of income taxes (3,500)
Reversal of loss on disposition,
net of income taxes --- 8,897 --- 8,897
-------- -------- ---------- ----------
Net income 1,181 1,755 11,469 5,434
-------- -------- ---------- ----------
Preferred stock dividends --- --- --- 51
-------- -------- ---------- ----------
Net income to common stockholders $ 1,181 $ 1,755 $ 11,469 $ 5,383
======== ======== ========== ==========
Per share data:
Income (loss) from continuing operations $ 0.04 $ (0.25) $ 0.08 $ (0.15)
Income from discontinued operations --- 0.31 0.31 0.32
-------- -------- ---------- ----------
Net income per share $ 0.04 $ 0.06 $ 0.39 $ 0.17
======== ======== ========== ==========
Average common shares and
equivalents outstanding 29,562 29,824 29,562 31,120
======== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 243
ZAPATA CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flow provided (used) by operating activities:
Continuing operations:
Net income (loss) from continuing operations $ 2,393 $ (4,558)
---------- ----------
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization and valuation provision 2,442 17,585
Gain on sale of assets --- (5,268)
Equity in loss of unconsolidated affiliate 2,841 ---
Changes in other assets and liabilities (9,060) (8,355)
---------- ----------
Total adjustments (3,777) 3,962
---------- ----------
Cash flow used by continuing operations (1,384) (596)
---------- ----------
Discontinued operations:
Income from discontinued operations 9,076 1,095
Net gain on sales of assets, net of taxes (9,118) ---
Change in net assets of discontinued operations (1,312) 1,319
---------- ----------
Cash flow provided (used) by discontinued operations (1,354) 2,414
---------- ----------
Net cash provided (used) by operating activities (2,738) 1,818
---------- ----------
Cash flow provided (used) by investing activities:
Proceeds from dispositions 124,437 14,481
Proceeds from notes receivable --- 5,495
Capital expenditures (4,411) (5,153)
Investment in unconsolidated affiliate (3,407) ---
Restricted cash investment (260) ---
---------- ----------
Net cash provided by investing activities 116,359 14,823
---------- ----------
Cash flow provided (used) by financing activities:
Borrowings 6,500 ---
Repayments of long-term obligations (19,231) (12,277)
Preferred stock redemption --- (2,250)
Common stock buybacks --- (9,508)
Dividend payments --- (1,153)
---------- ----------
Net cash used by financing activities (12,731) (25,188)
---------- ----------
Net increase (decrease) in cash and cash equivalents 100,890 (8,547)
Cash and cash equivalents at beginning of period 2,488 9,717
---------- ----------
Cash and cash equivalents at end of period $ 103,378 $ 1,170
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 244
ZAPATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have
been prepared by Zapata Corporation ("Zapata" or the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. The financial statements reflect all adjustments that are, in the
opinion of management, necessary to fairly present such information. All such
adjustments are of a normal recurring nature. Although Zapata believes that
the disclosures are adequate to make the information presented not misleading,
certain information and footnote disclosures, including a description of
significant accounting policies, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
condensed or omitted pursuant to such rules and regulations. These condensed
financial statements should be read in conjunction with the financial
statements and the notes thereto included in Zapata's latest annual report on
Form 10-K.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). The Company does not intend to adopt
the recognition provisions of SFAS 123, but will adopt its disclosure
requirements in fiscal year 1997.
NOTE 2. DISCONTINUED NATURAL GAS COMPRESSION OPERATIONS
In September 1995, Zapata entered into an agreement (the "Purchase
Agreement") to sell the assets of its subsidiaries engaged in natural gas
compression operations (collectively "Energy Industries") to Weatherford
Enterra, Inc. and its wholly owned subsidiary, Enterra Compression Company
(collectively, "Weatherford Enterra"). Pursuant to the Purchase Agreement,
Weatherford Enterra purchased from the Company all of the assets of its natural
gas compression operations, and assumed certain liabilities relating to those
operations, for approximately $131 million in cash including a post-closing
adjustment of $300,000, which was finalized in April 1996. A portion of the
proceeds from the sale was used to repay indebtedness of Energy Industries
totaling approximately $26 million and to pay expenses of approximately $1.4
million incurred in connection with the sale. The sale closed on December 15,
1995, after receiving stockholder approval, and resulted in a pre-tax gain of
approximately $20.8 million, or an after-tax gain of approximately $12.6
million.
The Company's consolidated financial statements reflect the natural
gas compression operations as a discontinued operation. Summarized results of
the discontinued natural gas compression operations are shown below (amounts in
millions):
6
<PAGE> 245
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
--------------------------
1996 1995
------- ------
<S> <C> <C>
FINANCIAL RESULTS
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13.1 $ 53.1
Expenses * . . . . . . . . . . . . . . . . . . . . . . . . . 13.0 50.0
------- ------
Income before taxes . . . . . . . . . . . . . . . . . . . . .1 3.1
Income tax provision . . . . . . . . . . . . . . . . . . . . .1 1.3
------- ------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ --- $ 1.8
======= ======
</TABLE>
- ------------------
* Expenses include allocations of interest expense on general corporate debt
of $260,000 and $1.2 million in the nine- month periods ending June 30,
1996 and 1995, respectively. Interest expense was allocated to
discontinued operations based on a ratio of net assets to be sold to the
sum of total net assets of the Company plus general corporate debt.
NOTE 3. DISCONTINUED NATURAL GAS GATHERING, PROCESSING AND MARKETING
OPERATIONS
During fiscal 1995, the Company determined to dispose of its natural
gas gathering, processing and marketing operations, which were conducted
through a wholly owned subsidiary of the Company, Cimarron Gas Holding Company
(together with its subsidiaries, "Cimarron"). On April 9, 1996, Zapata sold
substantially all of the assets of Cimarron in two separate transactions with
Conoco Inc. ("Conoco") and Enogex Products Corporation ("Enogex"); Conoco
purchased certain of the Texas-based assets and Enogex purchased certain of the
Oklahoma-based assets. The aggregate cash consideration paid by Conoco and
Enogex totaled approximately $23 million, subject to final post-closing
adjustments. Subsequently, the Company sold Cimarron's remaining assets for an
additional $900,000. A portion of the proceeds from the sales was used to
repay $1.0 million of Cimarron's debt and to pay approximately $1.8 million for
commissions, fees and other expenses associated with the sales. The sales
resulted in an after-tax loss of approximately $3 million. Additionally,
Cimarron recognized an after-tax loss of approximately $500,000 from operations
for fiscal 1996 that had previously been deferred against a reserve for
discontinued operations.
7
<PAGE> 246
NOTE 4. DIVISIONAL REVENUES AND OPERATING RESULTS
The Company's divisional revenues and operating results for the three-
and nine-month periods ended June 30, 1996 and 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- -------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Marine protein $ 20,920 $ 21,737 $ 58,769 $ 61,311
Oil and gas 611 2,462 1,504 7,482
-------- -------- -------- --------
$ 21,531 $ 24,199 $ 60,273 $ 68,793
======== ======== ======== ========
Operating income (loss):
Marine protein $ 3,771 $(10,428) $ 8,814 $ (8,599)
Oil and gas 273 310 426 528
Corporate (573) (1,011) (1,977) (2,949)
-------- -------- -------- --------
$ 3,471 $(11,129) $ 7,263 $(11,020)
======== ======== ======== ========
</TABLE>
8
<PAGE> 247
NOTE 5. UNCONSOLIDATED AFFILIATES
The Company's financial statements for the nine-month period ending
June 30, 1996 include Zapata's equity interest in Envirodyne Industries, Inc.
("Envirodyne") for Envirodyne's six-month period ending March 28, 1996.
Effective October 1, 1995, Zapata began reporting its equity in Envirodyne's
results of operations on a three-month delayed basis since Envirodyne's
financial statements are not available to the Company on a timely basis.
Zapata's investment in Envirodyne is accounted for under the equity method of
accounting.
Zapata's investment in Envirodyne began with an initial acquisition of
4,189,298 shares of Envirodyne common stock in August 1995 at a price of
approximately $4.48 per share. On June 19, 1996, Zapata purchased an
additional 818,006 shares of Envirodyne common stock in a brokerage transaction
at a purchase price (including commissions) of $4.165 per share. On July 1,
1996 Zapata completed the purchase of an additional 870,000 shares of
Envirodyne common stock at a purchase price of $4.125 per share, increasing
Zapata's ownership of outstanding Envirodyne common stock to approximately
40.6% as of that date.
Due to the significance of the Company's investment, the unaudited
financial position and results of operations of Envirodyne are summarized
below. The financial statement information presented below for Envirodyne is
based upon its annual report for the year ended December 28, 1995 and interim
report for the quarter ended March 28, 1996 (unaudited, in millions, except per
share amounts):
ENVIRODYNE INDUSTRIES, INC.
<TABLE>
<CAPTION>
MARCH 28,
1996
----------
<S> <C>
BALANCE SHEET
Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $246.7
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184.7
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . 463.0
------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $894.4
======
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . $132.3
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523.1
Deferred income taxes and other . . . . . . . . . . . . . . . . . . . . 129.1
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . 109.9
------
Total liabilities and stockholders' equity . . . . . . . . . . . $894.4
======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 28,
1996
-------
<S> <C>
INCOME STATEMENT
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 322.2
=======
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . $ (13.7)
=======
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (11.5)
=======
Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.85)
=======
</TABLE>
9
<PAGE> 248
NOTE 6. LITIGATION
Zapata has been named as a defendant in various derivative and
stockholder class actions alleging, among other things, that Zapata's board of
directors engaged in conduct constituting a breach of fiduciary duty and waste
of Zapata's assets in connection with Zapata's investment in Envirodyne, the
decision to shift Zapata's business focus from energy to food services and the
proposed merger with Houlihan's. The complaints variously allege that Zapata's
purchase of Envirodyne common stock was designed to permit Malcolm I. Glazer to
obtain personal financial advantage to the detriment of Zapata and that the
merger consideration in the transaction with Houlihan's is excessive and will
result in voting power dilution, unfairly benefitting Malcolm I. Glazer. The
complaints seek injunctive and various forms of monetary relief. In one of the
actions the plaintiff seeks an injunction to prevent consummation of the merger
based on the contention that it would violate a supermajority vote requirement
in Zapata's certificate of incorporation, and a hearing on this issue is
scheduled for September 6, 1996. Zapata denies the substantive allegations of
the complaints and intends to defend these cases vigorously.
On November 16, 1995, a petition was filed in the 148th Judicial
District Court of Nueces County, Texas by Peter M. Holt, a former director of
the Company, and certain of his affiliates who sold their interests in Energy
Industries to the Company in November 1993 (collectively, with Mr. Holt, the
"Holt Affiliates"). The petition lists the Company, Malcolm Glazer and Avram
Glazer as defendants and alleges several causes of action based on alleged
misrepresentations on the part of the Company and the other defendants
concerning the Company's intent to follow a long-term development strategy
focusing its efforts on the natural gas services business. The petition did
not allege a breach of any provision of the purchase agreement pursuant to
which the Company acquired Energy Industries from the Holt Affiliates, but
alleged that various representatives of Zapata and Malcolm I. Glazer made
representations to Mr. Holt regarding Zapata's intention to continue in the
natural gas services industry. Among the remedies sought by the petition are
the following requests: (i) the Company's repurchase of the approximately 2.8
million shares of Zapata common stock owned by the Holt Affiliates for $15.6
million, an amount that represents a premium of approximately $4.7 million, or
more than 40%, over the market value of such number of shares based on the
closing price of Common Stock on November 16, 1995; (ii) the disgorgement to
the Holt Affiliates of Zapata's profit to be made on its sale of Energy
Industries; or (iii) money damages based on the alleged lower value of the
Common Stock had the alleged misrepresentations not been made. The Company
believes that the petition and the allegations made therein are without merit
and intends to defend the case vigorously.
Zapata is defending various claims and litigation arising from
continuing and discontinued operations. In the opinion of management, uninsured
losses, if any, resulting from these matters and from the matters discussed
above will not have a material adverse effect on Zapata's results of
operations, cash flows or financial position.
NOTE 7. CASH FLOW INFORMATION
In connection with the sale of the Company's discontinued operations,
Zapata has retained certain assets and liabilities related to those operations.
As a result, the Company reclassified approximately $1.9 million from net
assets of discontinued operations to continuing operations.
NOTE 8. HOULIHAN'S ACQUISITION
On May 2, 1996, Zapata and Houlihan's Restaurant Group, Inc.
("Houlihan's") announced that they had entered into a letter of intent relating
to Zapata's proposed acquisition of Houlihan's for a combination of cash and
stock having a value of $8.00 per share, equally divided between cash and
stock. Zapata and Houlihan's subsequently entered into an Agreement and Plan
of Merger dated as of June 4, 1996 relating to the proposed acquisition. In
view of Malcolm I. Glazer's significant ownership of common stock of both
Zapata and Houlihan's, the transaction was negotiated by representatives of
special committees of the respective boards of directors of Zapata and
Houlihan's. The proposed transaction is subject to, among other things, the
approval of the transaction by the stockholders of both companies, registration
of the Zapata shares issuable in the merger under the Securities Act of 1933
and receipt of a consent from Houlihan's primary lending bank or the
refinancing of Houlihan's outstanding bank debt. There can be no assurance
that the proposed transaction will be consummated.
Zapata also announced that Malcolm I. Glazer has entered into a
standstill agreement with Zapata. Under the standstill agreement, Mr. Glazer
has agreed on behalf of himself, his family and entities controlled by him not
to increase his or their ownership of voting securities in Zapata above 49.9%
on either an outstanding or fully diluted share basis, unless, among other
things, the increase is approved by a majority of the directors on the Zapata
board who are not members of the Glazer family or is in response to a tender
offer or other proposal by others to acquire more than 14.9% of Zapata's voting
securities. The Standstill Agreement terminates upon, among other events, the
first to occur of 18 months after Zapata's acquisition of Houlihan's, Zapata's
announcement that it does not intend to acquire Houlihan's, the acquisition by
another party of securities representing 20% or more of the voting power
attributable to Zapata's outstanding capital stock, a breach of the Standstill
Agreement by Zapata, or Malcolm I. Glazer's acquisition of more than 50% of
Zapata's outstanding voting securities in accordance with the terms of the
Standstill Agreement. In the event that Zapata announces its intention to
acquire another entity controlled by Malcolm I. Glazer prior to the expiration
of the Standstill Agreement, the term of the Standstill Agreement will be
automatically extended until the first to occur of 18 months after the
acquisition of such entity or Zapata's announcement that it does not intend to
acquire such entity.
10
<PAGE> 249
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-looking statements in this Form 10-Q, future filings by the
Company with the Securities and Exchange Commission, the Company's press
releases and oral statements by authorized officers of the Company are intended
to be subject to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the risk of a significant natural disaster, the inability of the
Company to insure against certain risks, the adequacy of its loss reserves,
fluctuations in commodity prices that affect the prices for fish meal and fish
oil, weather and other factors affecting fish catch levels, the inherent
limitations in the ability to estimate oil and gas reserves, changing
government regulations, political risks of operations in foreign countries, as
well as general market conditions, competition and pricing. The Company
believes that forward looking statements made by it are based on reasonable
expectations. However, no assurances can be given that actual results will not
differ materially from those contained in such forward looking statements. The
words "estimate," "project," "anticipate," "expect," "predict," "believe" and
similar expressions are intended to identify forward looking statements.
BUSINESS
In late 1994 and early 1995, the Company began to develop a strategic
plan involving the repositioning of the Company in the food packaging, food and
food service equipment and supply (collectively, "food services") businesses
and exiting the energy business. The strategic plan that was developed called
for the divestiture of most of the Company's remaining energy operations,
including its natural gas compression operations, its natural gas gathering,
processing and marketing operations and the Company's remaining domestic oil
and gas assets, and the acquisition of, or joint ventures with, selected
companies in the food services industry.
In December 1995, Zapata sold the assets of its subsidiaries engaged
in natural gas compression operations (collectively, "Energy Industries") to
Weatherford Enterra, Inc. and its wholly owned subsidiary, Enterra Compression
Company (collectively, "Weatherford Enterra"). In that transaction,
Weatherford Enterra purchased from the Company all of the assets of Energy
Industries for $131 million in cash, and assumed certain liabilities of Energy
Industries, based on the net asset value of Energy Industries on the closing
date (the "Energy Industries Sale"). The Energy Industries Sale resulted in an
after-tax gain of approximately $12.6 million. Of the approximately $131
million in cash proceeds received from the Energy Industries Sale, the Company
used approximately $26 million to repay bank debt of Energy Industries.
Additionally, approximately $1.4 million was used to pay expenses associated
with the sale.
On April 9, 1996, Zapata sold substantially all of the assets of its
subsidiaries engaged in natural gas gathering and processing operations
(collectively, "Cimarron") in two separate transactions with Conoco Inc.
("Conoco") and Enogex Products Corporation ("Enogex"); Conoco purchased certain
of the Texas-based assets and Enogex purchased certain of the Oklahoma-based
assets. The aggregate cash consideration paid by Conoco and Enogex totaled
approximately $23 million, subject to final post-closing adjustments.
Subsequently, the Company sold Cimarron's
11
<PAGE> 250
remaining assets for an additional $900,000. A portion of the proceeds from
the sales was used to repay $1.0 million of Cimarron's debt and to pay
approximately $1.8 million in expenses associated with the sales. The sales
resulted in an after-tax loss of approximately $3 million. Additionally,
Cimarron recognized an after-tax loss of approximately $500,000 from operations
for fiscal 1996 that had previously been deferred against a reserve for
discontinued operations.
The sale of Cimarron's assets substantially completes the
transformation of Zapata away from the energy business. The Company intends to
use the remaining net proceeds from the Energy Industries and Cimarron
dispositions for general corporate purposes, which may include further
repayment of debt, and for future expansion into the food services industry.
On May 2, 1996, Zapata and Houlihan's Restaurant Group, Inc.
("Houlihan's") announced that they had entered into a letter of intent relating
to Zapata's proposed acquisition of Houlihan's for a combination of cash and
stock amounting to $8.00 per share, equally divided between cash and stock.
Zapata and Houlihan's subsequently entered into an Agreement and Plan of Merger
dated as of June 4, 1996 relating to the proposed acquisition. In view of
Malcolm I. Glazer's significant ownership of common stock of both Zapata and
Houlihan's, the transaction was negotiated by representatives of special
committees of the respective boards of directors of both Zapata and Houlihan's.
Zapata's special committee is comprised of Board members Ronald C. Lassiter,
Robert V. Leffler, Jr. and W. George Loar. The proposed transaction is subject
to, among other things, the approval of the transaction by the stockholders of
both companies, registration of the Zapata shares issuable in the merger under
the Securities Act of 1933 and receipt of a consent from Houlihan's primary
lending bank or the refinancing of Houlihan's outstanding bank debt. There can
be no assurance that the proposed transaction will be consummated.
Zapata also announced that Malcolm I. Glazer has entered into a
standstill agreement with Zapata. Under the standstill agreement, Mr. Glazer
has agreed on behalf of himself, his family and entities controlled by him not
to increase his or their ownership of voting securities in Zapata above 49.9%
on either an outstanding or fully diluted share basis, unless, among other
things, the increase is approved by a majority of the directors on the Zapata
board who are not members of the Glazer family or is in response to a tender
offer or other proposal by others to acquire more than 14.9% of Zapata's voting
securities. The Standstill Agreement terminates upon, among other events, the
first to occur of 18 months after Zapata's acquisition of Houlihan's, Zapata's
announcement that it does not intend to acquire Houlihan's, the acquisition by
another party of securities representing 20% or more of the voting power
attributable to Zapata's outstanding capital stock, a breach of the Standstill
Agreement by Zapata, or Malcolm I. Glazer's acquisition of more than 50% of
Zapata's outstanding voting securities in accordance with the terms of the
Standstill Agreement. In the event that Zapata announces its intention to
acquire another entity controlled by Malcolm I. Glazer prior to the expiration
of the Standstill Agreement, the term of the Standstill Agreement will be
automatically extended until the first to occur of 18 months after the
acquisition of such entity or Zapata's announcement that it does not intend to
acquire such entity.
On June 19, 1996, Zapata purchased an additional 818,006 shares of
Envirodyne Industries, Inc. ("Envirodyne") common stock in a brokerage
transaction at a purchase price (including commission) of $4.165 per share.
Also, on July 1, 1996 Zapata completed the purchase of an
12
<PAGE> 251
additional 870,000 shares of Envirodyne common stock at a purchase price of
$4.125 per share, increasing Zapata's ownership of outstanding Envirodyne
common stock to approximately 40.6% as of that date.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the Energy Industries and Cimarron dispositions,
Zapata's cash increased to $103.4 million at June 30, 1996 compared to $2.5
million at September 30, 1995. Additionally, Zapata's long-term debt was
reduced to $18.3 million at June 30, 1996 compared to $37.5 million at
September 30, 1995.
Operating activities used cash of $2.7 million during the first nine
months of fiscal 1996 as compared to the corresponding fiscal 1995 period, in
which operating activities provided cash of $1.8 million. The increased use of
cash in fiscal 1996 was primarily attributable to increased tax expenses
associated with the Company's asset sales.
Investing activities provided $116.4 million of cash during the fiscal
1996 year-to-date period compared to $14.8 million in the corresponding fiscal
1995 period. Fiscal 1996 investing activities included proceeds totaling
$124.4 million from the Energy Industries and Cimarron dispositions, capital
expenditures of $4.4 million and the $3.4 million acquisition of 818,006 shares
of Envirodyne common stock, while the fiscal 1995 period included proceeds of
$12.7 million from the sale of the Company's remaining shares of Tidewater Inc.
("Tidewater") common stock, proceeds totaling $5.5 million from notes
receivable collections and capital expenditures of $5.2 million.
Financing activities used cash of $12.7 million and $25.2 million in
the fiscal 1996 and 1995 nine-month periods, respectively. The use of cash in
the fiscal 1996 period included a $3.2 million prepayment of indebtedness owing
to the Malcolm I. Glazer Trust incurred in connection with the Company's August
1995 purchase of Envirodyne common stock, a $4.8 repayment of the Company's
remaining indebtedness owed to Norex America, Inc. and a $3.5 million net
repayment of a revolving credit facility for the Company's marine protein
division. The fiscal 1995 period included payments for debt repayment totaling
$12.3 million, repurchases of the Company's preferred and common stock totaling
$11.8 million and dividend payments of $1.2 million.
RESULTS OF OPERATIONS
General
Zapata reported net income of $1.2 million for the third quarter of
fiscal 1996 as compared to net income of $1.8 million for the third quarter of
fiscal 1995. Net income for the fiscal 1995 period included income from
discontinued operating activities of $405,000 and income of $8.9 million from
discontinued operations as a result of the reversal of an estimated loss on
disposition of the Company's marine protein operations, which was recorded in
fiscal 1994.
Revenues of $21.5 million and operating income of $3.5 million for the
third quarter of fiscal 1996 compared to revenues of $24.2 million and an
operating loss of $11.1 million for the
13
<PAGE> 252
corresponding fiscal 1995 period. The improvement in operating income in the
fiscal 1996 period was attributable to improved operating results from the
Company's marine protein operations and to reduced corporate administrative
expenses. The fiscal 1995 period operating income included a $12.6 million
pretax provision for asset impairment of the Company's marine protein assets as
a result of adopting Statement of Financial Accounting Standards No. 121 ("SFAS
121").
The Company's net income from continuing operations of $1.2 million
for the three months ended June 30, 1996 compared favorably to a net loss of
$7.5 million for the three months ended June 30, 1995. The fiscal 1995 results
included the $12.6 million pretax provision for asset impairment as a result of
adopting SFAS 121. Zapata's fiscal 1996 period included a $1.4 million equity
loss from Zapata's interest in the net loss of Envirodyne for the three months
ended March 28, 1996 and a $490,000 pretax loss related to an investment in
subordinated debentures of Wherehouse Entertainment, Inc.
For the first nine months of fiscal 1996, Zapata's net income
increased to $11.5 million from $5.4 million for the corresponding fiscal 1995
period due primarily to the $12.6 million after-tax gain from the Energy
Industries Sale. Revenues of $60.3 million and operating income of $7.3
million for the 1996 period compared to the 1995 period revenues of $68.8
million and an operating loss of $11.0 million.
Marine Protein
Revenues of $20.9 million and operating income of $3.8 million for the
third quarter of fiscal 1996 compared favorably to revenues of $21.7 million
and an operating loss of $10.4 million for the third quarter of fiscal 1995.
The improvement in the current period is primarily attributable to higher
prices for fish meal and to the $12.6 million provision for asset impairment
recorded in the fiscal 1995 period. The average price for fish meal, the
division's primary product, increased to $443 per ton in the third quarter of
fiscal 1996 from $355 per ton in the third quarter of fiscal 1995, while the
average price of fish oil declined to $335 per ton in the 1996 period from $349
per ton in the 1995 period. Reflecting a lower carryover inventory from the
prior year, sales volumes of fish meal and fish oil were lower by approximately
19% and 46%, respectively, in the current quarter as compared to the prior-year
quarter.
Similarly, year-to-date revenues of $58.8 million and operating income
of $8.8 million for fiscal 1996 compared to revenues of $61.3 million and an
operating loss of $8.6 million for the corresponding fiscal 1995 period.
Year-to- date fiscal 1996 fish meal prices have averaged $419 per ton versus
$347 per ton in fiscal 1995. Likewise, fish oil prices have averaged $422 per
ton in the fiscal 1996 period versus $301 per ton in the fiscal 1995 period.
Sales volumes of fish meal and fish oil for the first nine months of fiscal
1996 were lower by approximately 31% and 41%, respectively, than the
corresponding fiscal 1995 sales volumes.
The price for fish meal generally bears a relationship to prevailing
soybean meal prices, while prices for fish oil are usually based on prices for
vegetable fats and oils, such as soybean and palm oils. Accordingly, the
prices for the Company's products are significantly influenced by worldwide
supply and demand relationships over which the Company has no control and which
tend to fluctuate
14
<PAGE> 253
to a significant extent over the course of a year and from year to year.
The Company's fish catch for the first nine months of fiscal 1996 was
approximately 6% higher than the fish catch for the first nine months of fiscal
1995. The annual fish catch can vary from year to year depending on weather
conditions and other factors outside the Company's control; the Company cannot
predict future fish catch levels.
Oil and Gas
In fiscal 1995, the Company sold its U.S. natural gas producing
properties. As a result, the Company's only significant remaining oil and gas
activity is the production of natural gas through a joint venture in Bolivia in
which the Company has a 25% interest. Revenues of $611,000 and operating
income of $273,000 in the third quarter of fiscal 1996 compared to revenues of
$2.5 million and operating income of $310,000 in the comparable fiscal 1995
quarter, which included revenues of $599,000 and operating income of $399,000
from the Bolivian operations.
Year-to-date fiscal 1996 revenues of $1.5 million and operating income
of $426,000 compared to fiscal 1995 revenues of $7.5 million and operating
income of $528,000. The fiscal 1995 results include Bolivian revenues of $2.1
million and operating income of $1.2 million.
15
<PAGE> 254
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The exhibits indicated by an asterisk (*) are incorporated by
reference.
3(a)* -- Restated Certificate of Incorporation of Zapata filed
with Secretary of State of Delaware on May 3, 1994
(Exhibit 3(a) to Zapata's Current Report on Form 8-K
dated April 27, 1994 (File No. 1-4219)).
3(b)* -- Certificate of Designation, Preferences and Rights of
$1 Preference Stock (Exhibit 3(c) to Zapata's
Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1993 (File No. 1- 4219)).
3(c)* -- Certificate of Designation, Preferences and Rights of
$100 Preference Stock (Exhibit 3(d) to Zapata's
Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1993 (File No. 1- 4219)).
3(d)* -- By-laws of Zapata, as amended effective November 21,
1995 (Exhibit 3(d) to Zapata's Annual Report on Form
10-K for the fiscal year ended September 30, 1995
(File No. 1-4219)).
10(a)* -- Purchase and Sale Agreement dated March 26, 1996 by
and among Cimarron Gas Holding Company, Conoco Inc.
and Enogex Products Corporation (Exhibit 2.1 to
Zapata's Current Report on Form 8-K dated April 9,
1996 (File No. 1-4219)).
10(b)* -- Amendment and Clarification of Purchase and Sale
Agreement, Waiver and Closing Agreement dated April
9, 1996 (Exhibit 2.2 to Zapata's Current Report on
Form 8-K dated April 9, 1996 (File No. 1-4219)).
10(c)* -- Agreement and Plan of Merger dated as of June 4, 1996
among Zapata, Zapata Acquisition Corp. and
Houlihan's (Exhibit 2.1 to Zapata's Registration
Statement on Form S-4 (Reg. No. 333- 06729)).
10(d)* -- Standstill Agreement dated April 30, 1996 between
Zapata and Malcolm I. Glazer (Exhibit 10.18 to
Zapata's Registration Statement on Form S-4 (Reg. No.
333-06729)).
10(e)* -- Irrevocable proxy dated June 4, 1996 granted by
Malcolm I. Glazer to members of a Special Committee
of the Board of Directors of Zapata (Exhibit 10.19 to
Zapata's Registration Statement on Form S-4 (Reg. No.
333-06729)).
10(f)* -- Supplemental Agreement dated June 4, 1996 between
Malcolm I. Glazer and Zapata (Exhibit 10.20 to
Zapata's Registration Statement on Form S-4 (Reg. No.
333-06729)).
10(g)* -- 1996 Long-Term Incentive Plan of Zapata (Exhibit
10.21 to Zapata's Registration Statement on Form S-4
(Reg. No. 333-06729)).
27 -- Financial Data Schedule.
16
<PAGE> 255
(b) Reports on Form 8-K:
During the quarter ended June 30, 1996, Zapata filed the following
Current Reports on Form 8-K with the Securities and Exchange
Commission:
<TABLE>
<CAPTION>
Date of Earliest
Event Reported Items Reported Financial Statements Filed
-------------- -------------- --------------------------
<S> <C> <C>
April 9, 1996 Sale by Zapata of substantially Unaudited Pro Forma Condensed Balance
all the assets of Cimarron. Sheet of Zapata as of December 31, 1995.
April 30, 1996 Execution of Letter of Intent None.
between Zapata and Houlihan's'
relating to the proposed
acquisition of Houlihan's by
Zapata.
June 4, 1996 Execution of Agreement and Plan None.
of Merger among Zapata, Zapata
Acquisition Corp. and
Houlihan's' relating to the
proposed acquisition of
Houlihan's by Zapata.
June 19, 1996 Additional acquisitions of (a) Audited Consolidated Financial
shares of common stock of Statements of Envirodyne and
Envirodyne. Subsidiaries as of December 28, 1995 and
December 29, 1994 and for the periods
December 30, 1994 to December 28, 1995,
January 1, 1994 to December 29, 1994 and
January 1, 1993 to December 31, 1993,
(b) Audited Consolidated Financial
Statements of Viskase Holding
Corporation and Subsidiaries as of
December 28, 1995 and December 29, 1994
and for the periods December 30, 1994 to
December 28, 1995, January 1, 1994 to
December 29, 1994 and January 1, 1993 to
December 31, 1993, (c) Unaudited
Consolidated
</TABLE>
17
<PAGE> 256
<TABLE>
<S> <C>
Financial Statements of Envirodyne and
Subsidiaries as of March 28, 1996 and
for the three month periods ended
March 28, 1996 and March 30, 1995 and
(d) Unaudited Consolidated Financial
Statements of Viskase Holding
Corporation and and Subsidiaries as of
March 28, 1996 and for the three month
periods ended March 28, 1996 and
March 30, 1995.
</TABLE>
18
<PAGE> 257
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ZAPATA CORPORATION
(Registrant)
August 12, 1996 By: /s/ JOSEPH L. VON ROSENBERG III
-------------------------------------------
(Joseph L. von Rosenberg III,
Executive Vice President, General Counsel
and Corporate Secretary)
August 12, 1996 By: /s/ ROBERT A. GARDINER
-------------------------------------------
(Robert A. Gardiner,
Vice President and Chief Financial Officer)
19
<PAGE> 258
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
3(a)* -- Restated Certificate of Incorporation of Zapata filed
with Secretary of State of Delaware on May 3, 1994
(Exhibit 3(a) to Zapata's Current Report on Form 8-K
dated April 27, 1994 (File No. 1-4219)).
3(b)* -- Certificate of Designation, Preferences and Rights of
$1 Preference Stock (Exhibit 3(c) to Zapata's
Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1993 (File No. 1- 4219)).
3(c)* -- Certificate of Designation, Preferences and Rights of
$100 Preference Stock (Exhibit 3(d) to Zapata's
Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1993 (File No. 1- 4219)).
3(d)* -- By-laws of Zapata, as amended effective November 21,
1995 (Exhibit 3(d) to Zapata's Annual Report on Form
10-K for the fiscal year ended September 30, 1995
(File No. 1-4219)).
10(a)* -- Purchase and Sale Agreement dated March 26, 1996 by
and among Cimarron Gas Holding Company, Conoco Inc.
and Enogex Products Corporation (Exhibit 2.1 to
Zapata's Current Report on Form 8-K dated April 9,
1996 (File No. 1-4219)).
10(b)* -- Amendment and Clarification of Purchase and Sale
Agreement, Waiver and Closing Agreement dated April
9, 1996 (Exhibit 2.2 to Zapata's Current Report on
Form 8-K dated April 9, 1996 (File No. 1-4219)).
10(c)* -- Agreement and Plan of Merger dated as of June 4, 1996
among Zapata, Zapata Acquisition Corp. and
Houlihan's (Exhibit 2.1 to Zapata's Registration
Statement on Form S-4 (Reg. No. 333- 06729)).
10(d)* -- Standstill Agreement dated April 30, 1996 between
Zapata and Malcolm I. Glazer (Exhibit 10.18 to
Zapata's Registration Statement on Form S-4 (Reg. No.
333-06729)).
10(e)* -- Irrevocable proxy dated June 4, 1996 granted by
Malcolm I. Glazer to members of a Special Committee
of the Board of Directors of Zapata (Exhibit 10.19 to
Zapata's Registration Statement on Form S-4 (Reg. No.
333-06729)).
10(f)* -- Supplemental Agreement dated June 4, 1996 between
Malcolm I. Glazer and Zapata (Exhibit 10.20 to
Zapata's Registration Statement on Form S-4 (Reg. No.
333-06729)).
10(g)* -- 1996 Long-Term Incentive Plan of Zapata (Exhibit
10.21 to Zapata's Registration Statement on Form S-4
(Reg. No. 333-06729)).
27 -- Financial Data Schedule.
</TABLE>
<PAGE> 259
ANNEX C
<PAGE> 260
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
--------------------
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JUNE 19, 1996
ZAPATA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1-4219 C-74-1339132
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
1717 ST. JAMES PLACE
SUITE 550
HOUSTON, TEXAS 77056
(Address of principal executive offices)
(713) 940-6100
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
<PAGE> 261
ITEM 5. OTHER EVENTS
On June 19, 1996, Zapata Corporation, a Delaware corporation
("Zapata"), purchased 818,006 shares of common stock, par value $0.01
per share ("Envirodyne Common Stock"), of Envirodyne Industries, Inc.,
a Delaware corporation ("Envirodyne"), in a brokerage transaction
(which settled on June 24, 1996) at a purchase price of $4.165 per
share, including brokerage commissions. Also, on June 19, 1996,
Zapata contracted to acquire, at a purchase price of $4.125 per share,
all the shares of Envirodyne Common Stock held by a holder of 900,000
shares of Envirodyne Common Stock, subject to reductions in the number
of shares held by such holder (estimated not to exceed 30,000 shares)
effected prior to the closing of the transaction, which is to occur no
later than June 30, 1996. Upon the closing of such transaction
(assuming that 870,000 shares of Envirodyne Common Stock are acquired
in such transaction and based upon the most recently available filing
by Envirodyne with the Securities and Exchange Commission), Zapata
will own approximately 40.6% of the outstanding shares of Envirodyne
Common Stock. For additional information with respect to Envirodyne,
reference is made to the audited consolidated financial statements of
Envirodyne and subsidiaries as of December 28, 1995 and December 29,
1994 and for the 52-week periods ended December 28, 1995, December 29,
1994 and December 31, 1993 and to the unaudited interim consolidated
financial statements of Envirodyne and subsidiaries as of March 28,
1996 and for the three months ended March 28, 1996 and March 30, 1995,
all of which are included as an exhibit to this Current Report on Form
8-K and are incorporated herein by this reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) EXHIBITS.
Exhibit 23 - Consent of independent accountants.
Exhibit 99 - Financial statements of Envirodyne Industries, Inc.
and subsidiaries, including independent accountant's
report.
<PAGE> 262
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ZAPATA CORPORATION
By: /s/ Joseph L. von Rosenberg III
----------------------------------
Joseph L. von Rosenberg III
Executive Vice President, General
Counsel and Corporate Secretary
Date: June 24, 1996
2
<PAGE> 263
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
23 Consent of independent accountants.
99 Financial statements of Envirodyne Industries, Inc. and
subsidiaries, including independent accountant's report.
</TABLE>
<PAGE> 264
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of Zapata Corporation of Form S-3 (File No. 33-68034) and on Form S-8's (File
Nos. 33-19085 and 33-45251) of our reports, which include explanatory paragraphs
discussing the comprehensive financial restructuring through implementation of
reorganization under Chapter 11 of the United States Bankruptcy Code, dated
March 26, 1996, on our audits of the consolidated financial statements and
financial statement schedules of Envirodyne Industries, Inc. and subsidiaries
as of December 28, 1995 and December 29, 1994 and for the period December 30,
1994 to December 28, 1995 and January 1 to December 29, 1994 (Post-consummation)
and January 1 to December 31, 1993 (Pre-consummation) and the consolidated
financial statements and financial statement schedules of Viskase Holding
Corporation and subsidiaries as of December 28, 1995 and December 29, 1994, and
for the period December 30, 1994 to December 28, 1995 and January 1 to December
29, 1994 (Post-consummation) and January 1 to December 31, 1993
(Pre-consummation), which reports are included in this Form 8-K.
Coopers & Lybrand L.L.P.
Chicago, Illinois
June 21, 1996
<PAGE> 265
AUDITED FINANCIAL STATEMENTS
<PAGE> 266
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Envirodyne Industries, Inc.
We have audited the consolidated financial statements and the financial
statement schedules of Envirodyne Industries, Inc. and Subsidiaries listed in
Item 14(a) of this Form 10-K. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note 1 to the consolidated financial statements, on
December 31, 1993, the Company completed a comprehensive financial
restructuring through the implementation of reorganization under Chapter 11 of
the United States Bankruptcy Code and applied fresh start reporting.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Envirodyne Industries, Inc. and Subsidiaries as of December 28, 1995 and
December 29, 1994, and the consolidated results of their operations and their
cash flows for the period December 30, 1994 to December 28, 1995 and January 1
to December 29, 1994 (Post-consummation) and January 1 to December 31, 1993
(Pre-consummation), in conformity with generally accepted accounting
principles. In addition, in our opinion the schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Chicago, Illinois
March 26, 1996
F-1
<PAGE> 267
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1995 1994
------------ ------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents ........................ $ 30,325 $ 7,289
Receivables, net ............................ 89,454 86,868
Inventories ................................. 99,474 110,483
Other current assets ........................ 21,646 19,466
-------- --------
Total current assets .................... 240,899 224,106
Property, plant and equipment,
including those under capital leases ........ 545,491 506,099
Less accumulated depreciation
and amortization .......................... 75,987 35,761
-------- --------
Property, plant and equipment, net .......... 469,504 470,338
Deferred financing costs ...................... 8,090 9,143
Other assets .................................. 45,589 47,181
Excess reorganization value ................... 135,485 145,868
-------- --------
$899,567 $896,636
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current portion
of long-term debt and obligations
under capital leases ...................... $ 12,504 $ 25,798
Accounts payable ............................ 39,117 34,335
Accrued liabilities ......................... 67,553 72,246
-------- --------
Total current liabilities .............. 119,174 132,379
Long-term debt including obligations
under capital leases ....................... 530,181 489,358
Accrued employee benefits .................... 55,626 56,217
Deferred and noncurrent income taxes ......... 77,490 83,333
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
none outstanding
Common stock, $.01 par value;
13,579,460 shares issued and
outstanding at December 28, 1995 and
13,515,000 shares at December 29, 1994 ... 136 135
Paid in capital............................. 134,864 134,865
Accumulated (deficit) ...................... (25,131) (3,612)
Cumulative foreign currency
translation adjustments .................. 7,227 3,961
-------- --------
Total stockholders' equity 117,096 135,349
-------- --------
$899,567 $896,636
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE> 268
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
DECEMBER 30, JANUARY 1, JANUARY 1,
1994 TO TO TO
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
(in thousands, except for number of shares
and per share amounts)
<S> <C> <C> <C>
NET SALES ......................................... $ 650,212 $ 599,029 $ 587,385
Patent infringement settlement income ........... 9,457
COSTS AND EXPENSES
Cost of sales ................................... 485,048 435,760 418,692
Selling, general and administrative ............. 111,230 108,437 99,350
Amortization of intangibles and
excess reorganization value ................... 15,799 15,612 15,711
---------- ----------- ---------
OPERATING INCOME .................................. 38,135 48,677 53,632
Interest income ................................. 670 307 931
Interest expense ................................ 57,336 49,514 31,190
Other expense (income), net ..................... 1,710 (1,668) 5,540
Minority interest in loss of subsidiary ......... 50 717
---------- ----------- ---------
INCOME (LOSS) BEFORE INCOME TAXES,
REORGANIZATION ITEMS AND EXTRAORDINARY ITEMS .... (20,241) 1,188 18,550
Reorganization items, net ....................... 104,745
---------- ----------- ---------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS ......................... (20,241) 1,188 (86,195)
Income tax provision (benefit) .................. (2,918) 4,800 12,000
---------- ----------- ---------
(LOSS) BEFORE EXTRAORDINARY ITEMS ................. (17,323) (3,612) (98,195)
Extraordinary gain (loss), net of tax ............ (4,196) 183,784
---------- ----------- ---------
NET INCOME (LOSS) ................................. $ (21,519) $ (3,612) $ 85,589
========== =========== =========
WEIGHTED AVERAGE COMMON SHARES .................... 13,516,771 13,500,703 320
========== =========== =========
PER SHARE AMOUNTS:
(LOSS) BEFORE EXTRAORDINARY ITEMS ............... $ (1.28) $ (.27) $(306,859)
========== =========== =========
NET INCOME (LOSS) ................................. $ (1.59) $ (.27) $ 267,466
========== =========== =========
</TABLE>
Due to the implementation of the Plan of Reorganization and Fresh Start
Reporting, the consolidated statement of operations for the fiscal years ended
December 28, 1995 and December 29, 1994 are not comparable to the fiscal year
ended December 31, 1993. (Refer to Note 1 of Notes to Consolidated Financial
Statements.)
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 269
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN TOTAL
CURRENCY STOCKHOLDERS'
COMMON PAID IN ACCUMULATED TRANSLATION EQUITY
STOCK CAPITAL (DEFICIT) ADJUSTMENTS (DEFICIT)
------ -------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance December 31, 1992 . . . . . . $ 1 $ 12,900 $ (98,776) $ 2,330 $ (83,545)
Net income . . . . . . . . . . . . . 85,589 85,589
Translation adjustments . . . . . . . (2,044) (2,044)
Cancellation of preconsummation
Common Stock . . . . . . . . . . . (1) (12,900) (12,901)
Elimination of accumulated deficit
and cumulative foreign currency
translation adjustments . . . . . . 13,187 (286) 12,901
------ -------- --------- -------- ----------
$ 0 $ 0 $ 0 $ 0 $ 0
====== ======== ========= ======== ==========
Issuance of new Common Stock . . . . $ 135 $134,865 $ 135,000
------ -------- ----------
Balance December 31, 1993 . . . . . . 135 134,865 135,000
Net (loss) . . . . . . . . . . . . . $ (3,612) (3,612)
Translation adjustments . . . . . . . $ 3,961 3,961
------ -------- --------- -------- ----------
Balance December 29, 1994 . . . . . . 135 134,865 (3,612) 3,961 135,349
Net (loss) . . . . . . . . . . . . . (21,519) (21,519)
Issuance of Common Stock . . . . . . 1 (1)
Translation adjustments . . . . . . . 3,266 3,266
------ -------- --------- -------- ----------
Balance December 28, 1995 $ 136 $134,864 $ (25,131) $ 7,227 $ 117,096
====== ======== ========= ======== ==========
</TABLE>
Due to the implementation of the Plan of Reorganization and Fresh Start
Reporting, the stockholders' equity for the fiscal years ended December 28,
1995 and December 29, 1994 are not comparable to the fiscal year ended December
31, 1993. (Refer to Note 1 of Notes to Consolidated Financial Statements.)
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 270
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 1, JANUARY 1,
1994 TO TO TO
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1995 1994 1993
----------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
(Loss) before extraordinary item . . . . . . . . . . . . . . . . $ (17,323) $ (3,612) $ (98,195)
Extraordinary gain (loss) . . . . . . . . . . . . . . . . . . . . (4,196) 183,784
--------- -------- ---------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . (21,519) (3,612) 85,589
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization under capital leases . . . . . . 40,262 35,775 36,687
Amortization of intangibles and excess reorganization value . . 15,799 15,612 15,711
Amortization of deferred financing fees and discount . . . . . 2,196 1,569 2,418
Increase (decrease) in deferred and noncurrent income taxes . . (6,450) (52) 9,547
Loss on debt extinguishment . . . . . . . . . . . . . . . . . . 6,778
Foreign currency transaction loss (gain) . . . . . . . . . . . (1,233) (3,465) 3,380
Loss (gain) on sales of property, plant and equipment . . . . . 73 (9) 650
Reorganization items and fresh start reporting . . . . . . . . (79,039)
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . (839) (11,257) (1,319)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 12,741 (10,548) 4,163
Other current assets . . . . . . . . . . . . . . . . . . . . (1,837) (1,607) (2,152)
Accounts payable and accrued liabilities . . . . . . . . . . (1,670) 3,774 15,894
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,334) (2,894) 672
--------- -------- ---------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . 60,486 26,898 6,612
--------- -------- ---------
Net cash provided by operating activities before
reorganization expense . . . . . . . . . . . . . . . . . . 38,967 23,286 92,201
Net cash used for reorganization items . . . . . . . . . . . (14,929)
--------- -------- ---------
Total net cash provided by operating activities . . . . . . . 38,967 23,286 77,272
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . (34,465) (32,566) (40,887)
Proceeds from sale of property, plant and equipment . . . . . . . 86 359 124
Purchase of minority interest in subsidiary . . . . . . . . . . . (4,200)
--------- -------- ---------
Net cash (used in) investing activities . . . . . . . . . . . (34,379) (36,407) (40,763)
Cash flows from financing activities:
Proceeds from revolving loan and long-term borrowings . . . . . . 207,922 37,668 106,003
Deferred financing costs . . . . . . . . . . . . . . . . . . . . (7,887) (1,608) (9,779)
Repayment of revolving loan, long-term borrowings and
capital lease obligations . . . . . . . . . . . . . . . . . . . (181,375) (22,617) (138,736)
--------- -------- ---------
Net cash provided by (used in) financing activities . . . . . 18,660 13,443 (42,512)
Effect of currency exchange rate changes on cash . . . . . . . . . (212) (776) (316)
--------- -------- ---------
Net increase (decrease) in cash and equivalents . . . . . . . . . . 23,036 (454) (6,319)
Cash and equivalents at beginning of period . . . . . . . . . . . . 7,289 7,743 14,062
--------- -------- ---------
Cash and equivalents at end of period . . . . . . . . . . . . . . . $ 30,325 $ 7,289 $ 7,743
========= ======== =========
- -------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information and noncash investing and
financing activities:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,030 $ 43,484 $ 28,001
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . $ 4,895 $ 5,058 $ 1,154
Capital lease obligations (machinery and equipment) . . . . . . . $ 2,081
</TABLE>
Due to the implementation of the Plan of Reorganization and Fresh
Start Reporting, the consolidated statement of cash flows for the fiscal years
ended December 28, 1995 and December 29, 1994 are not comparable to the fiscal
year ended December 31, 1993. (Refer to Note 1 of Notes to Consolidated
Financial Statements.)
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 271
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CHAPTER 11 REORGANIZATION PROCEEDINGS (DOLLARS IN THOUSANDS)
On January 6, 1993, a group of bondholders filed an involuntary petition
for reorganization of Envirodyne Industries, Inc. under Chapter 11 of the U.S.
Bankruptcy Code. On January 7, 1993 Viskase Corporation, Viskase Sales
Corporation, Viskase Holding Corporation, Clear Shield National, Inc., Sandusky
Plastics of Delaware, Inc., Sandusky Plastics, Inc. and Envirodyne Finance
Company each filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy
Code in the United States Bankruptcy Court for the Northern District of
Illinois, Eastern Division (the Bankruptcy Court). On December 17, 1993, the
Bankruptcy Court confirmed the First Amended Joint Plan of Reorganization as
twice modified (Plan of Reorganization) with respect to Envirodyne Industries,
Inc. (Envirodyne) and certain of its subsidiaries. The Plan of Reorganization
was consummated and Envirodyne and certain of its subsidiaries emerged from
Chapter 11 on December 31, 1993 (Effective Date). For accounting purposes, the
Plan of Reorganization was deemed to be effective as of December 31, 1993.
Pursuant to the Plan of Reorganization, Envirodyne's shares of common
stock that were outstanding prior to the effective date were canceled. Emerald
Acquisition Corporation, the sole stockholder of Envirodyne prior to the
consummation of the bankruptcy, received no distribution pursuant to the Plan
of Reorganization. The Plan of Reorganization provided for the initial issuance
of approximately 13,500,000 new shares of Envirodyne common stock (subject to
adjustment), warrants to purchase an additional 1,500,000 shares and
distributions to major creditors as follows:
-- Holders of Envirodyne's former Senior Discount Notes Due 1997
(14.5%) (Old Discount Notes) with an accreted value as of
January 6, 1993 of $200,838 became entitled to receive a pro
rata portion of $219,262 principal amount of 10 1/4% Senior
Notes Due 2001 (10 1/4% Notes).
-- Holders of Envirodyne's former $200,000 principal amount of
14% Senior Subordinated Debentures Due 2001 (Old 14%
Debentures), with accrued but unpaid interest through January
6, 1993 of $42,812 became entitled to receive a pro rata
portion of 12,142,737 shares of the Envirodyne common stock,
par value $.01 per share, representing in the aggregate
approximately 89.95% of the common stock initially issued
pursuant to the Plan of Reorganization.
-- Holders of the Envirodyne's former $91,350 principal amount of
13 1/2% Subordinated Notes Due 1996 (Old 13 1/2% Notes), with
accrued but unpaid interest through January 6, 1993 of $13,604
became entitled to receive a pro rata portion of (i) 903,625
shares of Envirodyne common stock, representing in the
aggregate approximately 6.69% of the common stock initially
issued pursuant to the Plan of Reorganization, and (ii)
warrants (Warrants) to purchase 1,500,000 shares of common
stock. The Warrants were issued pursuant to a Warrant
Agreement dated as of December 31, 1993 between Envirodyne and
Bankers Trust Company, as Warrant Agent. The Warrants are
exercisable at any time until December 31, 1998 at an exercise
price of $17.25 per share. The number of shares of common
stock for which a Warrant is exercisable, and the exercise
price of the Warrants, are subject to adjustment upon the
occurrence of certain events. In addition, holders of Old
13 1/2% Notes, other than Salomon Brothers Inc (Salomon
Brothers) and certain of its affiliates, who elected to grant a
limited release to Salomon Brothers and its affiliates pursuant
to the Plan of Reorganization, of all claims arising out of the
1989 leveraged buyout acquisition of Envirodyne, the Old 13
1/2% Notes or Envirodyne, were entitled to share ratably in
445,928 shares of common stock, representing in the aggregate
approximately 3.30% of the common stock initially issued
pursuant to the Plan of Reorganization.
-- Holders of allowed general unsecured claims of Envirodyne (as
opposed to subsidiaries of Envirodyne) became entitled to
receive 32.28 shares of common stock for each five hundred
dollars amount of their prepetition claims, or a total of
8,070 shares of common stock, representing .06% of the common
stock initially issued pursuant to the Plan of Reorganization.
These claims totaled approximately $125. If the allowed amount
of general unsecured claims of Envirodyne exceeds $125, for
example upon the resolution of disputed claims, additional
shares of common stock will have to be issued to the holders
of allowed general unsecured claims of Envirodyne in order to
provide equitable allocation of value among
F-6
<PAGE> 272
Envirodyne's unsecured creditors under the Plan of
Reorganization. Such additional shares of common stock would
be distributed with respect to allowed general unsecured
claims of Envirodyne as follows: (i) approximately 2.58
additional shares per five hundred dollars in claims in the
event allowed general unsecured claims of Envirodyne are
between $125 and $25,000; (ii) approximately 5.61 additional
shares per five hundred dollars in claims in the event allowed
general unsecured claims of Envirodyne are between $25,000 and
$50,000; (iii) approximately 9.22 additional shares per five
hundred dollars in claims in the event allowed general
unsecured claims of Envirodyne are between $50,000 and
$75,000; and (iv) approximately 13.58 additional shares per
five hundred dollars in claims in the event allowed general
unsecured claims of Envirodyne are between $75,000 and
$100,000. Refer to Note 23 for discussion on certain settled
claims and open claims which, if determined adversely to
Envirodyne, would result in the issuance of common stock.
-- Holders of Envirodyne subsidiary allowed trade claims were
paid in full.
-- Salomon Brothers Holding Company Inc 11.25% Pay-in-Kind Notes
issued by Envirodyne with an accreted value as of January 6,
1993 of $5,658 were canceled.
The contracts constituting the sale and leaseback transaction with
General Electric Capital Corporation were assumed by the relevant Envirodyne
subsidiaries under the Plan of Reorganization with minor changes thereto.
The Chapter 11 filing was related only to the Company's domestic
operations and did not include the foreign subsidiaries and various inactive
domestic subsidiaries.
The Company accounted for the reorganization using the principles of
fresh start reporting in accordance with the American Institute of Certified
Public Accountants Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization under the Bankruptcy Code." Accordingly, all assets and
liabilities have been restated to reflect their reorganization value, which
approximates fair value.
The reorganization value of the Company's equity of $135,000 was based
on the consideration of many factors and various valuation methods, including
discounted cash flows and comparable multiples of earnings valuation techniques
believed by management and its financial advisors to be representative of the
Company's business and industry. Factors considered by the Company included the
following:
o Forecasted operating and cash flow results which gave effect
to the estimated impact of debt restructuring and other
operational reorganization.
o Discounted residual value at the end of the forecasted period
based on the capitalized cash flows for the last year of that
period.
o Competition and general economic considerations.
o Projected sales growth.
o Potential profitability.
o Seasonality and working capital requirements.
The excess of the reorganization value over the fair value of net
assets and liabilities is reported as excess reorganization value and is being
amortized over a fifteen-year period. The Company continues to evaluate the
recoverability of excess reorganization value based on the operating
performance and expected future undiscounted cash flows of the operating
business units.
F-7
<PAGE> 273
The reorganization and the adoption of Fresh Start Reporting resulted
in the following adjustments to the Company's Consolidated Statement of
Operations for the period January 1 to December 31, 1993:
<TABLE>
<CAPTION>
INCOME
(EXPENSE)
---------
<S> <C>
Reorganization Items
- --------------------
Legal, financial advisory and other fees associated with the
Chapter 11 proceedings............................................... $ (14,929)
Write-off of deferred financing fees associated with the Bank
Credit Agreement .................................................... (4,071)
Write-off of existing excess investment over net assets acquired, net
of excess reorganization value recorded, and fair market value
adjustments to assets and liabilities ............................... (85,745)
---------
$(104,745)
=========
Extraordinary Gain
- ------------------
Accreted value of the Old Discount Notes less unamortized deferred
financing .......................................................... $ 197,379
Principal amount of Old 14% Debentures plus accrued interest less
unamortized deferred financing ..................................... 237,125
Principal amount of Old 13 1/2% Notes plus accrued interest less
unamortized deferred financing ..................................... 103,918
Accreted value of 11 1/4% Pay-in-Kind Notes due to Related Party ..... 5,658
Envirodyne untendered shares ......................................... 2,176
Envirodyne general unsecured creditors allowed claims ................ 90
Principal amount of 10 1/4% Notes exchanged for Old Discount Notes.... (219,262)
Fair value of equity exchanged for Old 14% Debentures, Old
13 1/2% Notes and Envirodyne unsecured claims ...................... (135,000)
---------
Extraordinary gain before tax provision .............................. 192,084
Tax provision on extraordinary gain................................... 8,300
---------
Extraordinary gain net of taxes ...................................... $ 183,784
=========
</TABLE>
Had the Fresh Start reporting and the Plan of Reorganization been
implemented with the related financing at the beginning of 1993, the pro forma
Envirodyne consolidated statement of operations would have been as follows:
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
JANUARY 1 To
DECEMBER 31, 1993
-----------------
(UNAUDITED)
<S> <C>
Net sales ......................................................... $ 587,385
Cost of sales ................................................... 417,780
Selling, general and administrative.............................. 99,350
Amortization of intangibles and excess reorganization cost....... 15,612
----------
Operating income................................................... 54,643
Interest income ................................................. 931
Interest expense ................................................ 51,198
Other expense (income), net...................................... 5,540
Minority interest in loss of subsidiary.......................... 717
----------
Income before income taxes......................................... (447)
Income tax provision ............................................ 6,140
----------
Net (loss) ........................................................ $ (6,587)
==========
Weighted average common shares .................................... 13,500,703
Net (loss) per share .............................................. $ (.49)
==========
</TABLE>
The pro forma information reflects the changes in interest cost and
depreciation and amortization due to the implementation of the Plan of
Reorganization and Fresh Start Reporting.
F-8
<PAGE> 274
2. NATURE OF BUSINESS
Envirodyne manufactures food packaging products and foodservice supplies
through three primary operating subsidiaries -- Viskase, Sandusky and Clear
Shield. The operations of these subsidiaries are primarily in North and South
America and Europe. Viskase is a leading producer of cellulosic casings used in
preparing and packaging processed meat products and is a major producer of heat
shrinkable plastic bags and specialty films for packaging and preserving fresh
and processed meat products, poultry and cheeses. The Company is also a leading
domestic and international manufacturer of plasticized polyvinyl chloride (PVC)
films, primarily for use in packaging food items. Through Sandusky, the Company
is a producer of thermoformed and injection molded plastic containers, used in
the packaging of cultured dairy and delicatessen products, and of horticultural
trays and inserts. Finally, through Clear Shield, the Company is a major
domestic producer of disposable plastic cutlery, drinking straws, custom dining
kits and related products.
INTERNATIONAL OPERATIONS
Viskase has seven manufacturing facilities located outside the continental
United States, in Beauvais, France; Thaon, France; Lindsay, Ontario, Canada;
Sedgefield, England (Great Britain); Swansea, Wales (Great Britain); Guarulhos,
Brazil and Nuevo Laredo, Mexico.
The aggregate of domestic exports and net sales of foreign operations
represents approximately 56% of Viskase's total net sales.
International sales and operations may be subject to various risks
including, but not limited to, possible unfavorable exchange rate fluctuations,
political instability, governmental regulations (including import and export
controls), restrictions on currency repatriation, embargoes, labor relations
laws and the possibility of governmental expropriation. Viskase's foreign
operations generally are subject to taxes on the repatriation of funds.
International operations in certain parts of the world may be subject to
international balance of payments difficulties which may raise the possibility
of delay or loss in the collection of accounts receivable from sales to
customers in those countries. Viskase believes that its allowance for doubtful
accounts makes adequate provision for the collectibility of its receivables.
Management believes that growth potential exists for many of Viskase's products
outside the United States and that Viskase is well positioned to participate in
these markets.
All of Sandusky's and Clear Shield's operations are located in the United
States.
SALES AND DISTRIBUTION
Viskase sells its products in virtually every country in the world with
principal markets in North America, Europe, Latin America and Asia Pacific. In
the United States, Viskase has a staff of technical sales representatives
responsible for sales to fresh meat, processed meat and poultry producers.
Approximately 50 distributors market Viskase products to customers in Europe,
Africa, Asia, and Latin America. Its products are marketed through its own
subsidiaries in the United Kingdom, Germany, France, Italy, Russia, Brazil,
Mexico and Australia.
In the United States, Viskase sells its PVC film products primarily to the
retail grocery industry through packaging material distributors, food
wholesalers and a direct sales force. Additionally the sales organization is
supported by a technical service group. The United Kingdom operation sells
directly and through distributors, primarily to the retail grocery and
foodservice industries in Europe.
In the United States, Viskase operates casings service centers in Atlanta,
Georgia, and Bensalem, Pennsylvania, as well as service centers within the
Chicago, Illinois, and Pauls Valley, Oklahoma, plants. In Europe, Viskase
operates casings service centers in Milan, Italy, Pulheim, Germany, and Moscow,
Russia. Viskase also operates a service center in Brisbane, Australia. These
service centers provide finishing, inventory and delivery services to Viskase
customers.
Sandusky's and Clear Shield's sales are predominantly in the United
States.
F-9
<PAGE> 275
COMPETITION
Viskase is one of the world's leading producers of cellulosic casings and
a major producer of films. From time to time, Viskase experiences reduced
market share or reduced profits due to price competition; however, management
believes that such market conditions will not result in any long-term material
loss of business.
The dairy and delicatessen containers industry is highly fragmented.
Sandusky competes in the manufacture and sale of dairy and delicatessen
containers with several domestic manufacturers of thermoformed and injection
molded plastic containers. Major competitive factors in the dairy and
delicatessen container business are price, quality and customer service. Major
competitive factors in the specialized thermoformed container business are
price and technical and customer service capabilities.
Clear Shield's primary competitors include several major corporations,
some of which are larger and better capitalized than Clear Shield and, in some
cases, offer a wider product line than Clear Shield. Clear Shield's competitors
periodically engage in aggressive price discounting to gain business. Clear
Shield management believes, however, that such market conditions will not
result in any long-term material loss of business for Clear Shield, although
its profit margins may be affected from time to time.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
Effective in 1990 Envirodyne adopted a 52/53 week fiscal year ending on
the last Thursday of December. The 1993 financial statements include December
31, 1993 in order to present the effect of the consummation of the Plan of
Reorganization.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Envirodyne
Industries, Inc. and its subsidiaries (the Company).
Reclassifications have been made to the prior years' financial statements
to conform to the 1995 presentation.
(C) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
(D) CASH EQUIVALENTS (DOLLARS IN THOUSANDS)
For purposes of the statement of cash flows, the Company considers cash
equivalents to consist of all highly liquid debt investments purchased with an
initial maturity of approximately three months or less. Due to the short-term
nature of these instruments, the carrying values approximate the fair market
value. Cash equivalents include $24,536 and $821 of short-term investments at
December 28, 1995 and December 29, 1994, respectively.
(E) INVENTORIES
Domestic inventories are valued primarily at the lower of last-in,
first-out (LIFO) cost or market. Remaining amounts, primarily foreign, are
valued at the lower of first-in, first-out (FIFO) cost or market.
(F) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost less accumulated
depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the assets ranging from 3 to 32 years. Upon
retirement or other disposition, cost and related accumulated depreciation are
removed from the accounts, and
F-10
<PAGE> 276
any gain or loss is included in results of operations. Effective December 31,
1993 and in conjunction with the Fresh Start Reporting, property, plant and
equipment was reported at the estimated fair value (refer to Note 1).
(G) DEFERRED FINANCING COSTS
Deferred financing costs are amortized on a straight-line basis over the
expected term of the related debt agreement. Amortization of deferred financing
costs is classified as interest expense.
(H) PATENTS
Patents are amortized on the straight-line method over an estimated
average useful life of ten years.
The carrying value of patents is periodically reviewed by the Company and
impairments are recognized when the expected undiscounted future operating cash
flows derived from such patents is less than the carrying value. If impairment
is identified, valuation techniques deemed appropriate under the particular
circumstances will be used to determine the asset's fair value. The loss will
be measured based on the excess of carrying value over the determined fair
value. The review for impairment is performed at least on a quarterly basis.
(I) EXCESS REORGANIZATION VALUE AND EXCESS INVESTMENT OVER NET ASSETS
ACQUIRED, NET
Excess reorganization value is amortized on the straight-line method over
15 years. Accumulated amortization of excess reorganization value totaled $20
million and $10 million at December 28, 1995, and December 29, 1994,
respectively.
Cost in excess of net assets acquired, net was amortized on a
straight-line method over 40 years in fiscal 1993.
The Company continues to evaluate the recoverability of excess
reorganization value based on operating performance and undiscounted cash flows
of the operating business units. Impairment will be recognized when the
expected undiscounted future operating cash flows derived from such intangible
is less than its carrying value. If impairment is identified, valuation
techniques deemed appropriate under the particular circumstances will be used
to determine the intangible's fair value. The loss will be measured based on
the excess of carrying value over the determined fair value. The review for
impairment is performed at least on a quarterly basis.
(J) PENSIONS
The North American operations of Viskase and the Company's operations in
Europe have defined benefit retirement plans covering substantially all
salaried and full time hourly employees. Pension cost is computed using the
projected unit credit method.
The Company's funding policy is consistent with funding requirements of
the applicable federal and foreign laws and regulations.
(K) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The North American operations of Viskase have postretirement health care
and life insurance benefits. Effective January 1, 1993, postretirement benefits
other than pensions are accounted for in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions."
(L) POSTEMPLOYMENT BENEFITS
Effective December 31, 1993 and in conjunction with the Fresh Start
Reporting, the Company adopted SFAS No. 112 "Employers Accounting for
Postemployment Benefits." The impact of adopting SFAS No. 112 was not material.
F-11
<PAGE> 277
(M) INCOME TAXES
Income taxes are accounted for in accordance with SFAS No. 109. Tax
provisions and benefits are recorded at statutory rates for taxable items
included in the consolidated statements of operations regardless of the period
for which such items are reported for tax purposes. Deferred income taxes are
recognized for temporary differences between financial statement and income tax
bases of assets and liabilities for which income tax benefits will be realized
in future years.
(N) NET INCOME (LOSS) PER SHARE
Net income (loss) per share of common stock is based upon the weighted
average number of shares of common stock outstanding during the year. No effect
has been given to options outstanding under the Company's stock option plans
and warrants issued pursuant to the Plan of Reorganization as their effect is
anti-dilutive.
(O) REVENUE RECOGNITION
Sales to customers are recorded at the time of shipment net of discounts
and allowances.
(P) FOREIGN CURRENCY CONTRACTS
The Company maintains a hedging program to partially hedge its forecasted
foreign currency revenue cash flows. The hedging program principally addresses
revenue cash flows within its European operations. The foreign exchange
contracts are denominated predominantly in the major European currencies and
have varying maturities up to eighteen months. The effect of this practice is
to minimize the effect of foreign exchange rate movements on the Company's
operating results. The Company's hedging activities do not subject the Company
to additional exchange rate risk because gains and losses on these contracts
offset losses and gains on the transactions being hedged. The cash flows from
forward contracts accounted for as hedges of identifiable transactions or
events are classified consistent with the cash flows from the transactions or
events being hedged.
(Q) STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options and other
equity instruments to employees based on new fair value acounting rules.
Although expense recognition for employee stock-based compensation is not
mandatory, SFAS 123 requires companies that choose not to adopt the new fair
value accounting to disclose pro forma net income and earnings per share under
the new method. This new accounting principle is effective for the Company's
fiscal year ending December 26, 1996. The Company believes that adoption is not
expected to have a material impact on its financial condition as the Company
will not adopt the fair value accounting, but will instead comply with the
disclosure requirements.
4. RECEIVABLES (DOLLARS IN THOUSANDS)
Receivables consisted primarily of trade accounts receivable and were net
of allowances for doubtful accounts of $3,224 and $2,136 at December 28, 1995,
and at December 29, 1994, respectively.
Envirodyne has a broad base of customers, with no single customer
accounting for more than 5% of sales.
F-12
<PAGE> 278
5. INVENTORIES (DOLLARS IN THOUSANDS)
Inventories consisted of:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1995 1994
------------ ------------
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,150 $ 20,358
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,800 37,613
Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,524 52,512
--------- ---------
$ 99,474 $ 110,483
========= =========
</TABLE>
Approximately 54% and 55% of the Company's inventories at December 28,
1995, and December 29, 1994, respectively, were valued at LIFO. These LIFO
values exceeded current manufacturing cost by approximately $4,000 and $7,000
at December 28, 1995, and December 29, 1994, respectively. Inventories were net
of reserves for obsolete and slow moving inventory of $3,818 and $5,353 at
December 28, 1995, and December 29, 1994, respectively.
Raw materials used by Viskase include cellulose (from wood pulp), fibrous
paper, petroleum based resins, plasticizers and various other chemicals.
Viskase generally purchases its raw materials from a single or small number of
suppliers with whom it maintains good relations. Certain primary and
alternative sources of supply are located outside the United States. Viskase
believes, but there can be no assurance, that adequate alternative sources of
supply currently exist for all of Viskase's raw materials or raw material
substitutes that Viskase could modify its processes to utilize.
The principal raw materials used by Sandusky and Clear Shield are
thermoplastic resins, which are readily available from several domestic sources.
6. PROPERTY, PLANT AND EQUIPMENT (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1995 1994
------------ ------------
<S> <C> <C>
Property, plant and equipment:
Land and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,369 $ 15,930
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . 81,767 76,202
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 292,176 256,621
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . 15,938 20,178
Capital leases:
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 139,241 137,168
---------- ----------
$ 545,491 $ 506,099
========== ==========
</TABLE>
Maintenance and repairs charged to costs and expenses for 1995, 1994, and
1993 aggregated $33,227, $33,045 and $32,636, respectively. Depreciation is
computed on the straight-line method over the estimated useful lives of the
assets ranging from 3 to 32 years.
7. OTHER ASSETS (DOLLARS IN THOUSANDS)
Other assets were comprised of:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1995 1994
------------ ------------
<S> <C> <C>
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,000 $ 50,000
Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . 10,000 5,000
---------- ----------
Patents, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 45,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,589 2,181
---------- ----------
$ 45,589 $ 47,181
========== ==========
</TABLE>
Patents are amortized on the straight-line method over an estimated
average useful life of ten years.
F-13
<PAGE> 279
8. ACCRUED LIABILITIES (DOLLARS IN THOUSANDS)
Accrued liabilities were comprised of:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1995 1994
------------ ------------
<S> <C> <C>
Compensation and employee benefits . . . . . . . . . . . . . . . . . . . $31,997 $33,521
Taxes, other than on income . . . . . . . . . . . . . . . . . . . . . . 6,535 6,454
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,535 3,630
Accrued volume and sales discounts . . . . . . . . . . . . . . . . . . . 13,218 11,958
Accrued reorganization fees and expenses . . . . . . . . . . . . . . . . 2,027 3,167
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,241 13,516
------- -------
$67,553 $72,246
======= =======
</TABLE>
9. DEBT OBLIGATIONS (DOLLARS IN THOUSANDS)
On June 20, 1995, Envirodyne completed the sale of $160,000 aggregate
principal amount of senior secured notes (Senior Secured Notes) to certain
institutional investors in a private placement. The senior secured notes were
issued pursuant to an indenture dated June 20, 1995 (Indenture) and consist of
(i) $151,500 of 12% Senior Secured Notes due 2000 and (ii) $8,500 of Floating
Rate Senior Secured Notes due 2000 (collectively, the Senior Secured Notes).
Envirodyne used the net proceeds of the offering primarily to (i) repay the
Company's $86,125 domestic term loan, (ii) repay the $68,316 of obligations
under the Company's domestic and foreign revolving loans and (iii) pay
transaction fees and expenses. Concurrently with the June 20, 1995 placement,
Envirodyne entered into a new $20,000 domestic revolving credit facility
(Revolving Credit Facility) and a new $28,000 letter of credit facility (Letter
of Credit Facility). The Senior Secured Notes and the obligations under the
Revolving Credit Facility and the Letter of Credit Facility are guaranteed by
Envirodyne's significant domestic subsidiaries and secured by a collateral pool
(Collateral Pool) comprised of: (i) all domestic accounts receivable (including
intercompany receivables) and inventory; (ii) all patents, trademarks and other
intellectual property (subject to non-exclusive licensing agreements); (iii)
substantially all domestic fixed assets (other than assets subject to a lease
agreement with General Electric Capital Corporation); and (iv) a senior pledge
of 100% of the capital stock of Envirodyne's significant domestic subsidiaries
and 65% of the capital stock of Viskase S.A. Such guarantees and security are
shared by the holders of the Senior Secured Notes and the holders of the
obligations under the Revolving Credit Facility on a pari passu basis pursuant
to an intercreditor agreement. Pursuant to such intercreditor agreement, the
security interest of the holders of the obligations under the Letter of Credit
Facility has priority over all other liens on the Collateral Pool.
The Company finances its working capital needs through a combination of
cash generated through operations and borrowings under the Revolving Credit
Facility. The availability of funds under the Revolving Credit Facility is
subject to the Company's compliance with certain covenants (which are
substantially similar to those included in the Indenture), borrowing base
limitations measured by accounts receivable and inventory of the Company and
reserves which may be established at the discretion of the lenders. Currently,
there are no drawings under the Revolving Credit Facility. The available
borrowing capacity under the Revolving Credit Facility was $20 million at
December 28, 1995.
The Company recognized an extraordinary loss of $6,778 representing the
write-off of deferred financing fees related to the June 20, 1995 debt
refinancing. The extraordinary loss, net of applicable income taxes of $2,582,
was included in the Company's Statement of Operations for the quarter ended
June 29, 1995.
The $151,500 tranche of Senior Secured Notes bears interest at a rate of
12% per annum and the $8,500 tranche bears interest at a rate equal to the six
month London Interbank Offered Rate (LIBOR) plus 575 basis points. The current
interest rate on the floating rate tranche is approximately 11.4%. The interest
rate on the floating rate tranche is reset semi-annually on June 15 and
December 15. Interest on the Senior Secured Notes is payable each June 15 and
December 15.
On June 15, 1999, $80,000 of the aggregate principal amount of the Senior
Secured Notes is subject to a mandatory redemption. The remaining principal
amount outstanding will mature on June 15, 2000.
In the event the Company has Excess Cash Flow (as defined) in excess of
$5,000 in any fiscal year, beginning with fiscal 1995, Envirodyne will be
required to make an offer to purchase Senior Secured Notes
F-14
<PAGE> 280
together with any borrowed money obligations outstanding under the Revolving
Credit Facility, on a pro rata basis, in an amount equal to the Excess Cash
Flow at a purchase price of 100% plus any accrued interest to the date of
purchase. There was no Excess Cash Flow for fiscal 1995.
The Senior Secured Notes are redeemable, in whole or from time to time in
part, at Envirodyne's option, at the greater of (i) the outstanding principal
amount or (ii) the present value of the expected future cash flows from the
Senior Secured Notes discounted at a rate equal to the Treasury Note yield
corresponding closest to the remaining average life of the Senior Secured Notes
at the time of prepayment plus 100 basis points; plus accrued interest thereon
to the date of purchase.
Upon the occurrence of a Change of Control (which includes the acquisition
by any person of more than 50% of Envirodyne's Common Stock), each holder of
the Senior Secured Notes has the right to require the Company to repurchase
such holder's Senior Secured Notes at a price equal to the greater of (i) the
outstanding principal amount or (ii) the present value of the expected cash
flows from the Senior Secured Notes discounted at a rate equal to the Treasury
Note yield corresponding closest to the remaining average life of the Senior
Secured Notes at the time of prepayment plus 100 basis points; plus accrued
interest thereon to the date of purchase.
The Indenture contains covenants with respect to Envirodyne and its
subsidiaries limiting (subject to a number of important qualifications), among
other things, (i) the ability to pay dividends or redeem or repurchase common
stock, (ii) the incurrence of indebtedness, (iii) the creation of liens, (iv)
certain affiliate transactions and (v) the ability to consolidate with or merge
into another entity and to dispose of assets.
Borrowings under the Revolving Credit Facility bear interest at a rate per
annum equal to the three month London Interbank Offered Rate (LIBOR) on the
first day of each calendar quarter plus 300 basis points. The Revolving Credit
Facility expires on June 20, 1998.
Envirodyne has entered into interest rate agreements that cap $50 million
of interest rate exposure at an average LIBOR rate of 6.50% until January 1997.
These interest rate cap agreements were entered into under terms of the senior
bank financing that was repaid on June 20, 1995. Interest expense includes $613
of amortization of the interest rate cap premium during fiscal 1995. Envirodyne
has not received any payments under the interest rate protection agreements.
The Letter of Credit Facility expires on June 20, 1998. Fees on the
outstanding amount of letters of credit are 2.0% per annum, with an issuance
fee of 0.5% on the face amount of the letter of credit. There is a commitment
fee of 0.5% per annum on the unused portion of the Letter of Credit Facility.
Had the refinancing taken place at the beginning of 1995, the pro forma
Envirodyne consolidated statement of operations would have been:
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 30, 1994
TO
DECEMBER 28, 1995
-----------------
<S> <C>
Net sales ........................................................... $ 650,212
Cost of sales ..................................................... 485,048
Selling, general and administrative................................ 111,230
Amortization of intangibles and
excess reorganization cost ...................................... 15,799
----------
Operating income..................................................... 38,135
Interest income.................................................... 670
Interest expense................................................... 60,213
Other expense (income), net........................................ 1,710
----------
(Loss) before income taxes .......................................... (23,118)
Income tax (benefit) ................................................ (4,040)
----------
Net (loss) .......................................................... $ (19,078)
==========
Weighted average common shares....................................... 13,516,771
Net (loss) per share................................................. $ (1.41)
==========
</TABLE>
F-15
<PAGE> 281
The pro forma information reflects the change in interest expense and
related tax effect due to the issuance of $160 million principal amount of
Senior Secured Notes and the refinancing of the Company's bank debt.
The $219,262 principal amount of 10 1/4% Notes were issued pursuant to an
Indenture dated as of December 31, 1993 (10 1/4% Note Indenture) between
Envirodyne and Bankers Trust Company, as Trustee. The 10 1/4% Notes are the
unsecured senior obligations of Envirodyne, bear interest at the rate of
10 1/4% per annum, payable on each June 1 and December 1, and mature on
December 1, 2001. The 10 1/4% Notes are redeemable, in whole or from time to
time in part, at the option of Envirodyne, at the percentages of principal
amount specified below plus accrued and unpaid interest to the redemption date,
if the 10 1/4% Notes are redeemed during the twelve-month period commencing on
January 1 of the following years:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . 104%
1997 . . . . . . . . . . . . . . . . . . . . . . . . 103%
1998 . . . . . . . . . . . . . . . . . . . . . . . . 102%
1999 . . . . . . . . . . . . . . . . . . . . . . . . 101%
2000 and thereafter . . . . . . . . . . . . . . . . . 100%
</TABLE>
The 10 1/4% Note Indenture contains covenants with respect to Envirodyne
and its subsidiaries limiting (subject to a number of important
qualifications), among other things, (i) the ability to pay dividends on or
redeem or repurchase capital stock, (ii) the incurrence of indebtedness, (iii)
certain affiliate transactions and (iv) the ability of the Company to
consolidate with or merge with or into another entity or to dispose of
substantially all its assets.
Outstanding short-term and long-term debt consisted of:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1995 1994
------------ ------------
<S> <C> <C>
Short-term debt, current maturity of long-term debt and capital
lease obligations:
Current maturity of Bank Term Loan ................................ $ 11,100
Current maturity of Viskase Capital Lease Obligation .............. $ 6,012 5,450
Current maturity of Viskase Limited Term Loan (4.7%) .............. 2,033 1,882
Other.............................................................. 4,459 7,366
--------- ----------
Total short-term debt .................................. $ 12,504 $ 25,798
========= ==========
Long-term debt:
Bank Credit Agreement:
Term Loan due 1999 .............................................. $ 80,575
Revolving Loan due 1999.......................................... 32,524
12% Senior Secured Notes due 2000.................................. $ 160,000
10.25% Senior Notes due 2001....................................... 219,262 219,262
Viskase Capital Lease Obligation................................... 141,182 147,194
Viskase Limited Term Loan (4.7%) .................................. 7,115 8,466
Other.............................................................. 2,622 1,337
--------- ----------
Total long-term debt.................................... $ 530,181 $ 489,358
========= ==========
</TABLE>
The fair value of the Company's debt obligation (excluding capital lease
obligations) is estimated based upon the quoted market prices for the same or
similar issues or on the current rates offered to the Company for the debt of
the same remaining maturities. At December 28, 1995, the carrying amount and
estimated fair value of debt obligations (excluding capital lease obligations)
were $393,432 and $318,053, respectively.
The average interest rate on short-term borrowing during 1995 was 10.1%.
On December 28, 1990, Viskase and GECC entered into a sale and leaseback
transaction. The sale and leaseback of assets included the production and
finishing equipment at Viskase's four domestic casing production and finishing
facilities. The facilities are located in Chicago, Illinois; Loudon, Tennessee;
Osceola, Arkansas and Kentland, Indiana. Viskase, as the Lessee under the
relevant agreements, will continue to operate all of the facilities. Sales
proceeds on the sale-leaseback transaction were $171.5 million; proceeds were
used to repay approximately $154 million of bank debt and a $15 million
convertible note outstanding at the time. The lease has been accounted for as a
capital lease.
F-16
<PAGE> 282
The principal terms of the sale and leaseback transaction include: (a) a
15 year basic lease term (plus selected renewals at Viskase's option); (b)
annual rent payments in advance beginning in February 1991; and (c) a fixed
price purchase option at the end of the basic 15 year term and fair market
purchase options at the end of the basic term and each renewal term. Further,
the Lease Documents contain covenants requiring maintenance by the Company of
certain financial ratios and restricting the Company's ability to pay
dividends, make payments to affiliates, make investments and incur
indebtedness.
Annual rental payments under the Lease will be approximately $19.2
million through 1997, $21.4 million in 1998 and $23.5 million through the end
of the basic 15-year term. Viskase is required to provide credit support
consisting of a standby letter of credit in an amount up to one year's rent
through at least 1997. This credit support can be reduced up to $4 million
currently if the Company achieves and maintains certain financial ratios. As of
December 28, 1995, the Company had met the required financial ratios and the
letter of credit has been reduced by $4 million. The letter can be further
reduced in 1997 or eliminated after 1998 if the Company achieves and maintains
certain financial ratios. Envirodyne and its other principal subsidiaries
guaranteed the obligations of Viskase under the Lease.
The 1996 GECC lease payment of $19,227 was paid on February 28, 1996.
Principal payments under the capital lease obligations for the years ended 1996
through 2000 range from approximately $6 million to $14 million.
The following is a schedule of minimum future lease payments under the
capital lease obligations together with the present value of the net minimum
lease payments as of December 28, 1995:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER
--------------------
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,714
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,658
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,636
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,766
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,766
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,028
--------
Net minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . 226,568
Less: Amount representing interest . . . . . . . . . . . . . . . . . . . (77,315)
--------
$149,253
========
</TABLE>
Aggregate maturities of remaining long-term debt for each of the next
five fiscal years are:
<TABLE>
<CAPTION>
TOTAL
-------
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,019
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,418
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,313
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,477
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,669
</TABLE>
10. OPERATING LEASES (DOLLARS IN THOUSANDS)
The Company has operating lease agreements for machinery, equipment and
facilities. The majority of the facilities leases require the Company to pay
maintenance, insurance and real estate taxes.
Future minimum lease payments for operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of December 28,
1995, are:
<TABLE>
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,033
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,291
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,708
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 588
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375
Total thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . .
------
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . $7,995
======
</TABLE>
Total rent expense during 1995, 1994 and 1993 amounted to $6,749, $5,982
and $5,401, respectively.
F-17
<PAGE> 283
11. RETIREMENT PLANS
The Company and its subsidiaries have defined contribution and defined
benefit plans varying by country and subsidiary.
At December 28, 1995, the North American operations of Viskase maintained
several non-contributory defined benefit retirement plans. The Viskase plans
cover substantially all salaried and full-time hourly employees, and benefits
are based on final average compensation and years of credited service. The
Company's policy is to fund the minimum actuarially computed annual
contribution required under the Employee Retirement Income Security Act of 1974
(ERISA).
As of the Viskase acquisition date, the former owner assumed the liability
for the accumulated benefit obligation under its plans. The effect of expected
future compensation increases on benefits accrued is recorded as a liability on
the Company's consolidated balance sheet.
PENSIONS -- NORTH AMERICA (DOLLARS IN THOUSANDS):
Net pension cost for the Viskase North American plans consisted of:
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 1, JANUARY 1,
1994 TO TO TO
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Service cost -- benefits earned during the year..... $ 3,238 $ 3,662 $ 3,186
Interest cost on projected benefit obligation....... 4,794 4,249 4,000
Actual (gain) loss on plan assets................... (7,012) 874 (2,306)
Net amortization and deferral....................... 4,086 (3,696) (74)
--------- ------- -------
Net pension cost ................................... $ 5,106 $ 5,089 $ 4,806
========= ======= =======
</TABLE>
F-18
<PAGE> 284
The amounts included in the consolidated balance sheet for the North
American plans of Viskase were:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1995 1994
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits ................................................. $ 45,208 $ 39,165
Nonvested benefits .............................................. 4,435 4,316
---------- ---------
Accumulated benefit obligation..................................... 49,643 43,481
Effect of projected future compensation increases.................. 16,566 16,651
---------- ---------
Projected benefit obligation....................................... 66,209 60,132
Plan assets at fair value, primarily listed stocks and investment
grade corporate bonds ........................................... 43,190 33,678
---------- ---------
Amount underfunded ................................................ 23,019 26,454
Unrecognized gain (loss)........................................... 7,578 3,778
Unrecognized prior service costs................................... 63 71
---------- ---------
Accrued liability included in consolidated balance sheet........... $ 30,660 $ 30,303
========== =========
Assumed discount rate.............................................. 7.5% 8.0%
Assumed long-term compensation factor.............................. 4.5% 5.0%
Assumed long-term return on plan assets............................ 8.5% 8.5%
</TABLE>
SAVINGS PLANS (DOLLARS IN THOUSANDS):
The Company also has defined contribution savings and similar plans, which
vary by subsidiary, and, accordingly, are available to substantially all
full-time U.S. employees not covered by collective bargaining agreements. The
Company's aggregate contributions to these plans are based on eligible employee
contributions and certain other factors. The Company expense for these plans
was $2,134, $2,109 and $2,026 in 1995, 1994, and 1993, respectively.
INTERNATIONAL PLANS (DOLLARS IN THOUSANDS):
The Company maintains various pension and statutory separation pay plans
for its European employees. The expense for these plans in 1995, 1994 and 1993
was $1,383, $1,043 and $864, respectively. As of their most recent valuation
dates, in plans where vested benefits exceeded plan assets, the actuarially
computed value of vested benefits exceeded those plans' assets by approximately
$2,856; conversely, plan assets exceeded the vested benefits in certain other
plans by approximately $2,346.
OTHER POSTRETIREMENT BENEFITS (DOLLARS IN THOUSANDS):
The Company provides postretirement health care and life insurance
benefits to Viskase's North American employees. The Company does not fund
postretirement health care and life benefits in advance, and has the right to
modify these plans in the future.
Effective January 1, 1993, the company adopted the provisions of SFAS No.
106 "Employers' Accounting for Postretirement Benefits Other Than Pensions."
SFAS No. 106 requires that the expected cost of these benefits must be charged
to expense during the years that the employee renders service. In connection
with the 1989 acquisition of the Company, an accrual of $15,000 had been
recorded for the estimated postretirement benefits liability at the acquisition
date. On January 1, 1993, an additional liability and transition obligation was
recorded on a prospective basis for $6,500. The transaction obligation was to
be amortized over 20 years. Subsequently, Fresh Start Reporting resulted in the
write-off of the transition obligation and statement of the
F-19
<PAGE> 285
liability for postretirement health care and life insurance benefits at fair
value. Net periodic postretirement benefit cost for 1995 and 1994 includes the
following components:
<TABLE>
<CAPTION>
MEDICAL LIFE TOTAL
---------------- ----------------- ------------------
1995 1994 1995 1994 1995 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic postretirement
benefit cost:
Service cost -- benefits earned during
the current year.............................. $ 413 $ 511 $ 162 $ 176 $ 575 $ 687
Interest cost -- on accumulated post-
retirement benefit obligation................. 1,182 1,208 472 442 1,654 1,650
Amortization of unrecognized transition
benefit ...................................... (73) (17) (90)
------- ------- ------ ------ ------- -------
Net periodic benefit cost ...................... $ 1,522 $ 1,719 $ 617 $ 618 $ 2,139 $ 2,337
======= ======= ====== ====== ======= =======
Actuarial present value of benefit obligations:
Retirees ....................................... $ 6,937 $ 6,836 $2,745 $2,184 $ 9,682 $ 9,020
Fully eligible active participants ............. 2,309 2,238 2,409 2,435 4,718 4,673
Other active participants ...................... 7,411 7,660 1,624 1,612 9,035 9,272
------- ------- ------ ------ ------- -------
Total ................................... 16,657 16,734 6,778 6,231 23,435 22,965
Unrecognized gains.............................. 1,616 979 622 581 2,238 1,560
Unrecognized prior service costs ............... (109) (109)
------- ------- ------ ------ ------- -------
Accumulated postretirement benefit obligation .... $18,164 $17,713 $7,400 $6,812 $25,564 $24,525
======= ======= ====== ====== ======= =======
Assumed discount rate............................. 7.50%
Assumed medical trend rate ....................... 11.00% in 1995 decreasing to 6.50% in 2004
Assumed long-term compensation factor............. 4.50%
</TABLE>
The postretirement benefit obligation was determined by application of
the terms of the various plans, together with relevant actuarial assumptions.
The effect of a 1% annual increase in these assumed cost trend rates would
increase the accumulated postretirement benefit obligation at December 28, 1995
and December 29, 1994 by $178 and $198, respectively, and the service and
interest cost components for 1995 and 1994 by a total of $16 and $22,
respectively.
EMPLOYEE RELATIONS
The Company generally maintains productive and amicable relationships
with its 4,900 employees worldwide. One of Viskase's domestic plants, located
in Loudon, Tennessee, is unionized, and all of its Canadian and European plants
have unions. Employees at the Company's European plants are unionized with
negotiations occurring at both local and national levels. Contracts have
recently been reached with certain of the European unions. Based on past
experience and current conditions, the Company does not expect a protracted
work stoppage to occur; however, national events outside of the Company's
control may give rise to such risk. From time to time union organization
efforts have occurred at other individual plant locations.
Unions represent a total of approximately 1,500 of Viskase's 4,000
employees. None of Clear Shield's approximate 514 employees are represented by
unions. Certain of the hourly production personnel at Sandusky's Ohio
thermoforming facility are members of a union. As of December 28, 1995,
approximately 1,675 of the Company's employees are covered by collective
bargaining agreements that will expire within one year.
F-20
<PAGE> 286
12. INCOME TAXES (DOLLARS IN THOUSANDS)
The provision (benefit) for income taxes consisted of:
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 1, JANUARY 1,
1994 TO TO TO
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . $ 200
Foreign . . . . . . . . . . . . . . . . . . . . . . $ 950 4,652 $ 2,453
State and local . . . . . . . . . . . . . . . . . .
------- --------- --------
$ 950 4,852 2,453
------- --------- --------
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . (7,219) (194) 17,188
Foreign . . . . . . . . . . . . . . . . . . . . . . 2,098 128 (1,434)
State and local . . . . . . . . . . . . . . . . . . (1,329) 14 2,093
------- --------- --------
(6,450) (52) 17,847
------- --------- --------
$(5,500) $ 4,800 $ 20,300
======= ========= ========
</TABLE>
The income tax benefit for the 1995 period was allocated between loss
before extraordinary loss for $2,918 and to the extraordinary loss for $2,582.
The income tax expense for the 1993 period was allocated between loss
before extraordinary gain for $12,000 and to the extraordinary gain for $8,300.
A reconciliation from the statutory federal tax rate to the consolidated
effective tax rate follows:
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 1, JANUARY 1,
1994 TO TO TO
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Statutory federal tax rate . . . . . . . . . . . . . . . . . . (35.0)% 35.0% 35.0%
Increase (decrease) in tax rate due to:
State and local taxes net of related federal tax benefit . . (3.2) .8 1.3
Net effect of taxes relating to foreign operations .8 140.3 1.5
Intangibles amortization . . . . . . . . . . . . . . . . . . 9.4 214.1 2.3
Non-taxable debt discharge income, fresh start accounting
and other bankruptcy related expenses . . . . . . . . . . . (22.9)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 13.8 2.0
----- ----- -----
Consolidated effective tax rate . . . . . . . . . . . . . . . . (20.4)% 404.0% 19.2%
===== ===== ======
</TABLE>
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities for 1995 are as follows:
<TABLE>
<CAPTION>
TEMPORARY DIFFERENCE TAX EFFECTED
--------------------------- ----------------------------
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Depreciation basis differences . . . . . . $296,263 $113,094
Inventory basis differences . . . . . . . 28,097 10,976
Intangible basis differences . . . . . . . 37,603 14,665
Lease transaction. . . . . . . . . . . . . $147,194 $57,406
Pension and healthcare . . . . . . . . . . 56,545 22,067
Employee benefits accruals . . . . . . . . 13,544 5,282
Valuation allowances . . . . . . . . . . . 3,209 1,252
Other accruals and reserves. . . . . . . . 6,673 2,602
Foreign exchange and other . . . . . . . . 648 70,720 216 27,580
-------- -------- ------- --------
$227,813 $432,683 $88,825 $166,315
======== ======== ======= ========
</TABLE>
F-21
<PAGE> 287
12. INCOME TAXES (DOLLARS IN THOUSANDS)--(CONTINUED)
At December 28, 1995, the Company had $11,136 of undistributed earnings
of foreign subsidiaries considered permanently invested for which deferred
taxes have not been provided.
At December 28, 1995, the Company had federal income tax net operating
loss carryforwards of approximately $28 million. Such losses will expire in the
year 2009, if not previously utilized. In addition the Company has alternative
minimum tax credit carryforwards of $3.5 million. Alternative minimum tax
credits have an indefinite carryforward period. Significant limitations on the
utilization of the net operating loss carryforwards and the alternative minimum
tax credit carryforwards exist under federal income tax rules.
Domestic earnings or (losses) after extraordinary gain or loss and before
income taxes were approximately $(30,138), $(7,705) and $107,622 in 1995, 1994
and 1993, respectively. Foreign earnings or (losses) before income taxes were
approximately $3,118, $8,893 and $(1,733) in 1995, 1994 and 1993, respectively.
The Company joins in filing a U.S. consolidated federal income tax return
including all of its domestic subsidiaries.
13. COMMITMENTS
As of December 28, 1995, the Company had capital expediture commitments
outstanding of approximately $3.7 million.
14. CONTINGENCIES (DOLLARS IN THOUSANDS)
A class action lawsuit by former employees of subsidiary corporations
comprising most of the Company's former steel and mining division (SMD) was
pending as of the commencement of the bankruptcy case in which the plaintiffs
were seeking substantial damages. In March 1996, Envirodyne completed a
settlement of the lawsuit under which Envirodyne was released and discharged
from all claims in exchange for 900,000 shares of Envirodyne common stock
without any admission or finding of liability or wrongdoing.
Litigation has been initiated with respect to events arising out of the
bankruptcy cases and the 1989 acquisition of Envirodyne by Emerald with respect
to which, although Envirodyne is not presently a party to such litigation,
certain defendants have asserted indemnity rights against Envirodyne. In ARTRA
Group Incorporated v. Salomon Brothers Holding Company Inc, Salomon Brothers
Inc, D.P. Kelly & Associates, L.P., Donald P. Kelly, Charles K. Bobrinskoy,
James L. Massey, William Rifkind and Michael Zimmerman, Case No. 93 A 1616,
United States Bankruptcy Court for the Northern District of Illinois, Eastern
Division (Bankruptcy Court), ARTRA Group Incorporated (ARTRA) alleges breach of
fiduciary duty and tortious inference in connection with the negotiation and
consummation of the Plan of Reorganization. In ARTRA Group Incorporated v.
Salomon Brothers Holding Company Inc, Salomon Brothers Inc, D.P. Kelly &
Associates, L.P., Donald P. Kelly, Charles K. Bobrinskoy and Michael Zimmerman,
Case No. 93 L 2198, Circuit Court of the Eighteenth Judicial Circuit, County of
DuPage, State of Illinois, ARTRA alleges breach of fiduciary duty, fraudulent
and negligent misrepresentation and breach of contract in connection with the
1989 acquisition of Envirodyne by Emerald. The plaintiff seeks damages in the
total amount of $136.2 million plus interest and punitive damages of $408.6
million. D.P. Kelly & Associates, L.P. and Messrs. Kelly, Bobrinskoy, Massey,
Rifkind and Zimmerman have asserted common law and contractual rights of
indemnity against Envirodyne for attorneys' fees, costs and any ultimate
liability relating to the claims set forth in the complaints. Upon the
undertaking of D.P. Kelly & Associates, L.P. to repay such funds in the event
it is ultimately determined that there is no right to indemnity, Envirodyne is
advancing funds to D.P. Kelly & Associates, L.P. and Mr. Kelly for the payment
of legal fees in the case pending before the Bankruptcy Court. Although the
Company is not a party to either case, the Company believes that the
plaintiff's claims raise similar factual issues to those raised in the
bankruptcy cases which, if adjudicated in a manner similar to that in the
bankruptcy cases, would render it difficult for the plaintiff to establish
liability. Accordingly, the Company believes that the indemnification claims
would not have a material adverse effect upon the business or financial
position of the Company, even if the claimants were ultimately successful in
establishing their right to indemnification.
Certain of Envirodyne's stockholders prior to the acquisition of
Envirodyne by Emerald failed to exchange their certificates representing old
Envirodyne common stock for the $40 per share cash merger consideration
F-22
<PAGE> 288
14. CONTINGENCIES (DOLLARS IN THOUSANDS)--(CONTINUED)
specified by the applicable acquisition agreement. In the Envirodyne bankruptcy
case, Envirodyne sought to equitably subordinate the claims of the holders of
untendered shares, so that such holders would not receive a distribution under
the Plan of Reorganization. The Bankruptcy Court granted Envirodyne's motion
for summary judgment and equitably subordinated the claims of the holders of
untendered shares to the claims of other general unsecured creditors. Certain
of the affected holders appealed and both the U.S. District Court and the U.S.
Seventh Circuit Court of Appeals affirmed the Bankruptcy Court decision. The
time period for further appeal has not passed. Envirodyne believes that, even
in the event of further appeal, if any, and reversal of the prior decisions,
the maximum number of shares of common stock that it would be required to issue
to such claimants is approximately 106,000.
Clear Shield National, Inc. and some of its employees have received
subpoenas from the Antitrust Division of the United States Department of
Justice relating to a grand jury investigation of the disposable plastic
cutlery industry. The U.S. Department of Justice has advised a former officer
and an existing employee that they are targets of the investigation. Both
individuals were invited to appear and testify before the grand jury but both
declined. Clear Shield National is cooperating fully with the investigation.
In February 1996 Clear Shield National and three other plastic cutlery
manufacturers were named as defendants in the following three civil complaints:
Eisenberg Brothers, Inc., on behalf of itself and all others similarly
situated, v. Amcel Corp., Clear Shield National, Inc., Dispoz-O Plastics Corp.
and Benchmark Holdings, Inc. t/a Winkler Products, Civil Action No. 96-728,
United States District Court for the Eastern District of Pennsylvania; St.
Cloud Restaurant Supply Company v. Amcel Corp., Clear Shield National, Inc.,
Dispoz-O Plastics Corp. and Benchmark Holdings, Inc. t/a Winkler Products, Case
No. 96C 0777, United States District Court for the Northern District of
Illinois, Eastern Division; and Servall Products, Inc., on behalf of itself and
all others similarly situated, v. Amcel Corporation, Clear Shield National,
Inc., Dispoz-O Plastics Corporation and Benchmark Holdings, Inc. t/a Winkler
Products, Civil Action No. 96-1116, United States District Court for the
Eastern District of Pennsylvania. Each of the complaints alleges, among other
things, that from October 1990 through April 1992 the defendants unlawfully
conspired to fix the prices at which plastic cutlery would be sold. The Company
has informed the plaintiffs that such claims as they relate to Clear Shield
were discharged by the order of the Bankruptcy Court and Plan of Reorganization
and that the plaintiffs are permanently enjoined from pursuing legal action to
collect discharged claims.
On February 27, 1996, the plaintiff in the St. Cloud case voluntarily
dismissed the action without prejudice and refiled its action in the U.S.
District Court for the Eastern District of Pennsylvania but did not name Clear
Shield National as a defendant. On March 14, 1996, Eisenberg Brothers Inc.
filed a motion in Clear Shield National's Bankruptcy proceeding in the U.S.
Bankruptcy Court for the Northern District of Illinois, Eastern Division.
Eisenberg Brothers Inc.'s motion contends that the Bankruptcy Court's order did
not discharge the plaintiff's claim.
The Company and its subsidiaries are involved in various legal proceedings
arising out of its business and other environmental matters, none of which is
expected to have a material adverse effect upon its results of operations, cash
flows or financial position.
15. CAPITAL STOCK, PAID IN CAPITAL, AND WARRANTS
Authorized shares of preferred stock ($.01 par value per share) and
common stock ($.01 par value per share) for the reorganized Envirodyne are
25,000,000 shares and 50,000,000 shares, respectively. 13,579,460 shares of
common stock were issued and outstanding as of December 28, 1995. In accordance
with the Plan of Reorganization, an additional 64,460 shares of common stock
and 15,000 shares of common stock were issued to the general unsecured
creditors of Envirodyne during 1995 and 1994, respectively. (Refer to Note 1.)
Prior to the December 31, 1993 reorganization, the authorized shares of
preferred stock and common stock were 1,000 shares and 320 shares,
respectively.
Envirodyne issued 1,500,000 warrants pursuant to the Plan of
Reorganization, exercisable at any time until December 31, 1998. Each warrant
was initially exercisable for one share of common stock at an initial exercise
price of $17.25 per share. The exercise price and the number of shares of
common stock for which a warrant is
F-23
<PAGE> 289
15. CAPITAL STOCK, PAID IN CAPITAL, AND WARRANTS--(CONTINUED)
exercisable were adjusted as a result of the issuance of certain shares of
Envirodyne after the consummation of the Plan of Reorganization, including the
issuance of shares in settlement of the SMD lawsuit discussed in Note 14. Under
terms of the warrant agreement, the exercise price has been adjusted from
$17.25 to $16.08 per share and the number of common shares for which each
warrant is exercisable has been adjusted from 1.000 share to 1.073 shares.
16. STOCK OPTIONS
At December 28, 1995, the Company had outstanding options under the 1993
Stock Option Plan. Options were issued to certain employees to purchase shares
at not less than the fair market value of the shares on the grant date. The
plan options generally vest in three equal annual amounts beginning one year
from the grant date and expire ten years from the grant date, subject to the
acceleration of exercisability upon the occurrence of certain events. Such an
acceleration event occurred in both November 1994 and August 1995.
During 1995, each non-employee director of the Company received options
to purchase 2,000 shares of stock at not less than the fair market value of the
shares on the date of grant. The non-employee director options are fully
exercisable upon issuance. Pursuant to the 1993 Stock Option Plan, on the date
of each subsequent annual meeting of stockholders, non-employee directors will
automatically be granted non-qualified options to purchase 1,000 shares of
Common Stock at an option exercise price equal to the fair market value of a
share of Common Stock on the date of grant.
Stock option activity for the years ended December 28, 1995 and December
29, 1994 were:
<TABLE>
<CAPTION>
NUMBER OF
OPTION OPTION PRICE
SHARES PER SHARE
---------- -------------
<S> <C> <C>
Outstanding, December 31, 1993
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402,020 $5.06
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Terminated . . . . . . . . . . . . . . . . . . . . . . . . . . (13,100) 5.06
---------
Outstanding, December 29, 1994 . . . . . . . . . . . . . . . . . 388,920 5.06
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,200 5.06
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Terminated . . . . . . . . . . . . . . . . . . . . . . . . . . (61,890) 5.06
----------
Outstanding, December 28, 1995 . . . . . . . . . . . . . . . . . 424,230 5.06
==========
</TABLE>
17. FAIR VALUE OF FINANCIAL INSTRUMENTS (DOLLARS IN THOUSANDS)
The following table presents the carrying value and estimated fair value
as of December 28, 1995 of the Company's financial instruments. (Refer to Notes
3 and 9.)
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
-------- ------------
<S> <C> <C>
Assets:
Cash and equivalents . . . . . . . . . . . . . . . . . . . . . $ 30,325 $ 30,325
Foreign currency contracts . . . . . . . . . . . . . . . . . . 3,397 3,377
Interest rate agreements . . . . . . . . . . . . . . . . . . . 561 3
Liabilities:
Long-term debt (excluding capital leases) . . . . . . . . . . . 393,432 318,053
</TABLE>
18. PATENT LITIGATION SETTLEMENT (DOLLARS IN THOUSANDS)
In 1989 certain competitors of Viskase filed a declaratory action
challenging the validity and enforceability of a Viskase patent relating to
casings used in the manufacture of food products. In May 1994, the trial court
upheld the validity and enforceability of the Viskase patent and found
infringement of the patent. Before the trial
F-24
<PAGE> 290
18. PATENT LITIGATION SETTLEMENT (DOLLARS IN THOUSANDS)--(CONTINUED)
on damages was conducted, Viskase entered into agreements to settle the
claims and grant licenses to the competitors. Under the terms of these
agreements Viskase received $9,457 for past infringement and advance royalties
and established royalty rates for future patent use.
19. RESEARCH AND DEVELOPMENT COSTS (DOLLARS IN THOUSANDS)
Research and development costs are expensed as incurred and totaled
$11,034, $16,852 and $15,216, for 1995, 1994, and 1993, respectively.
20. RELATED PARTY TRANSACTIONS (DOLLARS IN THOUSANDS)
During fiscal 1995, 1994 and 1993, the Company paid DPK $770 for
management services. In fiscal 1995, 1994 and 1993, the Company made payments
of approximately $156, $560 and $354, respectively, to an affiliate of DPK for
the use of a jet aircraft on an as-needed basis.
During fiscal 1995, 1994, and 1993, the Company purchased product and
services from affiliates of DPK in the amounts of approximately $1,537, $1,367
and $941, respectively. During fiscal 1995, 1994, and 1993, the Company sublet
office space from DPK for which it paid approximately $151, $151 and $150,
respectively, in rent. During fiscal 1995, the Company reimbursed a
non-affiliated medical plan in the aggregate amount of $79,344 for medical
claims of Messrs. Kelly, Gustafson and Corcoran.
During fiscal 1995 and 1994, the Company advanced funds to and made
payments on behalf of DPK and Donald P. Kelly in the amounts of approximately
$52 and $118, respectively, for legal fees related to the litigation involving
ARTRA Group Incorporated (refer to Note 14).
21. BUSINESS SEGMENT INFORMATION AND GEOGRAPHIC AREA INFORMATION (DOLLARS IN
THOUSANDS)
Envirodyne primarily manufactures and sells polymeric food casings and
plastic packaging films and containers (food packaging products) and disposable
foodservice supplies. The Company's operations are primarily in North/South
America and Europe. Intercompany sales and charges (including royalties) have
been reflected as appropriate in the following information. Other income for
1995, 1994, and 1993 includes net foreign exchange transaction gains (losses)
of approximately $(61), $2,707, and $(4,631), respectively.
F-25
<PAGE> 291
BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 1, JANUARY 1,
1994 TO TO TO
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1995 1994 1993
----------- ---------- -----------
<S> <C> <C> <C>
Net sales:
Food packaging products . . . . . . . . . . . . . $ 574,266 $ 530,179 $ 522,363
Disposable foodservice supplies . . . . . . . . . 76,138 68,996 66,383
Other and eliminations . . . . . . . . . . . . . (192) (146) (1,361)
----------- ----------- -----------
$ 650,212 $ 599,029 $ 587,385
=========== =========== ===========
Earnings before income taxes:
Operating income:
Food packaging products . . . . . . . . . . . . . $ 39,183 $ 48,145 $ 53,432
Disposable foodservice supplies . . . . . . . . . 4,959 6,514 5,223
Unallocated expenses, net -- primarily corporate (6,007) (5,982) (5,023)
----------- ----------- -----------
38,135 48,677 53,632
Interest expense, net . . . . . . . . . . . . . . . 56,666 49,207 30,259
Other expense (income), net . . . . . . . . . . . . 1,710 (1,668) 5,540
Minority interest in loss of subsidiary . . . . . . 50 717
----------- -------- -----------
$ (20,241) $ 1,188 $ 18,550
=========== ======== ===========
Identifiable assets:
Food packaging products . . . . . . . . . . . . . $ 796,655 $ 814,731 $ 790,125
Disposable foodservice supplies . . . . . . . . . 69,812 71,530 64,879
Corporate and other, primarily cash equivalents . 33,100 10,375 12,676
----------- ----------- -----------
$ 899,567 $ 896,636 $ 867,680
=========== =========== ===========
Depreciation and amortization under capital lease and
amortization of intangibles expense:
Food packaging products . . . . . . . . . . . . . $ 51,404 $ 47,207 $ 46,715
Disposable foodservice supplies . . . . . . . . . 4,581 4,125 5,624
Corporate and other . . . . . . . . . . . . . . . 76 55 59
----------- ----------- -----------
$ 56,061 $ 51,387 $ 52,398
=========== =========== ===========
Capital expenditures:
Food packaging products . . . . . . . . . . . . . $ 30,744 $ 28,534 $ 37,673
Disposable foodservice supplies . . . . . . . . . 3,687 4,012 3,100
Corporate and other . . . . . . . . . . . . . . . 34 20 114
----------- ----------- -----------
$ 34,465 $ 32,566 $ 40,887
=========== =========== ===========
</TABLE>
F-26
<PAGE> 292
GEOGRAPHIC AREA INFORMATION
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 1, JANUARY 1,
1994 TO TO TO
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net sales:
North/South American operations . . . . . . . . . $ 440,539 $ 423,049 $ 426,644
European operations . . . . . . . . . . . . . . . 213,618 184,395 164,717
Other and eliminations . . . . . . . . . . . . . (3,945) (8,415) (3,976)
----------- ----------- -----------
$ 650,212 $ 599,029 $ 587,385
=========== =========== ===========
Operating profit:
North/South American operations . . . . . . . . . $ 23,028 $ 28,124 $ 37,495
European operations . . . . . . . . . . . . . . . 15,373 20,553 16,137
Other and eliminations . . . . . . . . . . . . . (266)
----------- ----------- -----------
$ 38,135 $ 48,677 $ 53,632
=========== =========== ===========
Identifiable assets:
North/South American operations . . . . . . . . . $ 677,377 $ 667,358 $ 669,240
European operations . . . . . . . . . . . . . . . 219,802 229,278 198,440
Other and eliminations . . . . . . . . . . . . . 2,388
----------- ----------- -----------
$ 899,567 $ 896,636 $ 867,680
=========== =========== ===========
</TABLE>
The total assets and net assets of foreign businesses were approximately
$282,383 and $107,023 at December 28, 1995.
22. QUARTERLY DATA (UNAUDITED)
Quarterly financial information for 1995 and 1994 is as follows (in
thousands, except for per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
FISCAL 1995 QUARTER QUARTER QUARTER QUARTER ANNUAL
- ----------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . $155,824 $165,184 $166,688 $162,516 $650,212
Operating Income . . . . . . . . . . 8,689 10,089 8,653 10,704 38,135
Net income (loss) . . . . . . . . . . (3,895) (7,513) (4,475) (5,636) (21,519)
Net income (loss) per share . . . . . (0.29) (0.56) (0.33) (0.42) (1.59)
</TABLE>
The second quarter net (loss) includes an extraordinary loss of $(4.2)
million on debt extinguishment.
Net income (loss) per share amounts are computed independently for each
of the quarters presented using weighted average shares outstanding during each
quarter. The sum of the quarterly per share amounts in 1995 do not equal the
total for the year because of rounding and 1995 stock issuances, as shown on
the Consolidated Statement of Stockholders' Equity.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
FISCAL 1994 QUARTER QUARTER QUARTER QUARTER ANNUAL
- ----------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . $142,593 $150,788 $151,883 $153,765 $599,029
Operating Income . . . . . . . . . . 9,710 18,739 9,755 10,473 48,677
Net income (loss) . . . . . . . . . . (2,507) 3,448 (3,261) (1,292) (3,612)
Net income (loss) per share . . . . . (0.19) 0.26 (0.24) (0.10) (0.27)
</TABLE>
The 1994 second quarter operating income benefitted from a $9.5 million
settlement of a patent infringement suit.
F-27
<PAGE> 293
22. QUARTERLY DATA (UNAUDITED)--(CONTINUED)
Net income (loss) per share amounts are computed independently for each
of the quarters presented using weighted average shares outstanding during each
quarter.
23. SUBSEQUENT EVENTS (DOLLARS IN THOUSANDS)
On February 23, 1996, the United States Bankruptcy Court for the Northern
District of Illinois, Eastern District entered an order approving a settlement
agreement resolving all claims of the former union employees of Wisconsin Steel
Company which shut down in March 1980. Under terms of the approved settlement
of Frank Lumpkin, et al. v. Envirodyne Industries, Inc. (Lumpkin) and without
any admission or finding of liability or wrongdoing, Envirodyne was released
and discharged from all claims in exchange for 900,000 shares of common stock.
The distribution is in accordance with the terms of Envirodyne's Plan of
Reorganization under which common stock was distributed to Envirodyne's general
unsecured creditors in satisfaction of their allowed claims (Refer to Note 1).
The Company issued additional shares of common stock for the Lumpkin
settlement and to the holders of general unsecured claims of Envirodyne (as
opposed to the subsidiaries of Envirodyne) under terms of the Plan of
Reorganization. The total number of shares outstanding after issuance of
common stock for the Lumpkin settlement and for additional distribution to
holders of general unsecured claims of Envirodyne is 14,479,721.
Under terms of the Plan of Reorganization, Envirodyne issued warrants to
purchase 10% of the fully diluted common stock. The issuance of common stock
pursuant to the Lumpkin settlement, together with other issuances of common
stock since the consummation of the Plan of Reorganization, caused an
adjustment to the exercise price of the warrants and the number of shares of
common stock for which a warrant is exercisable. The exercise price was
adjusted from $17.25 to $16.08 per share and the number of common shares for
which each warrant is exercisable was adjusted from 1.000 share to 1.073
shares.
On March 15, 1996 the United States Court of Appeals for the Seventh
Circuit affirmed the decisions of the U.S. District Court and the Bankruptcy
Court to equitably subordinate the claims of holders of untendered shares to
claims of the other general unsecured creditors (refer to Note 14). The time
period for further appeal has not passed. Envirodyne believes that even in the
event of further appeal, if any, and reversal of the prior decisions, the
maximum number of shares of common stock that it would be required to issue to
such claimants is approximately 106,000.
24. SUBSIDIARY GUARANTORS
Envirodyne's payment obligations under the Senior Secured Notes are fully
and unconditionally guaranteed on a joint and several basis (collectively,
Subsidiary Guarantees) by Viskase Corporation, Viskase Holding Corporation,
Viskase Sales Corporation, Clear Shield National, Inc., Sandusky Plastics, Inc.
and Sandusky Plastics of Delaware, Inc., each a direct or indirect wholly-owned
subsidiary of Envirodyne and each a "Guarantor." These subsidiaries represent
substantially all of the operations of Envirodyne conducted in the United
States. The remaining subsidiaries of Envirodyne generally are foreign
subsidiaries or otherwise relate to foreign operations.
The obligations of each Guarantor under its Subsidiary Guarantee are the
senior obligation of such Guarantor, and are collateralized, subject to certain
permitted liens, by substantially all of the domestic assets of the Guarantor
and, in the case of Viskase Holding Corporation, by a pledge of 65% of the
capital stock of Viskase S.A. The Subsidiary Guarantees and security are shared
with the lenders under the Revolving Credit Agreement on a pari passu basis and
are subject to the priority interest of the holders of obligations under the
Letter of Credit Facility, each pursuant to an intercreditor agreement.
The following consolidating condensed financial data illustrate the
composition of the combined Guarantors. No single Guarantor has any significant
legal restrictions on the ability of investors or creditors to obtain access to
its assets in the event of default on the Subsidiary Guarantee other than its
subordination to senior indebtedness described above. Separate financial
statements of the Guarantors are not presented because management has
determined that these would not be material to investors. Based on the book
value and the market value of the pledged securities of Viskase Corporation,
Viskase Sales Corporation, Clear Shield National, Inc., Sandusky
F-28
<PAGE> 294
24. SUBSIDIARY GUARANTORS--(CONTINUED)
Plastics, Inc. and Sandusky Plastics of Delaware, Inc., these Subsidiary
Guarantors do not constitute a substantial portion of the collateral and,
therefore, the separate financial statements of these subsidiaries have not been
provided. Separate audited financial statements of Viskase Holding Corporation
are being filed within.
Investments in subsidiaries are accounted for by the parent and
Subsidiary Guarantors on the equity method for purposes of the supplemental
consolidating presentation. Earnings of subsidiaries are therefore reflected in
the parent's and Subsidiary Guarantors' investment accounts and earnings. The
principal elimination entries eliminate investments in subsidiaries and
intercompany balances and transactions.
F-29
<PAGE> 295
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 28, 1995
---------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS(1) TOTAL
------ ------------ ------------ --------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents . . . . . . . . . . . . . $ 18,013 $ 486 $ 11,826 $ 30,325
Receivables and advances, net . . . . . . . . . 52,462 70,458 57,082 $ (90,548) 89,454
Inventories . . . . . . . . . . . . . . . . . . 63,355 38,233 (2,114) 99,474
Other current assets . . . . . . . . . . . . . 176 12,364 9,106 21,646
----------- ----------- ----------- ----------- ---------
Total current assets . . . . . . . . . . . . 70,651 146,663 116,247 (92,662) 240,899
Property, plant and equipment including
those under capital lease . . . . . . . . . . . . 261 394,813 150,417 545,491
Less accumulated depreciation
and amortization . . . . . . . . . . . . . . . 150 55,620 20,217 75,987
----------- ----------- ----------- ----------- ---------
Property, plant and equipment, net . . . . . . . 111 339,193 130,200 469,504
Deferred financing costs . . . . . . . . . . . . . 7,048 1,042 8,090
Other assets . . . . . . . . . . . . . . . . . . . 43,720 1,869 45,589
Investment in subsidiaries . . . . . . . . . . . . 77,766 133,634 (211,400)
Excess reorganization value . . . . . . . . . . . . 94,968 40,517 135,485
----------- ----------- ----------- ----------- ---------
$ 155,576 $ 758,178 $ 289,875 $ (304,062) $ 899,567
=========== =========== =========== =========== =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current
portion of long-term debt and
obligation under capital lease . . . . . . . $ 6,407 $ 6,097 $ 12,504
Accounts payable and advances . . . . . . . . . $ 80 78,848 50,737 $ (90,548) 39,117
Accrued liabilities . . . . . . . . . . . . . . 8,126 37,488 21,939 67,553
----------- ----------- ----------- ----------- ---------
Total current liabilities . . . . . . . . . . 8,206 122,743 78,773 (90,548) 119,174
Long-term debt including obligation
under capital lease . . . . . . . . . . . . . . . 379,262 143,198 7,721 530,181
Accrued employee benefits . . . . . . . . . . . . . 51,345 4,281 55,626
Deferred and noncurrent income taxes . . . . . . . 34,088 17,507 25,895 77,490
Intercompany loans . . . . . . . . . . . . . . . . (383,076) 340,000 43,083 (7)
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
none outstanding
Common stock, $.01 par value;
13,579,460 shares issued and
outstanding . . . . . . . . . . . . . . . . . . 136 3 32,738 (32,741) 136
Paid in capital . . . . . . . . . . . . . . . . . 134,864 103,955 87,871 (191,826) 134,864
Accumulated earnings (deficit) . . . . . . . . . (25,131) (27,752) 2,334 25,418 (25,131)
Cumulative foreign currency
translation adjustments . . . . . . . . . . . . 7,227 7,179 7,179 (14,358) 7,227
----------- ----------- ----------- ----------- ---------
Total stockholders' equity . . . . . . . . . 117,096 83,385 130,122 (213,507) 117,096
----------- ----------- ----------- ----------- ---------
$ 155,576 $ 758,178 $ 289,875 $ (304,062) $ 899,567
=========== =========== =========== =========== =========
</TABLE>
- ---------------------
(1) Elimination of intercompany receivables, payables and investment accounts.
F-30
<PAGE> 296
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 29, 1994
---------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS(1) TOTAL
----------- ------------ ------------ --------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents . . . . . . . . . . . . . $ 555 $ 1,853 $ 4,881 $ 7,289
Receivables and advances, net . . . . . . . . . 33,508 63,949 49,378 $ (59,967) 86,868
Inventories . . . . . . . . . . . . . . . . . . 68,719 43,725 (1,961) 110,483
Other current assets . . . . . . . . . . . . . 181 12,999 6,286 19,466
----------- ----------- ----------- ----------- --------
Total current assets . . . . . . . . . . . . 34,244 147,520 104,270 (61,928) 224,106
Property, plant and equipment including
those under capital lease . . . . . . . . . . . . 189 367,880 138,030 506,099
Less accumulated depreciation
and amortization . . . . . . . . . . . . . . . 55 26,739 8,967 35,761
----------- ----------- ----------- ----------- --------
Property, plant and equipment, net . . . . . . . 134 341,141 129,063 470,338
Deferred financing costs . . . . . . . . . . . . . 8,062 1,081 9,143
Other assets . . . . . . . . . . . . . . . . . . . 45,757 1,424 47,181
Investment in subsidiaries . . . . . . . . . . . . 91,576 116,360 (207,936)
Excess reorganization value . . . . . . . . . . . . 102,230 43,638 145,868
----------- ----------- ----------- ----------- --------
$ 134,016 $ 753,008 $ 279,476 $ (269,864) $896,636
=========== =========== =========== =========== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current
portion of long-term debt and
obligation under capital lease . . . . . . . $ 11,100 $ 7,720 $ 6,978 $ 25,798
Accounts payable and advances . . . . . . . . . 726 53,193 40,383 $ (59,967) 34,335
Accrued liabilities . . . . . . . . . . . . . . 10,254 36,634 25,358 72,246
----------- ----------- ----------- ----------- --------
Total current liabilities . . . . . . . . . . 22,080 97,547 72,719 (59,967) 132,379
Long-term debt including obligation
under capital lease . . . . . . . . . . . . . . . 327,437 147,898 14,023 489,358
Accrued employee benefits . . . . . . . . . . . . . 52,248 3,969 56,217
Deferred and noncurrent income taxes . . . . . . . 29,006 31,927 22,400 83,333
Intercompany loans . . . . . . . . . . . . . . . . (379,856) 340,000 39,856
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
none outstanding
Common stock, $.01 par value;
13,515,000 shares issued and
outstanding . . . . . . . . . . . . . . . . . . 135 4 32,608 (32,612) 135
Paid in capital . . . . . . . . . . . . . . . . . 134,865 87,805 87,440 (175,245) 134,865
Accumulated earnings (deficit) . . . . . . . . . (3,612) (8,333) 2,549 5,784 (3,612)
Cumulative foreign currency
translation adjustments . . . . . . . . . . . . 3,961 3,912 3,912 (7,824) 3,961
----------- ----------- ----------- ----------- --------
Total stockholders' equity . . . . . . . . . 135,349 83,388 126,509 (209,897) 135,349
----------- ----------- ----------- ----------- --------
$ 134,016 $ 753,008 $ 279,476 $ (269,864) $896,636
=========== =========== =========== =========== ========
</TABLE>
- ---------------------
(1) Elimination of intercompany receivables, payables and investment accounts.
F-31
<PAGE> 297
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 28, 1995
-----------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES . . . . . . . . . . . . . . . . . . . . . $ 417,756 $ 267,212 $ (34,756) $ 650,212
COSTS AND EXPENSES
Cost of sales . . . . . . . . . . . . . . . . . . 312,419 207,232 (34,603) 485,048
Selling, general and administrative . . . . . . . $ 6,004 65,318 39,908 111,230
Amortization of intangibles and
excess reorganization value . . . . . . . . . . 12,466 3,333 15,799
----------- --------- ----------- ----------- ---------
OPERATING INCOME (LOSS) . . . . . . . . . . . . . . (6,004) 27,553 16,739 (153) 38,135
Interest income . . . . . . . . . . . . . . . . . 203 12 455 670
Interest expense . . . . . . . . . . . . . . . . 40,081 13,902 3,353 57,336
Intercompany interest expense (income) . . . . . (38,218) 34,007 4,211
Management fees (income) . . . . . . . . . . . . (8,086) 6,377 1,709
Other expense (income), net . . . . . . . . . . . (2,400) 52 4,058 1,710
Equity Loss (income) in subsidiary . . . . . . . 19,571 216 (19,787)
----------- --------- ----------- ----------- ---------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM . . . . . . . . . . . . . (16,749) (26,989) 3,863 19,634 (20,241)
Income tax provision (benefit) . . . . . . . . . 1,264 (7,570) 3,388 (2,918)
----------- --------- ----------- ----------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM . . . . . . (18,013) (19,419) 475 19,634 (17,323)
Extraordinary loss, net of tax . . . . . . . . . 3,506 690 4,196
----------- --------- ----------- ----------- ---------
NET (LOSS) . . . . . . . . . . . . . . . . . . . . $ (21,519) $ (19,419) $ (215) $ 19,634 $ (21,519)
=========== ========= =========== =========== =========
</TABLE>
F-32
<PAGE> 298
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 28, 1995
---------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities . . . . . . . . . . . . . $ (13,276) $ 32,242 $ 20,001 $ 38,967
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . (34) (27,842) (6,589) (34,465)
Proceeds from sale of property, plant and
equipment . . . . . . . . . . . . . . . . . . 39 47 86
--------- ---------- ----------- ----------- --------
Net cash (used in) investing activities . . (34) (27,803) (6,542) (34,379)
Cash flows from financing activities:
Proceeds from revolving loan and
long term borrowings . . . . . . . . . . . . 164,000 1,706 42,216 207,922
Deferred financing costs . . . . . . . . . . . (6,721) (1,166) (7,887)
Repayment of revolving loan, long-term
borrowings and capital lease obligations . . (123,275) (7,512) (50,588) (181,375)
Increase (decrease) in Envirodyne loan . . . . (3,236) 3,236
--------- ---------- ----------- ----------- --------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . 30,768 (5,806) (6,302) 18,660
Effect of currency exchange rate changes
on cash . . . . . . . . . . . . . . . . . . . . (212) (212)
--------- ---------- ----------- ----------- --------
Net increase (decrease) in cash
and equivalents . . . . . . . . . . . . . . . . 17,458 (1,367) 6,945 23,036
Cash and equivalents at beginning of period . . . 555 1,853 4,881 7,289
--------- ---------- ----------- ----------- --------
Cash and equivalents at end of period . . . . . . $ 18,013 $ 486 $ 11,826 $ 30,325
========= ========== =========== =========== ========
</TABLE>
F-33
<PAGE> 299
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 29, 1994
---------------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES . . . . . . . . . . . . . . . . . $ 406,988 $ 220,787 $ (28,746) $ 599,029
Patent infringement settlement income . . 9,457 9,457
COSTS AND EXPENSES
Cost of sales . . . . . . . . . . . . . . 295,356 168,891 (28,487) 435,760
Selling, general and administrative . . . $ 6,015 71,092 31,330 108,437
Amortization of intangibles and
excess reorganization value . . . . . . 12,266 3,346 15,612
---------- ---------- ---------- ----------- ----------
OPERATING INCOME (LOSS) . . . . . . . . . . (6,015) 37,731 17,220 (259) 48,677
Interest income . . . . . . . . . . . . . 13 46 248 307
Interest expense . . . . . . . . . . . . 31,937 14,124 3,453 49,514
Intercompany interest expense (income) . (35,077) 31,170 3,907
Management fees (income) . . . . . . . . (7,400) 6,544 856
Other expense (income), net . . . . . . . (3,448) 7 1,923 (150) (1,668)
Equity loss (income) in subsidiary . . . 8,392 (2,549) (5,843)
Minority interest in loss of subsidiary . 50 50
---------- ---------- --------- ----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES . . . . . (406) (11,519) 7,329 5,784 1,188
Income tax provision . . . . . . . . . . 3,206 (3,186) 4,780 4,800
---------- ---------- ---------- ----------- ----------
NET INCOME (LOSS) . . . . . . . . . . . . . $ (3,612) $ (8,333) $ 2,549 $ 5,784 $ (3,612)
========== ========== ========== =========== ==========
</TABLE>
F-34
<PAGE> 300
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 29, 1994
---------------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
----------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . $ (1,414) $ 13,575 $ 11,125 $ 23,286
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . (20) (21,666) (10,880) (32,566)
Proceeds from sales of property,
plant and equipment . . . . . . . . . . 239 120 359
Purchase of minority interest in
subsidiary . . . . . . . . . . . . . . . (4,200) (4,200)
---------- ---------- ---------- ----------- ----------
Net cash (used in) investing
activities . . . . . . . . . . . . (20) (25,627) (10,760) (36,407)
Cash flows from financing activities:
Proceeds from revolving loan and
long term borrowings . . . . . . . . . 27,600 10,068 37,668
Deferred financing costs . . . . . . . . (1,608) (1,608)
Repayment of revolving loan, long-term
borrowings and capital lease
obligations . . . . . . . . . . . . . . (8,325) (5,180) (9,112) (22,617)
Increase (decrease) in Envirodyne loan . (16,608) 17,163 (555)
---------- ---------- ------ --- ----------- ----------
Net cash provided by (used in)
financing activities . . . . . . . 1,059 11,983 401 13,443
Effect of currency exchange rate changes
on cash . . . . . . . . . . . . . . . . (776) (776)
--------- ---------- ---------- ----------- ----------
Net (decrease) in cash and equivalents . . (375) (69) (10) (454)
Cash and equivalents at beginning
of period . . . . . . . . . . . . . . . 930 1,922 4,891 7,743
---------- ---------- ---------- ----------- ----------
Cash and equivalents at end of period . . . $ 555 $ 1,853 $ 4,881 $ 7,289
========== ========== ========== =========== ==========
</TABLE>
F-35
<PAGE> 301
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1993
--------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES . . . . . . . . . . . . . . . . . . . . . $ 408,872 $ 195,291 $ (16,778) $587,385
COSTS AND EXPENSES
Cost of sales . . . . . . . . . . . . . . . . . . 283,743 151,694 (16,745) 418,692
Selling, general and administrative . . . . . . . $ 5,021 65,992 28,337 99,350
Amortization of intangibles and
excess reorganization value . . . . . . . . . . 13,170 2,541 15,711
----------- ----------- ----------- ----------- --------
OPERATING INCOME (LOSS) . . . . . . . . . . . . . . (5,021) 45,967 12,719 (33) 53,632
Interest income . . . . . . . . . . . . . . . . . 1 20 910 931
Interest expense . . . . . . . . . . . . . . . . 10,388 14,589 6,213 31,190
Intercompany interest expense (income) . . . . . (21,970) 61,416 (39,446)
Management fees (income) . . . . . . . . . . . . (7,600) 6,748 852
Other expense (income), net . . . . . . . . . . . 3,432 (86) 2,194 5,540
Minority interest in subsidiary . . . . . . . . . 717 717
----------- ----------- ----------- ----------- --------
INCOME (LOSS) BEFORE INCOME TAXES,
REORGANIZATION ITEMS AND EXTRAORDINARY ITEM . . . 10,730 (35,963) 43,816 (33) 18,550
Reorganization items, net . . . . . . . . . . . . 92,745 12,000 104,745
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM . . . . . . . . . . . . . (82,015) (47,963) 43,816 (33) (86,195)
Income tax provision (benefit) . . . . . . . . . (1,430) (4,442) 17,872 12,000
----------- ----------- ----------- ------------ ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM . . . . . . (80,585) (43,521) 25,944 (33) (98,195)
Extraordinary gain, net of tax . . . . . . . . . 183,784 183,784
----------- ----------- ----------- ------------ ---------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . $ 103,199 $ (43,521) $ 25,944 $ (33) $ 85,589
=========== =========== =========== =========== =========
</TABLE>
F-36
<PAGE> 302
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1993
-----------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by operating activities
before reorganization expense . . . . . . . . $ 24,623 $ 33,840 $ 33,738 $ 92,201
Net cash used for reorganization items . . . . (2,929) (12,000) (14,929)
--------- ---------- --------- ---------- ---------
Net cash provided by operating activities . . . 21,694 21,840 33,738 77,272
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . (114) (27,289) (13,484) (40,887)
Proceeds from sale of property, plant and
equipment . . . . . . . . . . . . . . . . . 4 120 124
--------- ---------- --------- ---------- ---------
Net cash (used in) investing activities . (114) (27,285) (13,364) (40,763)
Cash flows from financing activities:
Proceeds from revolving loan and
long term borrowings . . . . . . . . . . . 100,000 6,003 106,003
Deferred financing costs . . . . . . . . . . (8,659) (1,120) (9,779)
Repayment of revolving loan, long-term
borrowings and capital lease obligations . (103,100) (4,698) (30,938) (138,736)
Increase (decrease) in Envirodyne loan . . . (8,891) 10,519 (1,628)
--------- ---------- --------- ---------- ---------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . (20,650) 5,821 (27,683) (42,512)
Effect of currency exchange rate changes
on cash . . . . . . . . . . . . . . . . (316) (316)
--------- ---------- --------- ---------- ---------
Net increase (decrease) in cash and equivalents 930 376 (7,625) (6,319)
Cash and equivalents at beginning of period . . 1,546 12,516 14,062
--------- ---------- --------- ---------- ---------
Cash and equivalents at end of period . . . . . $ 930 $ 1,922 $ 4,891 $ 7,743
========= ========== ========= ========== =========
</TABLE>
F-37
<PAGE> 303
Financial statement schedules required by Regulation S-X
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements:
<TABLE>
<S> <C>
Report of independent accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-39
Consolidated balance sheets, December 28, 1995 and December 29, 1994 . . . . . . . . . . . . . . . . . . . F-40
Consolidated Statements of operations, for December 30, 1994 to December 28, 1995
(Post-consummation); January 1 to December 29, 1994 (Post-consummation); and
January 1 to December 31, 1993 (Pre-consummation); . . . . . . . . . . . . . . . . . . . . . . . . . F-41
Consolidated statements of stockholders' equity (deficit), for December 30, 1994
to December 28, 1995 (Post-consummation); January 1 to December 29, 1994
(Post-consummation); and January 1 to December 31, 1993 (Pre-consummation); . . . . . . . . . . . . . F-42
Consolidated statements of cash flows, for December 30, 1994 to December 28, 1995
(Post-consummation); January 1 to December 29, 1994 (Post-consummation);
and January 1 to December 31, 1993 (Pre-consummation); . . . . . . . . . . . . . . . . . . . . . . . F-43
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-44
</TABLE>
F-38
<PAGE> 304
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Viskase Holding Corporation
We have audited the consolidated financial statements and the financial
statement schedules of Viskase Holding Corporation and Subsidiaries. These
financial statements and financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note 1 to the consolidated financial statements, on
December 31, 1993, Envirodyne Industries, Inc. and its domestic subsidiaries
completed a comprehensive financial restructuring through the implementation of
reorganization under Chapter 11 of the United States Bankruptcy Code and
applied fresh start reporting.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Viskase Holding Corporation and Subsidiaries as of December 28, 1995 and
December 29, 1994, and the consolidated results of their operations and their
cash flows for the period December 30, 1994 to December 28, 1995 and January 1
to December 29, 1994 (Post-consummation) and January 1 to December 31, 1993
(Pre-consummation), in conformity with generally accepted accounting
principles. In addition, in our opinion the schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Chicago, Illinois
March 26, 1996
F-39
<PAGE> 305
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1995 1994
---------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents . . . . . . . . . . $ 11,826 $ 6,201
Receivables, net . . . . . . . . . . . . 53,022 46,834
Receivables, affiliates . . . . . . . . 51,829 48,138
Inventories . . . . . . . . . . . . . . 38,233 43,725
Other current assets . . . . . . . . . . 9,106 6,515
-------- --------
Total current assets . . . . . . . . 164,016 151,413
Property, plant and equipment . . . . . . 150,417 138,030
Less accumulated depreciation . . . . . 20,217 8,967
-------- --------
Property, plant and equipment, net . . . 130,200 129,063
Deferred financing costs . . . . . . . . . 1,042 1,081
Other assets . . . . . . . . . . . . . . . 1,869 1,424
Excess reorganization value . . . . . . . 40,517 43,638
-------- --------
$337,644 $326,619
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current
portion of long-term debt . . . . . . $ 6,097 $ 6,978
Accounts payable . . . . . . . . . . . . 13,720 15,479
Accounts payable and advances, affiliates 54,152 43,233
Accrued liabilities . . . . . . . . . . 21,942 25,358
-------- --------
Total current liabilities . . . . . 95,911 91,048
Long-term debt . . . . . . . . . . . . . 7,721 14,023
Accrued employee benefits . . . . . . . . 4,281 3,969
Deferred and noncurrent income taxes . . . 25,895 22,400
Intercompany loans . . . . . . . . . . . . 81,094 77,866
Commitments and contingencies
Stockholders' equity:
Common stock, $1.00 par value,
1,000 shares authorized;
100 shares issued and outstanding
Paid in capital . . . . . . . . . . . . 103,463 103,463
Retained earnings . . . . . . . . . . . 12,100 9,938
Cumulative foreign currency
translation adjustments . . . . . . . 7,179 3,912
-------- --------
Total stockholders' equity . . . . . 122,742 117,313
-------- --------
$337,644 $326,619
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-40
<PAGE> 306
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
DECEMBER 30, JANUARY 1, JANUARY 1,
1994 TO TO TO
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES
AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
NET SALES . . . . . . . . . . . . . . . . . . . $ 267,212 $ 220,787 $ 195,291
Patent infringement settlement income . . . . 9,457
COSTS AND EXPENSES
Cost of sales . . . . . . . . . . . . . . . . 207,232 168,891 151,694
Selling, general and administrative . . . . . 36,288 27,654 25,171
Amortization of intangibles and
excess reorganization value . . . . . . . . 3,333 3,346 2,541
---------- --------- ---------
OPERATING INCOME . . . . . . . . . . . . . . . 20,359 30,353 15,885
Interest income . . . . . . . . . . . . . . . 455 248 910
Interest expense . . . . . . . . . . . . . . 3,353 3,453 6,213
Intercompany interest expense . . . . . . . . 4,199 3,861 6,084
Management fees . . . . . . . . . . . . . . . 1,709 856 852
Other expense (income), net . . . . . . . . . 3,754 2,518 1,723
Minority interest in loss of subsidiary . . . 50 717
---------- --------- ---------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM . . . . . . . . . . . . . 7,799 19,963 2,640
Income tax provision . . . . . . . . . . . . 4,947 10,025 2,645
---------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM . . . . 2,852 9,938 (5)
Extraordinary loss, net of tax . . . . . . . 690
---------- --------- ---------
NET INCOME (LOSS) . . . . . . . . . . . . . . . $ 2,162 $ 9,938 $ (5)
========== ========= =========
WEIGHTED AVERAGE COMMON SHARES . . . . . . . . 100 100 100
========== ========= =========
PER SHARE AMOUNTS:
NET INCOME (LOSS) . . . . . . . . . . . . . . . $ 21,620 $ 99,380 $ (50)
========== ========= =========
</TABLE>
Due to the implementation of the Plan of Reorganization and Fresh Start
Reporting, the consolidated statement of operations for the fiscal years ended
December 28, 1995 and December 29, 1994 are not comparable to the fiscal year
ended December 31, 1993. (Refer to Note 1 of Notes to Consolidated Financial
Statements.)
The accompanying notes are an integral part of the consolidated
financial statements.
F-41
<PAGE> 307
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
CURRENCY TOTAL
COMMON PAID IN RETAINED TRANSLATION STOCKHOLDER'S
STOCK CAPITAL EARNINGS ADJUSTMENTS EQUITY
----- ------- -------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance December 31, 1992 . . . . . . . . . . . $ 20,119 $ 79,458 $ (2,356) $ 97,221
Net (loss) . . . . . . . . . . . . . . . . . . (5) (5)
Capital contributions . . . . . . . . . . . . . 4,295 4,295
Fresh start revaluation adjustments . . . . . . 58,272 58,272
Translation adjustments . . . . . . . . . . . . (2,044) (2,044)
Elimination of Viskase Holding Corporation
accumulated earnings . . . . . . . . . . . . (79,453) 4,400 (75,053)
=============================================================================================================================
Balance December 31, 1993 . . . . . . . . . . . $ 82,686 $ 0 $ 0 $ 82,686
Net income . . . . . . . . . . . . . . . . . . 9,938 9,938
Capital contributions . . . . . . . . . . . . . 16,056 16,056
Fresh start revaluation adjustments . . . . . . 4,721 4,721
Translation adjustments . . . . . . . . . . . . 3,912 3,912
-------- -------- -------- ---------
Balance December 29, 1994 . . . . . . . . . . . $103,463 $ 9,938 $ 3,912 $ 117,313
Net income . . . . . . . . . . . . . . . . . . 2,162 2,162
Translation adjustments . . . . . . . . . . . . 3,267 3,267
-------- -------- -------- ---------
Balance December 28, 1995 . . . . . . . . . . . $103,463 $ 12,100 $ 7,179 $ 122,742
======== ======== ======== =========
</TABLE>
Due to the implementation of the Plan of Reorganization and Fresh Start
Reporting, the stockholders' equity for the fiscal years ended December 28,
1995 and December 29, 1994 are not comparable to the fiscal year ended December
31, 1993. (Refer to Note 1 of Notes to Consolidated Financial Statements.)
The accompanying notes are an integral part of the consolidated
financial statements.
F-42
<PAGE> 308
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 1 JANUARY 1
1994 TO TO TO
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Income (loss) before extraordinary item ......................... $ 2,852 $ 9,938 $ (5)
Extraordinary loss .............................................. 690
-------- -------- --------
Net income (loss) 2,162 9,938 (5)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation .................................................. 11,202 9,018 11,024
Amortization of intangibles and excess reorganization value.... 3,333 3,346 2,541
Amortization of deferred financing fees and discount .......... 208 210 935
Increase (decrease) in deferred and noncurrent income taxes ... 2,098 128 (1,436)
Loss on debt extinguishment ................................... 1,030
Foreign currency transaction loss (gain) ...................... 159 (68)
Loss (gain) on sales of property, plant and equipment ......... 30 32 424
Changes in operating assets and liabilities:
Accounts receivable ......................................... (4,441) (9,076) (3,055)
Accounts receivable, affiliates ............................. (5,183) (18,214) 9,373
Inventories ................................................. 7,224 (8,895) (1,467)
Other current assets ........................................ (2,144) (1,462) (461)
Accounts payable and accrued liabilities .................... (6,926) 8,314 3,219
Accounts payable, affiliates ................................ 10,719 21,739 13,359
Other ....................................................... (790) 288 (908)
-------- -------- --------
Total adjustments ............................................. 16,519 5,428 33,480
-------- -------- --------
Net cash provided by operating activities ................... 18,681 15,366 33,475
Cash flows from investing activities:
Capital expenditures ............................................ (6,589) (10,880) (13,484)
Proceeds from sale of property, plant and equipment ............. 47 120 120
Purchase of minority interest in subsidiary ..................... (4,200)
-------- -------- --------
Net cash (used in) investing activities ..................... (6,542) (14,960) (13,364)
Cash flows from financing activities:
Proceeds from revolving loan and long-term borrowings ........... 42,216 10,068 6,003
Deferred financing costs ........................................ (1,166) (1,120)
Repayment of revolving loan and long-term borrowings ............ (50,588) (9,112) (30,938)
Increase (decrease) in Envirodyne loan and advances ............. 3,236 (555) (1,628)
-------- -------- --------
Net cash provided by (used in) financing activities ......... (6,302) 401 (27,683)
Effect of currency exchange rate changes on cash .................. (212) (776) (316)
-------- -------- --------
Net increase (decrease) in cash and equivalents ................... 5,625 31 (7,888)
Cash and equivalents at beginning of period ....................... 6,201 6,170 14,058
-------- -------- --------
Cash and equivalents at end of period ............................. $ 11,826 $ 6,201 $ 6,170
======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid ................................................... $ 1,919 $ 1,808 $ 4,403
Income taxes paid................................................ $ 4,255 $ 3,548 $ 1,063
</TABLE>
Due to the implementation of the Plan of Reorganization and Fresh Start
Reporting, the consolidated statement of cash flows for the fiscal years ended
December 28, 1995 and December 29, 1994 are not comparable to the fiscal year
ended December 31, 1993. (Refer to Note 1 of Notes to Consolidated Financial
Statements.)
Supplemental schedule of noncash investing and financing activities:
Fiscal 1993
Viskase Holding Corporation's capital increased by $4.3 million due to the
forgiveness of an Envirodyne loan. Viskase Holding Corporation contributed
capital consisting of $160 thousand of equipment to Viskase Brasil Embalagens
Ltda.
Fiscal 1994
Viskase S.A. and its subsidiary Viskase Canada Inc.'s capital increased
by $16 million due to the forgiveness of an Envirodyne loan. Viskase
Corporation transferred equipment totaling $1.5 million, $174 thousand and $2.1
million to Viskase S.A., Viskase de Mexico S.A. de C.V., and Viskase Brasil
Embalagens Ltda, respectively.
Fiscal 1995
Viskase Corporation transferred equipment totaling $497 thousand to
Viskase S.A. Viskase Holding Corporation contributed capital consisting of $250
thousand of equipment to Viskase de Mexico S.A. de C.V.
The accompanying notes are an integral part of the consolidated financial
statements.
F-43
<PAGE> 309
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Viskase Holding Corporation is a wholly owned subsidiary of Viskase
Corporation. Viskase Corporation, in turn, is a wholly owned subsidiary of
Envirodyne Industries, Inc. Viskase Holding Corporation serves as the direct or
indirect parent company for the majority of Viskase Corporation's non-domestic
operations. These subsidiaries are as follows:
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY PARENT OF SUBSIDIARY COUNTRY OF BUSINESS
- ------------------ -------------------- -------------------
<S> <C> <C>
Viskase Brasil Embalagens Ltda. Viskase Holding Corporation Brazil
Viskase Australia Limited Viskase Holding Corporation Australia
Viskase de Mexico S.A. de C.V. Viskase Holding Corporation Mexico
Viskase S.A. Viskase Holding Corporation France
Viskase Gmbh Viskase S.A. Germany
Viskase SPA Viskase S.A. Italy
Viskase Canada Inc. Viskase S.A. Canada
Viskase ZAO Viskase S.A. Russia
Viskase Holdings Limited Viskase S.A. United Kingdom
Filmco International Limited Viskase Holdings Limited United Kingdom
Viskase Limited Viskase Holdings Limited United Kingdom
Viskase (UK) Limited Viskase Limited United Kingdom
Envirodyne S.A.R.L. Viskase (UK) Limited France
</TABLE>
Viskase Holding Corporation conducts its operations through its
subsidiaries and, for the most part, has no assets or liabilities other than its
investments, accounts receivable and payable with affiliates, and intercompany
loan and advances.
On January 6, 1993, a group of bondholders filed an involuntary petition
for reorganization of Envirodyne Industries, Inc. under Chapter 11 of the U.S.
Bankruptcy Code. On January 7, 1993, several of the subsidiaries of Envirodyne
Industries, Inc., including Viskase Holding Corporation, each filed voluntary
petitions under Chapter 11 of the U.S. Bankruptcy Code in the United States
Bankruptcy Court for the Northern District of Illinois, Eastern Division (the
Bankruptcy Court). None of the subsidiaries of Viskase Holding Corporation
entered into Chapter 11. On December 17, 1993, the Bankruptcy Court confirmed
the First Amended Joint Plan of Reorganization as twice modified (Plan of
Reorganization) with respect to Envirodyne Industries, Inc. (Envirodyne) and
certain of its subsidiaries, including Viskase Holding Corporation. The Plan of
Reorganization was consummated and Envirodyne and certain of its subsidiaries
emerged from Chapter 11 on December 31, 1993 (Effective Date). For accounting
purposes, the Plan of Reorganization was deemed to be effective as of December
31, 1993.
The Chapter 11 filing was related only to the Company's domestic
operations and did not include the foreign subsidiaries and various inactive
domestic subsidiaries.
The Company accounted for the reorganization using the principles of fresh
start reporting in accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code." Accordingly, all assets and
liabilities have been restated to reflect their reorganization value, which
approximates fair value.
The reorganization value of the Company's equity of $135,000 was based on
the consideration of many factors and various valuation methods, including
discounted cash flows and comparable multiples of earnings valuation techniques
believed by management and its financial advisors to be representative of the
Company's business and industry. Factors considered by the Company included the
following:
o Forecasted operating and cash flow results which gave effect to the
estimated impact of debt restructuring and other operational
reorganization.
F-44
<PAGE> 310
o Discounted residual value at the end of the forecasted period based on
the capitalized cash flows for the last year of that period.
o Competition and general economic considerations.
o Projected sales growth.
o Potential profitability.
o Seasonality and working capital requirements.
The excess of the reorganization value over the fair value of net assets
and liabilities is reported as excess reorganization value and is being
amortized over a fifteen-year period. The Company continues to evaluate the
recoverability of excess reorganization value based on the operating performance
and expected future undiscounted cash flows of the operating business units.
The reorganization and the adoption of Fresh Start Reporting resulted in
no material adjustments to the Company's Consolidated Statement of Operations
for the period January 1 to December 31, 1993.
2. NATURE OF BUSINESS
Viskase Holding Corporation's subsidiaries manufacture food packaging
products. The operations of these subsidiaries are primarily in Europe and
South and North America. Through its subsidiaries, the Company is a leading
producer of cellulosic casings used in preparing and packaging processed meat
products and is a major producer of heat shrinkable plastic bags and specialty
films for packaging and preserving fresh and processed meat products, poultry
and cheeses. The Company is also a leading international manufacturer of
plasticized polyvinyl chloride (PVC) films, primarily for use in packaging food
items.
INTERNATIONAL OPERATIONS
Viskase Holding Corporation's subsidiaries have seven manufacturing
facilities located outside the continental United States, in Beauvais, France;
Thaon, France; Lindsay, Ontario, Canada; Sedgefield, England (Great Britain);
Swansea, Wales (Great Britain); Guarulhos, Brazil and Nuevo Laredo, Mexico.
International sales and operations may be subject to various risks
including, but not limited to, possible unfavorable exchange rate fluctuations,
political instability, governmental regulations (including import and export
controls), restrictions on currency repatriation, embargoes, labor relations
laws and the possibility of governmental expropriation. Viskase Holding
Corporation's foreign operations generally are subject to taxes on the
repatriation of funds.
International operations in certain parts of the world may be subject to
international balance of payments difficulties which may raise the possibility
of delay or loss in the collection of accounts receivable from sales to
customers in those countries. Viskase Holding Corporation believes that its
subsidiaries' allowance for doubtful accounts makes adequate provision for the
collectibility of its receivables. Management believes that growth potential
exists for many of Viskase's products outside the United States and that Viskase
is well positioned to participate in these markets.
SALES AND DISTRIBUTION
Viskase Holding Corporation's subsidiaries' principal markets are in
Europe, Latin America, North America and Asia Pacific.
The United Kingdom operation sells its PVC films directly and through
distributors, primarily to the retail grocery and foodservice industries in
Europe.
In Europe, Viskase Holding Corporation's subsidiaries operate casings
service centers in Milan, Italy, Pulheim, Germany, and Moscow, Russia. The
Company also operates a service center in Brisbane, Australia. These service
centers provide finishing, inventory and delivery services to customers. The
subsidiaries also use outside distributors to market their products to customers
in Europe, Africa, Asia and Latin America.
F-45
<PAGE> 311
COMPETITION
From time to time, Viskase Holding Corporation's subsidiaries experience
reduced market share or reduced profits due to price competition; however,
management believes that such market conditions will not result in any long-term
material loss of business.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
Effective in 1990 Envirodyne Industries, Inc. adopted a 52/53 week fiscal
year ending on the last Thursday of December. Viskase Holding Corporation's
1993 financial statements include December 31, 1993 in order to present the
effect of the consummation of the Plan of Reorganization.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements reflect the accounts of Viskase
Holding Corporation and its subsidiaries. All significant intercompany
transactions and balances between and among Viskase Holding Corporation and its
subsidiaries have been eliminated in the consolidation.
Reclassifications have been made to the prior years' financial statements
to conform to the 1995 presentation.
(C) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
(D) CASH EQUIVALENTS (DOLLARS IN THOUSANDS)
For purposes of the statement of cash flows, the Company considers cash
equivalents to consist of all highly liquid debt investments purchased with an
initial maturity of approximately three months or less. Due to the short-term
nature of these instruments, the carrying values approximate the fair market
value. Cash equivalents include $8,074 and $821 of short-term investments at
December 28, 1995 and December 29, 1994, respectively.
(E) INVENTORIES
Inventories, primarily foreign, are valued at the lower of first-in,
first-out (FIFO) cost or market.
(F) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost less accumulated
depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the assets ranging from 3 to 32 years. Upon retirement
or other disposition, cost and related accumulated depreciation are removed from
the accounts, and any gain or loss is included in results of operations.
Effective December 31, 1993 and in conjunction with the Fresh Start Reporting,
property, plant and equipment was reported at the estimated fair value.
F-46
<PAGE> 312
(G) DEFERRED FINANCING COSTS
Deferred financing costs are amortized on a straight-line basis over the
expected term of the related debt agreement. Amortization of deferred financing
costs is classified as interest expense.
(H) EXCESS REORGANIZATION VALUE AND EXCESS INVESTMENT OVER NET ASSETS
ACQUIRED, NET
Excess reorganization value is amortized on the straight-line method over
15 years.
Cost in excess of net assets acquired, net was amortized on a
straight-line method over 40 years in fiscal 1993.
The Company continues to evaluate the recoverability of excess
reorganization value based on operating performance and undiscounted cash flows
of the operating business units. Impairment will be recognized when the expected
undiscounted future operating cash flows derived from such intangible is less
than its carrying value. If impairment is identified, valuation techniques
deemed appropriate under the particular circumstances will be used to determine
the intangible's fair value. The loss will be measured based on the excess of
carrying value over the determined fair value. The review for impairment is
performed at least on a quarterly basis.
(I) PENSIONS
The Company's operations in Europe have defined benefit retirement plans
covering substantially all salaried and full time hourly employees. Pension cost
is computed using the projected unit credit method.
The Company's funding policy is consistent with funding requirements of
the applicable foreign laws and regulations.
(J) POSTEMPLOYMENT BENEFITS
Effective December 31, 1993 and in conjunction with the Fresh Start
Reporting, the Company adopted SFAS No. 112 "Employers Accounting for
Postemployment Benefits." The impact of adopting SFAS No. 112 was not material.
(K) INCOME TAXES
Income taxes are accounted for in accordance with SFAS No. 109. Tax
provisions and benefits are recorded at statutory rates for taxable items
included in the consolidated statements of operations regardless of the period
for which such items are reported for tax purposes. Deferred income taxes are
recognized for temporary differences between financial statement and income tax
bases of assets and liabilities for which income tax benefits will be realized
in future years.
(L) NET INCOME (LOSS) PER SHARE
Net income (loss) per share of common stock is based upon the weighted
average number of shares of common stock outstanding during the year.
(M) REVENUE RECOGNITION
Sales to customers are recorded at the time of shipment net of discounts
and allowances.
(N) FOREIGN CURRENCY CONTRACTS
The Company maintains a hedging program to partially hedge its forecasted
foreign currency revenue cash flows. The hedging program principally addresses
revenue cash flows within its European operations. The foreign exchange
contracts are denominated predominantly in the major European currencies and
have varying maturities up to eighteen months. The effect of this practice is to
minimize the effect of foreign exchange rate movements on the Company's
operating results. The Company's hedging activities do not subject the Company
to additional exchange rate risk because gains and losses on these contracts
offset losses and gains on the
F-47
<PAGE> 313
transactions being hedged. The cash flows from forward contracts accounted for
as hedges of identifiable transactions or events are classified consistent with
the cash flows from the transactions or events being hedged.
(O) STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options and other
equity instruments to employees based on new fair value accounting rules.
Although expense recognition for employee stock-based compensation is not
mandatory, SFAS 123 requires companies that choose not to adopt the new fair
value accounting to disclose pro forma net income and earnings per share under
the new method. This new accounting principle is effective for the Company's
fiscal year ending December 26, 1996. The Company believes that adoption is not
expected to have a material impact on its financial condition as the Company
will not adopt the fair value accounting, but will instead comply with the
disclosure requirements.
4. RECEIVABLES (DOLLARS IN THOUSANDS)
Receivables consisted primarily of trade accounts receivable and were net
of allowances for doubtful accounts of $2,256 and $1,364 at December 28, 1995,
and at December 29, 1994, respectively.
5. INVENTORIES (DOLLARS IN THOUSANDS)
Inventories consisted of:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1995 1994
------------ ------------
<S> <C> <C>
Raw materials.......................................................... $ 5,299 $ 5,778
Work in process........................................................ 13,342 13,975
Finished products ..................................................... 19,592 23,972
------- -------
$38,233 $43,725
======= =======
</TABLE>
Inventories were net of reserves for obsolete and slow moving inventory of
$1,331 and $1,686 at December 28, 1995 and December 29, 1994, respectively.
F-48
<PAGE> 314
6. PROPERTY, PLANT AND EQUIPMENT (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1995 1994
------------ ------------
<S> <C> <C>
Property, plant and equipment:
Land and improvements ................................................. $ 5,319 $ 4,982
Buildings and improvements............................................. 30,236 28,588
Machinery and equipment................................................ 114,212 103,293
Construction in progress .............................................. 283 1,167
Capital Leases:
Machinery and equipment ............................................... 367
-------- --------
$150,417 $138,030
======== ========
</TABLE>
Maintenance and repairs charged to costs and expenses for 1995, 1994, and
1993 aggregated $10,288, $10,748 and $9,782, respectively. Depreciation is
computed on the straight-line method over the estimated useful lives of the
assets ranging from 3 to 32 years.
7. ACCRUED LIABILITIES (DOLLARS IN THOUSANDS)
Accrued liabilities were comprised of:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1995 1994
------------ ------------
<S> <C> <C>
Compensation and employee benefits ...................................... $ 9,446 $10,408
Taxes, other than on income ............................................. 1,585 2,006
Accrued volume and sales discounts ...................................... 5,320 5,445
Other ................................................................... 5,591 7,499
------- -------
$21,942 $25,358
======= =======
</TABLE>
8. DEBT OBLIGATIONS (DOLLARS IN THOUSANDS)
As described in Note 1, Chapter 11 Reorganization Proceedings, Envirodyne
and certain of its domestic Subsidiaries (including Viskase Holding Corporation)
emerged from Chapter 11 on December 31, 1993.
On June 20, 1995, Envirodyne completed the sale of $160,000 aggregate
principal amount of senior secured notes to certain institutional investors in a
private placement. The senior secured notes were issued pursuant to an indenture
dated June 20, 1995 (Indenture) and consist of (i) $151,500 of 12% Senior
Secured Notes due 2000 and (ii) $8,500 of Floating Rate Senior Secured Notes due
2000 (collectively, the Senior Secured Notes). Envirodyne used the net proceeds
of the offering primarily to (i) repay the Company's $86,125 domestic term loan,
(ii) repay the $68,316 of obligations under the Company's domestic and foreign
revolving loans and (iii) pay transaction fees and expenses. Concurrently with
the June 20, 1995 placement, Envirodyne entered into a new $20,000 domestic
revolving credit facility (Revolving Credit Facility) and a new $28,000 letter
of credit facility (Letter of Credit Facility). The Senior Secured Notes and the
obligations under the Revolving Credit Facility and the Letter of Credit
Facility are guaranteed by Envirodyne's significant domestic subsidiaries and
secured by a collateral pool (Collateral Pool) comprised of: (i) all domestic
accounts receivable (including intercompany receivables) and inventory; (ii) all
patents, trademarks and other intellectual property (subject to non-exclusive
licensing agreements); (iii) substantially all domestic fixed assets (other than
assets subject to a lease agreement with General Electric Capital Corporation);
and (iv) a senior pledge of 100% of the capital stock of Envirodyne's
significant domestic subsidiaries and 65% of the capital stock of Viskase S.A.
Such guarantees and security are shared by the holders of the Senior Secured
Notes and the holders of the obligations under the Revolving Credit Facility on
a pari passu basis pursuant to an intercreditor agreement. Pursuant to such
intercreditor agreement, the security interest of the holders of the obligations
under the Letter of Credit Facility has priority over all other liens on the
Collateral Pool.
F-49
<PAGE> 315
8. DEBT OBLIGATIONS (DOLLARS IN THOUSANDS)--(CONTINUED)
The Company finances its working capital needs through a combination of
cash generated through operations and borrowings local unsecured credit
facilities and intercompany loans.
The Company recognized an extraordinary loss of $1,030 representing the
write-off of deferred financing fees related to the June 20, 1995 debt
refinancing. The extraordinary loss, net of applicable income taxes of $340, was
included in the Company's Statement of Operations for the quarter ended June 29,
1995.
The Viskase Limited term facility is with a foreign financial institution.
The term facility, which is collateralized by substantially all of the assets of
Viskase Limited, bears a variable interest rate and is payable in 16 equal
semiannual installments that began in December 1992.
Outstanding short-term and long-term debt consisted of:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1995 1994
------------ ------------
<S> <C> <C>
Short-term debt and current maturity of long-term debt:
Current maturity of Viskase Limited Term Loan (4.7%) .................. $2,033 $ 1,882
Other ................................................................. 4,064 5,096
------ -------
Total short-term debt ................................................. $6,097 $ 6,978
====== =======
Long-term debt:
Bank Credit Agreement:
Multicurrency Loan due 1999 (8.9%) ................................. 4,924
Viskase Limited Term Loan (4.7%) ...................................... 7,115 8,466
Other ................................................................. 606 633
------ -------
Total long-term debt .................................................. $7,721 $14,023
====== =======
</TABLE>
The fair value of the Company's debt obligation is estimated based upon
the quoted market prices for the same or similar issues or on the current rates
offered to the Company for the debt of the same remaining maturities. At
December 29, 1994, the fair value of debt obligations approximated their
carrying value.
Aggregate maturities of remaining long-term debt for each of the next five
fiscal years are:
<TABLE>
<CAPTION>
TOTAL
-------
<S> <C>
1996 ........................................................................... $2,612
1997 ........................................................................... 2,383
1998 ........................................................................... 2,233
1999 ........................................................................... 2,033
2000 ........................................................................... 1,016
</TABLE>
9. OPERATING LEASES (DOLLARS IN THOUSANDS)
The Company has operating lease agreements for machinery, equipment and
facilities. The majority of the facilities leases require the Company to pay
maintenance, insurance and real estate taxes.
Future minimum lease payments for operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of December 28,
1995, are:
<TABLE>
<S> <C>
1996 ........................................................................ $1,357
1997 ........................................................................ 1,092
1998 ........................................................................ 886
1999 ........................................................................ 450
2000 ........................................................................ 372
Total thereafter ............................................................
------
Total minimum lease payments ................................................ $4,157
======
</TABLE>
Total rent expense during 1995, 1994 and 1993 amounted to $3,750, $2,350
and $2,140, respectively.
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<PAGE> 316
10. RETIREMENT PLANS (DOLLARS IN THOUSANDS)
The Company maintains various pension and statutory separation pay plans
for its European employees. The expense for these plans in 1995, 1994 and 1993
was $1,383, $1,043 and $864, respectively. As of their most recent valuation
dates, in plans where vested benefits exceeded plan assets, the actuarially
computed value of vested benefits exceeded those plans' assets by approximately
$2,856; conversely, plan assets exceeded the vested benefits in certain other
plans by approximately $2,346.
The Company's postretirement benefits are not material.
11. CONTINGENCIES (DOLLARS IN THOUSANDS)
The Company and its subsidiaries are involved in various legal proceedings
arising out of its business and other environmental matters, none of which is
expected to have a material adverse effect upon its results of operations, cash
flows or financial position.
12. INCOME TAXES (DOLLARS IN THOUSANDS)
The provision (benefit) for income taxes consisted of:
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 1, JANUARY 1,
1994 TO TO TO
DECEMBER 29, DECEMBER 29, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal .............................................. $ 1,316 $ 4,479 $1,368
Foreign .............................................. 950 4,652 2,453
State and local ...................................... 243 766 258
------- ------- ------
2,509 9,897 4,079
------- ------- ------
Deferred:
Federal .............................................. 2,098 128 (1,434)
Foreign ..............................................
------- ------- ------
State and local ...................................... 2,908 128 (1,434)
------- ------- ------
$ 4,607 $10,025 $2,645
======= ======= ======
</TABLE>
A reconciliation from the statutory federal tax rate to the consolidated
effective tax rate follows:
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 1, JANUARY 1,
1994 TO TO TO
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Statutory federal tax rate ................................. 35.0% 35.0% 35.0%
Increase (decrease) in tax rate due to:
State and local taxes net of related federal tax benefit.. 2.3 2.5 6.4
Net effect of taxes relating to foreign operations........ 30.4 11.1 61.6
Other .................................................... .4 1.6 (2.8)
---- ---- ------
Consolidated effective tax rate ............................ 68.1% 50.2% 100.2%
==== ==== ======
</TABLE>
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<PAGE> 317
12. INCOME TAXES (DOLLARS IN THOUSANDS)--(CONTINUED)
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities for 1995 are as follows:
<TABLE>
<CAPTION>
TEMPORARY DIFFERENCE TAX EFFECTED
------------------------------ ------------ -------------
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Depreciation basis differences ............... $72,219 $25,717
Pension and healthcare........................ 600 220
Other accruals, reserves, and other........... $ 648 399 $ 216 174
----- ------- ----- -------
$ 648 $73,218 $ 216 $26,111
===== ======= ===== =======
</TABLE>
At December 28, 1995, the Company had $11,136 of undistributed earnings of
foreign subsidiaries considered permanently invested for which deferred taxes
have not been provided.
Domestic earnings or (losses) after extraordinary gain or loss and before
income taxes were approximately $3,937, $12,634 and $4,373 in 1995, 1994 and
1993, respectively. Foreign earnings or (losses) before income taxes were
approximately $2,832, $7,329 and $(1,733) in 1995, 1994 and 1993, respectively.
13. RESEARCH AND DEVELOPMENT COSTS (DOLLARS IN THOUSANDS)
Research and development costs are expensed as incurred and totaled
$1,106, $1,562 and $1,180, for 1995, 1994, and 1993, respectively.
14. RELATED PARTY TRANSACTIONS (DOLLARS IN THOUSANDS)
INTERCOMPANY LOANS AND ADVANCES:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1995 1994
----------- -----------
<S> <C> <C>
Viskase S.A. 12% promissory note due to Envirodyne ............. $25,142
Viskase S.A. promissory note due to Envirodyne ................. 17,440 $35,249
Accrued interest on Viskase S.A. promissory note ............... 83 1,688
Viskase United Kingdom Limited promissory note
due to Envirodyne, including accrued interest ................ 419 2,919
Advances:
Envirodyne to Viskase S.A. ...................................
Viskase Corporation to Viskase Holding Corporation ........... 38,010 38,010
------- -------
$81,094 $77,866
======= =======
</TABLE>
The Viskase S.A. 12% promissory note due to Envirodyne is payable on
demand. Interest is payable semiannually on June 30 and December 31.
The Viskase S.A. promissory note due to Envirodyne is payable on demand
and bears interest at a rate of 10.00%. Interest is payable semiannually on June
30 and December 31.
The $2.5 million Viskase United Kingdom Limited promissory note due to
Envirodyne is payable on demand and bears interest at a rate of 8.00%. The
promissory note was repaid in 1995.
The Viskase Corporation advance to Viskase Holding Corporation is payable
on demand.
F-52
<PAGE> 318
14. RELATED PARTY TRANSACTIONS (DOLLARS IN THOUSANDS)--(CONTINUED)
LICENSE AGREEMENTS
Viskase Holding Corporation has been granted the right to license Viskase
Corporation's patents and technology pursuant to a license agreement between
Viskase Corporation and Viskase Holding Corporation.
INTERCOMPANY TRANSACTIONS
In 1995, 1994 and 1993, the Company paid $1,022, $756 and $752,
respectively, to Viskase Corporation for management services. During 1995, 1994
and 1993, the Company accrued $687, $100 and $100, respectively, payable to
Envirodyne for management services.
During 1995, 1994 and 1993, the Company purchased semi-finished and
finished inventory from Viskase Sales Corporation in the amount of $26,953,
$23,114 and $15,439, respectively. In addition, during 1995, 1994 and 1993, the
Company had sales of inventory to Viskase Sales Corporation in the amount of
$7,329, $5,632 and $1,338, respectively.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying value and estimated fair value
as of December 28, 1995 of the Company's financial instruments. (Refer to Notes
3 and 8.)
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
-------- -----------
<S> <C> <C>
Assets:
Cash and equivalents. . . . . . . . . . . $11,826 $11,826
Foreign currency contracts. . . . . . . . 3,397 3,377
Liabilities:
Long-term debt. . . . . . . . . . . . . . 7,721 7,721
</TABLE>
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<PAGE> 319
SCHEDULE II
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT PROVISION BALANCE
BEGINNING CHARGED TO AT END
DESCRIPTION OF PERIOD EXPENSE WRITE-OFFS RECOVERIES OTHER(1) OF PERIOD
- ----------- ---------- ----------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
1995 for the year ended
December 28
Allowance for doubtful accounts............ $2,136 $1,403 $ (472) $ 6 $151 $3,224
1994 for the year ended
December 29
Allowance for doubtful accounts............ 2,872 939 (1,824) 21 128 2,136
1993 for the year ended
December 31
Allowance for doubtful accounts............ 2,175 1,166 (334) 70 (205) 2,872
1995 for the year ended
December 28
Reserve for obsolete and
slow moving inventory...................... 5,353 1,264 (2,868) 69 3,818
1994 for the year ended
December 29
Reserve for obsolete and
slow moving inventory...................... 5,425 2,936 (3,123) 115 5,353
1993 for the year ended
December 31
Reserve for obsolete and
slow moving inventory...................... 3,178 4,973 (2,660) (66) 5,425
</TABLE>
- --------------------
(1) Foreign currency translation.
F-54
<PAGE> 320
UNAUDITED INTERIM FINANCIAL STATEMENTS
F-55
<PAGE> 321
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 28, December 28,
1996 1995
---------------- ---------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 23,002 $ 30,325
Receivables, net 86,348 89,454
Inventories 105,239 99,474
Other current assets 32,073 21,646
-------- --------
Total current assets 246,662 240,899
Property, plant and equipment,
including those under capital leases 549,638 545,491
Less accumulated depreciation
and amortization 86,604 75,987
-------- --------
Property, plant and equipment, net 463,034 469,504
Deferred financing costs 7,448 8,090
Other assets 44,327 45,589
Excess reorganization value 132,889 135,485
-------- --------
$894,360 $899,567
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current portion
of long-term debt and obligations
under capital leases $ 12,014 $ 12,504
Accounts payable 41,429 39,117
Accrued liabilities 78,851 67,553
-------- --------
Total current liabilities 132,294 119,174
Long-term debt including obligations
under capital leases 523,113 530,181
Accrued employee benefits 55,944 55,626
Deferred and noncurrent income taxes 73,156 77,490
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
none outstanding
Common stock, $.01 par value;
14,479,721 shares issued and
outstanding at March 28, 1996 and
13,579,460 shares at December 28, 1995 145 136
Paid in capital 134,855 134,864
Accumulated (deficit) (31,058) (25,131)
Cumulative foreign currency
translation adjustments 5,911 7,227
-------- --------
Total stockholders' equity 109,853 117,096
-------- --------
$894,360 $899,567
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-56
<PAGE> 322
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
March 28, March 30,
1996 1995
--------------- --------------
(in thousands, except for number
of shares and per share amounts)
<S> <C> <C>
NET SALES $159,736 $155,824
COSTS AND EXPENSES
Cost of sales 119,709 114,955
Selling, general
and administrative 26,642 28,270
Amortization of intangibles
and excess reorganization value 4,091 3,910
-------- ---------
OPERATING INCOME 9,294 8,689
Interest income 391 64
Interest expense 14,876 13,434
Other expense (income), net 3,036 (591)
-------- ---------
(LOSS) BEFORE INCOME TAXES (8,227) (4,090)
Income tax provision (benefit) (2,300) (195)
-------- ---------
NET (LOSS) $ (5,927) $ (3,895)
======== =========
WEIGHTED AVERAGE
COMMON SHARES 13,737,748 13,515,000
PER SHARE AMOUNTS:
NET (LOSS) $(.43) $ (.29)
===== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-57
<PAGE> 323
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
March 28, March 30,
1996 1995
------------- --------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (5,927) $ (3,895)
Adjustments to reconcile net (loss)
to net cash provided by operating activities:
Depreciation and amortization under capital lease 10,974 9,986
Amortization of intangibles and excess
reorganization value 4,091 3,910
Amortization of deferred financing fees and discount 579 549
Increase (decrease) in deferred and
noncurrent income taxes (3,866) (907)
Foreign currency transaction loss (gain) 47 (1,586)
(Gain) on sales of property, plant and equipment (2)
Changes in operating assets and liabilities:
Accounts receivable 2,307 (438)
Inventories (6,212) (12,192)
Other current assets (10,558) (10,615)
Accounts payable and accrued liabilities 14,243 254
Other 191 398
-------- --------
Total adjustments 11,794 (10,641)
-------- --------
Net cash provided by operating activities 5,867 (14,536)
Cash flows from investing activities:
Capital expenditures (6,543) (7,631)
Proceeds from sale of property, plant and equipment 49
-------- -------
Net cash (used in) investing activities (6,494) (7,631)
Cash flows from financing activities:
Proceeds from revolving loan and long-term borrowings 42,249
Deferred financing costs (464)
Repayment of revolving loan, long-term borrowings
and capital lease obligation (7,202) (19,973)
-------- --------
Net cash provided by financing activities (7,202) 21,812
Effect of currency exchange rate changes on cash 506 275
-------- --------
Net (decrease) in cash and equivalents (7,323) (80)
Cash and equivalents at beginning of period 30,325 7,289
-------- --------
Cash and equivalents at end of period $ 23,002 $ 7,209
======== ========
- ----------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid $13,379 $16,330
Income taxes paid $ 453 $ 1,405
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-58
<PAGE> 324
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INVENTORIES (dollars in thousands)
Inventories consisted of:
<TABLE>
<CAPTION>
March 28, December 28,
1996 1995
----------- ---------------
<S> <C> <C>
Raw materials $ 17,605 $ 17,150
Work in process 32,695 32,800
Finished products 54,939 49,524
-------- -------
$105,239 $ 99,474
======== ========
</TABLE>
Approximately 56% of the inventories at March 28, 1996 were valued at Last-In,
First-Out (LIFO). These LIFO values exceeded current manufacturing cost by
approximately $5 million at March 28, 1996.
2. DEBT OBLIGATIONS (dollars in thousands)
On June 20, 1995, Envirodyne Industries, Inc. (Envirodyne or the Company)
completed the sale of $160,000 aggregate principal amount of senior secured
notes pursuant to an indenture dated June 20, 1995 (Indenture) consisting of
(i) $151,500 of 12% Senior Secured Notes due 2000 and (ii) $8,500 of Floating
Rate Senior Secured Notes due 2000 (collectively, the Senior Secured Notes).
Envirodyne used the net proceeds of the offering primarily to refinance senior
bank debt and pay transaction fees and expenses. Concurrently with the June 20,
1995 financing, Envirodyne entered into a $20,000 domestic revolving credit
facility (Revolving Credit Facility) and a $28,000 letter of credit facility
(Letter of Credit Facility). The Senior Secured Notes and the obligations under
the Revolving Credit Facility and the Letter of Credit Facility are guaranteed
by Envirodyne's significant domestic subsidiaries and secured by a collateral
pool (Collateral Pool) comprised of: (i) all domestic accounts receivable
(including intercompany receivables) and inventory; (ii) all patents,
trademarks and other intellectual property (subject to non-exclusive licensing
agreements); (iii) substantially all domestic fixed assets (other than assets
subject to a lease agreement with General Electric Capital Corporation); and
(iv) a senior pledge of 100% of the capital stock of Envirodyne's significant
domestic subsidiaries and 65% of the capital stock of Viskase S.A. Such
guarantees and security are shared by the holders of the Senior Secured Notes
and the holders of the obligations under the Revolving Credit Facility on a
pari passu basis pursuant to an intercreditor agreement. Pursuant to such
intercreditor agreement, the security interest of the holders of the
obligations under the Letter of Credit Facility has priority over all other
liens on the Collateral Pool.
The Company finances its working capital needs through a combination of cash
generated through operations and borrowings under the Revolving Credit
Facility. The availability of funds under the Revolving Credit Facility is
subject to the Company's compliance with certain covenants (which are
substantially similar to those included in the Indenture), borrowing base
limitations measured by accounts receivable and inventory of the Company and
reserves which may be established at the discretion of the lenders. Currently,
there are no drawings under the Revolving Credit Facility. The available
borrowing capacity under the Revolving Credit Facility was $20 million at March
28, 1996.
The Company recognized an extraordinary loss of $6,778 representing the
write-off of deferred financing fees related to the June 20, 1995 debt
refinancing. The extraordinary loss, net of applicable
F-59
<PAGE> 325
income taxes of $2,582, was included in the Company's Statement of Operations
for the quarter ended June 29, 1995.
The $151,500 tranche of Senior Secured Notes bears interest at a rate of 12%
per annum and the $8,500 tranche bears interest at a rate equal to the six
month London Interbank Offered Rate (LIBOR) plus 575 basis points. The interest
rate on the floating rate tranche is approximately 11.4%. The interest rate on
the floating rate tranche is reset semi-annually on June 15 and December 15.
Interest on the Senior Secured Notes is payable each June 15 and December 15.
On June 15, 1999, $80,000 of Senior Secured Notes is subject to a mandatory
redemption. The remaining principal amount outstanding will mature on June 15,
2000.
In the event the Company has Excess Cash Flow (as defined) in excess of $5,000
in any fiscal year, Envirodyne is required to make an offer to purchase Senior
Secured Notes together with any borrowed money obligations outstanding under
the Revolving Credit Facility, on a pro rata basis, in an amount equal to the
Excess Cash Flow at a purchase price of 100% plus any accrued interest to the
date of purchase. There was no Excess Cash Flow for fiscal 1995.
The Senior Secured Notes are redeemable, in whole or from time to time in part,
at Envirodyne's option, at the greater of (i) the outstanding principal amount
or (ii) the present value of the expected future cash flows from the Senior
Secured Notes discounted at a rate equal to the Treasury Note yield
corresponding closest to the remaining average life of the Senior Secured Notes
at the time of prepayment plus 100 basis points; plus accrued interest thereon
to the date of purchase.
Upon the occurrence of a Change of Control (which includes the acquisition by
any person of more than 50% of Envirodyne's Common Stock), each holder of the
Senior Secured Notes has the right to require the Company to repurchase such
holder's Senior Secured Notes at a price equal to the greater of (i) the
outstanding principal amount or (ii) the present value of the expected cash
flows from the Senior Secured Notes discounted at a rate equal to the Treasury
Note yield corresponding closest to the remaining average life of the Senior
Secured Notes at the time of prepayment plus 100 basis points; plus accrued
interest thereon to the date of purchase.
The Indenture contains covenants with respect to Envirodyne and its
subsidiaries limiting (subject to a number of important qualifications), among
other things, (i) the ability to pay dividends or redeem or repurchase common
stock, (ii) the incurrence of indebtedness, (iii) the creation of liens, (iv)
certain affiliate transactions and (v) the ability to consolidate with or merge
into another entity and to dispose of assets.
Borrowings under the Revolving Credit Facility bear interest at a rate per
annum equal to the three month London Interbank Offered Rate (LIBOR) on the
first day of each calendar quarter plus 300 basis points. The Revolving Credit
Facility expires on June 20, 1998.
Envirodyne has entered into interest rate agreements that cap $50 million of
interest rate exposure at an average LIBOR rate of 6.50% until January 1997.
These interest rate cap agreements were entered into under terms of the senior
bank financing that was repaid on June 20, 1995. Interest expense includes $153
of amortization of the interest rate cap premium during the three-month period
ended March 28, 1996. Envirodyne has not received any payments under the
interest rate protection agreements.
The Letter of Credit Facility expires on June 20, 1998. Fees on the outstanding
amount of letters of credit are 2.0% per annum, with an issuance fee of 0.5% on
the face amount of the letter of credit. There is a commitment fee of 0.5% per
annum on the unused portion of the Letter of Credit Facility.
F-60
<PAGE> 326
Had the refinancing taken place at the beginning of 1995, the pro forma
Envirodyne consolidated statement of operations would have been:
(in thousands, except for number of shares and per share amounts)
<TABLE>
<CAPTION>
Pro Forma Three Months
Ended March 30, 1995
------------------------
<S> <C>
Net sales $155,824
Cost of sales 114,955
Selling, general and administrative 28,270
Amortization of intangibles and
excess reorganization cost 3,910
--------
Operating income 8,689
Interest income 64
Interest expense 14,981
Other expense (income), net (591)
--------
(Loss) before income taxes (5,637)
Income tax (benefit) (798)
--------
Net (loss) $ (4,839)
========
Weighted average common shares 13,515,000
Net (loss) per share $(.36)
=====
</TABLE>
The pro forma information reflects the change in interest expense and related
tax effect due to the issuance of $160 million principal amount of Senior
Secured Notes and the refinancing of the Company's bank debt.
The $219,262 principal amount of 10-1/4% Notes were issued pursuant to an
Indenture dated as of December 31, 1993 (10-1/4% Note Indenture) between
Envirodyne and Bankers Trust Company, as Trustee. The 10-1/4% Notes are the
unsecured senior obligations of Envirodyne, bear interest at the rate of
10-1/4% per annum, payable on each June 1 and December 1, and mature on
December 1, 2001. The 10-1/4% Notes are redeemable, in whole or from time to
time in part, at the option of Envirodyne, at the percentages of principal
amount specified below plus accrued and unpaid interest to the redemption date,
if the 10-1/4% Notes are redeemed during the twelve-month period commencing on
January 1 of the following years:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
1996 104%
1997 103%
1998 102%
1999 101%
2000 and thereafter 100%
</TABLE>
The 10-1/4% Note Indenture contains covenants with respect to Envirodyne and
its subsidiaries limiting (subject to a number of important qualifications),
among other things, (i) the ability to pay dividends on or redeem or repurchase
capital stock, (ii) the incurrence of indebtedness, (iii) certain affiliate
transactions and (iv) the ability of the Company to consolidate with or merge
with or into
F-61
<PAGE> 327
another entity or to dispose of substantially all its assets.
Outstanding short-term and long-term debt consisted of:
<TABLE>
<CAPTION>
March 28, December 28,
1996 1995
---------- ------------
<S> <C> <C>
Short-term debt, current maturity of long-term
debt, and capital lease obligation:
Current maturity of Viskase Capital Lease Obligation $ 6,633 $ 6,012
Current maturity of Viskase Limited Term Loan (4.7%) 1,977 2,033
Other 3,404 4,459
-------- ---------
Total short-term debt $12,014 $12,504
======= =======
Long-term debt:
12% Senior Secured Notes due 2000 $160,000 $160,000
10.25% Senior Notes due 2001 219,262 219,262
Viskase Capital Lease Obligation 134,549 141,182
Viskase Limited Term Loan (4.7%) 6,917 7,115
Other 2,385 2,622
-------- ---------
Total long-term debt $523,113 $530,181
======== ========
</TABLE>
The fair value of the Company's debt obligation (excluding capital lease
obligation) is estimated based upon the quoted market prices for the same or
similar issues or upon the current rates offered to the Company for the debt of
the same remaining maturities. At March 28, 1996 the carrying amount and
estimated fair value of debt obligations (excluding capital lease obligation)
were $391,974 and $348,818, respectively.
On December 28, 1990, Viskase and GECC entered into a sale and leaseback
transaction. The sale and leaseback of assets included the production and
finishing equipment at Viskase's four domestic casing production and finishing
facilities. The facilities are located in Chicago, Illinois; Loudon,
Tennessee; Osceola, Arkansas and Kentland, Indiana. Viskase, as the Lessee
under the relevant agreements, continues to operate all of the facilities. The
lease has been accounted for as a capital lease.
The principal terms of the sale and leaseback transaction include: (a) a
15-year basic lease term (plus selected renewals at Viskase's option), (b)
annual rent payments in advance beginning in February 1991, and (c) a fixed
price purchase option at the end of the basic 15-year term and fair market
purchase options at the end of the basic term and each renewal term. Further,
the Lease Documents contain covenants requiring maintenance by the Company of
certain financial ratios and restricting the Company's ability to pay dividends,
make payments to affiliates, make investments and incur indebtedness.
Annual rental payments under the Lease will be approximately $19.2 million
through 1997, $21.4 million in 1998 and $23.5 million through the end of the
basic 15-year term. Viskase is required to provide credit support consisting of
a standby letter of credit in an amount up to one year's rent through at least
1997.
F-62
<PAGE> 328
This credit support can be reduced up to $4 million currently if the Company
achieves and maintains certain financial ratios. As of March 28, 1996 the
Company had met the required financial ratios and the letter of credit has been
reduced by $4 million. The letter can be further reduced in 1997 or eliminated
after 1998 if the Company achieves and maintains certain financial ratios.
Envirodyne and its other principal subsidiaries guaranteed the obligations of
Viskase under the Lease.
The 1996 rental payment of $19,227 was paid on February 28, 1996. Principal
payments under the capital lease obligation for the years ended 1996 through
1999 range from approximately $6 million to $14 million.
Aggregate maturities of remaining long-term debt for each of the next five
fiscal years are:
<TABLE>
<CAPTION>
Total
---------------
<S> <C>
1996 $ 9,019
1997 9,418
1998 12,313
1999 95,477
2000 95,669
</TABLE>
F-63
<PAGE> 329
3. CONTINGENCIES (dollars in thousands)
A class action lawsuit by former employees of subsidiary corporations
comprising most of the Company's former steel and mining division (SMD) was
pending as of the commencement of the bankruptcy case in which the plaintiffs
were seeking substantial damages. In March 1996, Envirodyne completed a
settlement of the lawsuit under which Envirodyne was released and discharged
from all claims in exchange for 900,000 shares of Envirodyne common stock
without any admission or finding of liability or wrongdoing.
Litigation has been initiated with respect to events arising out of the
bankruptcy cases and the 1989 acquisition of Envirodyne by Emerald Acquisition
Corporation (Emerald) with respect to which, although Envirodyne is not
presently a party to such litigation, certain defendants have asserted
indemnity rights against Envirodyne. In ARTRA Group Incorporated v. Salomon
Brothers Holding Company Inc, Salomon Brothers Inc, D.P. Kelly & Associates,
L.P., Donald P. Kelly, Charles K. Bobrinskoy, James L. Massey, William Rifkind
and Michael Zimmerman, Case No. 93 A 1616, United States Bankruptcy Court for
the Northern District of Illinois, Eastern Division (Bankruptcy Court), ARTRA
Group Incorporated (ARTRA) alleges breach of fiduciary duty and tortious
inference in connection with the negotiation and consummation of Envirodyne's
plan of reorganization (Plan of Reorganization) in 1993. In ARTRA Group
Incorporated v. Salomon Brothers Holding Company Inc, Salomon Brothers Inc,
D.P. Kelly & Associates, L.P., Donald P. Kelly, Charles K. Bobrinskoy and
Michael Zimmerman, Case No. 93 L 2198, Circuit Court of the Eighteenth Judicial
Circuit, County of DuPage, State of Illinois, ARTRA alleges breach of fiduciary
duty, fraudulent and negligent misrepresentation and breach of contract in
connection with the 1989 acquisition of Envirodyne by Emerald. The plaintiff
seeks damages in the total amount of $136.2 million plus interest and punitive
damages of $408.6 million. D.P. Kelly & Associates, L.P. and Messrs. Kelly,
Bobrinskoy, Massey, Rifkind and Zimmerman have asserted common law and
contractual rights of indemnity against Envirodyne for attorneys' fees, costs
and any ultimate liability relating to the claims set forth in the complaints.
Envirodyne is continuing its evaluation of the merits of the indemnification
claims against Envirodyne and the underlying claims in the litigation. Upon the
undertaking of D.P. Kelly & Associates, L.P. to repay such funds in the event
it is ultimately determined that there is no right to indemnity, Envirodyne is
advancing funds to D.P. Kelly & Associates, L.P. and Mr. Kelly for the payment
of legal fees in the case pending before the Bankruptcy Court. Although the
Company is not a party to either case, the Company believes that the
plaintiff's claims raise similar factual issues to those raised in the
Envirodyne bankruptcy case which, if adjudicated in a manner similar to that in
the Envirodyne bankruptcy case, would render it difficult for the plaintiff to
establish liability. Accordingly, the Company believes that the indemnification
claims would not have a material adverse effect upon the business or financial
position of the Company, even if the claimants were ultimately successful in
establishing their right to indemnification.
Certain of Envirodyne's stockholders prior to the acquisition of Envirodyne by
Emerald failed to exchange their certificates representing old Envirodyne
common stock for the $40 per share cash merger consideration specified by the
applicable acquisition agreement. In the Envirodyne bankruptcy case, Envirodyne
sought to equitably subordinate the claims of the holders of untendered shares,
so that such holders would not receive a distribution under the Plan of
Reorganization. The Bankruptcy Court granted Envirodyne's motion for summary
judgment and equitably subordinated the claims of the holders of untendered
shares to the claims of other general unsecured creditors. Certain of the
affected holders appealed and both the U.S. District Court and the U.S. Seventh
Circuit Court of Appeals affirmed the Bankruptcy Court decision. The time
period for further appeal has not passed. Envirodyne believes
F-64
<PAGE> 330
that even in the event of further appeal, if any, and reversal of the prior
decisions, the maximum number of shares of common stock that it would be
required to issue to such claimants is approximately 106,000.
Clear Shield National, Inc. and some of its employees have received subpoenas
from the Antitrust Division of the United States Department of Justice relating
to a grand jury investigation of the disposable plastic cutlery industry. The
U.S. Department of Justice has advised a former officer and an existing
employee that they are targets of the investigation. Both individuals were
invited to appear and testify before the grand jury but both declined. Clear
Shield National is cooperating fully with the investigation.
In February 1996 Clear Shield National and three other plastic cutlery
manufacturers were named as defendants in the following three civil complaints:
Eisenberg Brothers, Inc., on behalf of itself and all others similarly
situated, v. Amcel Corp., Clear Shield National, Inc., Dispoz-O Plastics Corp.
and Benchmark Holdings, Inc. t/a Winkler Products, Civil Action No. 96-728,
United States District Court for the Eastern District of Pennsylvania; St.
Cloud Restaurant Supply Company v. Amcel Corp., Clear Shield National, Inc.,
Dispoz-O Plastics Corp. and Benchmark Holdings, Inc. t/a Winkler Products, Case
No. 96C 0777, United States District Court for the Northern District of
Illinois, Eastern Division; and Servall Products, Inc., on behalf of itself and
all others similarly situated, v. Amcel Corporation, Clear Shield National,
Inc., Dispoz-O Plastics Corporation and Benchmark Holdings, Inc. t/a Winkler
Products, Civil Action No. 96-1116, United States District Court for the
Eastern District of Pennsylvania. Each of the complaints alleges, among other
things, that from October 1990 through April 1992 the defendants unlawfully
conspired to fix the prices at which plastic cutlery would be sold. The Company
has informed the plaintiffs that such claims as they relate to Clear Shield
were discharged by the order of the Bankruptcy Court and Plan of Reorganization
and that the plaintiffs are permanently enjoined from pursuing legal action to
collect discharged claims.
On February 27, 1996, the plaintiff in the St. Cloud case voluntarily dismissed
the action without prejudice and refiled its action in the U.S. District Court
for the Eastern District of Pennsylvania but did not name Clear Shield National
as a defendant. On March 14, 1996, Eisenberg Brothers Inc. filed a motion in
Clear Shield National's Bankruptcy proceeding in the U.S. Bankruptcy Court for
the Northern District of Illinois, Eastern Division. Eisenberg Brothers Inc.'s
motion contends that the Bankruptcy Court's order did not discharge the
plaintiff's claim.
The Company and its subsidiaries are involved in various legal proceedings
arising out of its business and other environmental matters, none of which is
expected to have a material adverse effect upon its results of operations, cash
flows or financial position.
4. CAPITAL STOCK, PAID IN CAPITAL, AND WARRANTS
On February 23, 1996, the United States Bankruptcy Court for the Northern
District of Illinois, Eastern District entered an order approving a settlement
agreement resolving all claims of the former union employees of Wisconsin Steel
Company which shut down in March 1980. Under terms of the approved settlement
of Frank Lumpkin, et al. v. Envirodyne Industries, Inc. (Lumpkin) and without
any admission or finding of liability or wrongdoing, Envirodyne was released
and discharged from all claims in exchange for 900,000 shares of common stock.
The distribution is in accordance with the terms of Envirodyne's Plan of
Reorganization under which common stock was distributed to Envirodyne's general
unsecured creditors in satisfaction of their allowed claims.
F-65
<PAGE> 331
The Company issued additional shares of common stock for the Lumpkin settlement
and to the holders of general unsecured claims of Envirodyne (as opposed to the
subsidiaries of Envirodyne) under the terms of the Plan of Reorganization. The
total number of shares outstanding after issuance of common stock for the
Lumpkin settlement and for the additional distribution to holders of general
unsecured claims of Envirodyne is 14,479,721.
Under the terms of the Plan of Reorganization, Envirodyne issued warrants to
purchase 10% of the fully diluted common stock. The issuance of common stock
pursuant to the Lumpkin settlement, together with other issuances of common
stock since the consummation of the Plan of Reorganization, caused an
adjustment to the exercise price of the warrants and the number of shares of
common stock for which a warrant is exercisable. The exercise price was
adjusted from $17.25 to $16.08 per share and the number of common shares for
which each warrant is exercisable was adjusted from 1.000 share to 1.073
shares.
5. SUBSIDIARY GUARANTORS
Envirodyne's payment obligations under the Senior Secured Notes are fully and
unconditionally guaranteed on a joint and several basis (collectively,
Subsidiary Guarantees) by Viskase Corporation, Viskase Holding Corporation,
Viskase Sales Corporation, Clear Shield National, Inc., Sandusky Plastics, Inc.
and Sandusky Plastics of Delaware, Inc., each a direct or indirect wholly-owned
subsidiary of Envirodyne and each a "Guarantor." These subsidiaries represent
substantially all of the operations of Envirodyne conducted in the United
States. The remaining subsidiaries of Envirodyne generally are foreign
subsidiaries or otherwise relate to foreign operations.
The obligations of each Guarantor under its Subsidiary Guarantee are the senior
obligation of such Guarantor, and are collateralized, subject to certain
permitted liens, by substantially all of the domestic assets of the Guarantor
and, in the case of Viskase Holding Corporation, by a pledge of 65% of the
capital stock of Viskase S.A. The Subsidiary Guarantees and security are shared
with the lenders under the Revolving Credit Agreement on a pari passu basis and
are subject to the priority interest of the holders of obligations under the
Letter of Credit Facility, each pursuant to an intercreditor agreement.
The following consolidating condensed financial data illustrate the composition
of the combined Guarantors. No single Guarantor has any significant legal
restrictions on the ability of investors or creditors to obtain access to its
assets in the event of default on the Subsidiary Guarantee other than its
subordination to senior indebtedness described above. Separate financial
statements of the Guarantors are not presented because management has
determined that these would not be material to investors. Based on the book
value and the market value of the pledged securities of Viskase Corporation,
Viskase Sales Corporation, Clear Shield National, Inc., Sandusky Plastics, Inc.
and Sandusky Plastics of Delaware, Inc., these Subsidiary Guarantors do not
constitute a substantial portion of the collateral and, therefore, the separate
financial statements of these subsidiaries have not been provided. Separate
unaudited interim financial statements of Viskase Holding Corporation are being
filed within this quarterly report.
Investments in subsidiaries are accounted for by the parent and Subsidiary
Guarantors on the equity method for purposes of the supplemental consolidating
presentation. Earnings of subsidiaries are therefore reflected in the parent's
and Subsidiary Guarantors' investment accounts and earnings. The principal
elimination entries eliminate investments in subsidiaries and intercompany
balances and transactions.
F-66
<PAGE> 332
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
MARCH 28, 1996
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations (1) Total
-------- ------------ ------------ ---------------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 16,489 $ (1,923) $ 8,436 $ 23,002
Receivables and advances, net 73,219 67,508 52,060 $ (106,439) 86,348
Inventories 68,570 38,124 (1,455) 105,239
Other current assets 510 22,090 9,473 32,073
-------- -------- -------- --------- --------
Total current assets 90,218 156,245 108,093 (107,894) 246,662
Property, plant and equipment including
those under capital lease 265 400,668 148,705 549,638
Less accumulated depreciation
and amortization 176 63,569 22,859 86,604
-------- -------- -------- --------- --------
Property, plant and equipment, net 89 337,099 125,846 463,034
Deferred financing costs 6,497 951 7,448
Other assets 42,672 1,655 44,327
Investment in subsidiaries 71,972 117,371 (189,343)
Excess reorganization value 93,152 39,737 132,889
-------- -------- -------- --------- --------
$168,776 $746,539 $276,282 $(297,237) $894,360
======== ======== ======== ========= ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current
portion of long-term debt and
obligation under capital lease $ 7,051 $ 4,963 $ 12,014
Accounts payable and advances $ 15 99,213 48,640 $ (106,439) 41,429
Accrued liabilities 19,868 36,273 22,710 78,851
-------- -------- -------- --------- --------
Total current liabilities 19,883 142,537 76,313 (106,439) 132,294
Long-term debt including obligation
under capital lease 379,262 136,462 7,389 523,113
Accrued employee benefits 51,649 4,295 55,944
Deferred and noncurrent income taxes 33,330 15,015 24,811 73,156
Intercompany loans (373,552) 340,000 33,504 48
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
none outstanding
Common stock, $.01 par value;
14,479,721 shares issued and
outstanding 145 3 32,738 (32,741) 145
Paid in capital 134,855 87,899 87,871 (175,770) 134,855
Accumulated earnings (deficit) (31,058) (32,889) 3,498 29,391 (31,058)
Cumulative foreign currency
translation adjustments 5,911 5,863 5,863 (11,726) 5,911
-------- -------- -------- --------- --------
Total stockholders' equity 109,853 60,876 129,970 (190,846) 109,853
-------- -------- -------- --------- --------
$168,776 $746,539 $276,282 $(297,237) $894,360
======== ======== ======== ========= ========
</TABLE>
(1) Elimination of intercompany receivables, payables and investment accounts.
F-67
<PAGE> 333
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
DECEMBER 28, 1995
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations (1) Total
-------- ------------ ------------ ---------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 18,013 $ 486 $ 11,826 $ 30,325
Receivables and advances, net 52,462 70,458 57,082 $ (90,548) 89,454
Inventories 63,355 38,233 (2,114) 99,474
Other current assets 176 12,364 9,106 21,646
-------- -------- -------- --------- --------
Total current assets 70,651 146,663 116,247 (92,662) 240,899
Property, plant and equipment including
those under capital lease 261 394,813 150,417 545,491
Less accumulated depreciation
and amortization 150 55,620 20,217 75,987
-------- -------- -------- --------- --------
Property, plant and equipment, net 111 339,193 130,200 469,504
Deferred financing costs 7,048 1,042 8,090
Other assets 43,720 1,869 45,589
Investment in subsidiaries 77,766 117,578 (195,344)
Excess reorganization value 94,968 40,517 135,485
-------- -------- -------- --------- --------
$155,576 $742,122 $289,875 $(288,006) $899,567
======== ======== ======== ========= ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current
portion of long-term debt and
obligation under capital lease $6,407 $6,097 $ 12,504
Accounts payable and advances $ 80 78,848 50,737 $ (90,548) 39,117
Accrued liabilities 8,126 37,488 21,939 67,553
-------- -------- -------- --------- --------
Total current liabilities 8,206 122,743 78,773 (90,548) 119,174
Long-term debt including obligation
under capital lease 379,262 143,198 7,721 530,181
Accrued employee benefits 51,345 4,281 55,626
Deferred and noncurrent income taxes 34,088 17,507 25,895 77,490
Intercompany loans (383,076) 340,000 43,083 (7)
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
none outstanding
Common stock, $.01 par value;
13,579,460 shares issued and
outstanding 136 3 32,738 (32,741) 136
Paid in capital 134,864 87,899 87,871 (175,770) 134,864
Accumulated earnings (deficit) (25,131) (27,752) 2,334 25,418 (25,131)
Cumulative foreign currency
translation adjustments 7,227 7,179 7,179 (14,358) 7,227
-------- -------- -------- --------- --------
Total stockholders' equity 117,096 67,329 130,122 (197,451) 117,096
-------- -------- -------- --------- --------
$155,576 $742,122 $289,875 $(288,006) $899,567
======== ======== ======== ========= ========
</TABLE>
(1) Elimination of intercompany receivables, payables and investment accounts.
F-68
<PAGE> 334
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED MARCH 28, 1996
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
NET SALES $102,481 $66,212 $ (8,957) $159,736
COSTS AND EXPENSES
Cost of sales 78,867 50,458 (9,616) 119,709
Selling, general and administrative $1,546 14,921 10,175 26,642
Amortization of intangibles and
excess reorganization value 3,228 863 4,091
-------- -------- ------- -------- --------
OPERATING INCOME (LOSS) (1,546) 5,465 4,716 659 9,294
Interest income 216 175 391
Interest expense 10,940 3,343 593 14,876
Intercompany interest expense (income) (10,513) 9,379 1,134
Management fees (income) (1,591) 1,218 373
Other expense (income), net 2,210 173 653 3,036
Equity Loss (income) in subsidiary 4,478 (1,164) (3,314)
------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (6,854) (7,484) 2,138 3,973 (8,227)
Income tax provision (benefit) (927) (2,347) 974 (2,300)
------- -------- -------- -------- --------
NET INCOME (LOSS) $(5,927) $ (5,137) $ 1,164 $ 3,973 $(5,927)
======= ======== ======= ======== =======
</TABLE>
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING CASH FLOWS
FOR THREE MONTHS ENDED MARCH 28, 1996
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $(11,061) $ 9,527 $7,401 $ 5,867
Cash flows from investing activities:
Capital expenditures (3) (5,919) (621) (6,543)
Proceeds from sale of property, plant and
equipment 35 14 49
-------- -------- ------- -------- -------
Net cash (used in) investing activities (3) (5,884) (607) (6,494)
Cash flows from financing activities:
Repayment of revolving loan, long-term
borrowings and capital lease obligations (6,052) (1,150) (7,202)
Increase (decrease) in Envirodyne loan 9,540 (9,540)
-------- -------- -------- -------- -------
Net cash provided by (used in) financing
activities 9,540 (6,052) (10,690) (7,202)
Effect of currency exchange rate changes
on cash 506 506
-------- -------- -------- -------- -------
Net increase (decrease) in cash
and equivalents (1,524) (2,409) (3,390) (7,323)
Cash and equivalents at beginning
of period 18,013 486 11,826 30,325
-------- -------- ------- -------- -------
Cash and equivalents at end
of period $16,489 $ (1,923) $ 8,436 $23,002
======= ======== ======= ======== =======
</TABLE>
F-69
<PAGE> 335
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED MARCH 30, 1995
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
NET SALES $102,289 $ 62,520 $ (8,985) $155,824
COSTS AND EXPENSES
Cost of sales 75,069 48,903 (9,017) 114,955
Selling, general and administrative $1,573 17,354 9,343 28,270
Amortization of intangibles and
excess reorganization value 3,066 844 3,910
------- -------- -------- -------- --------
OPERATING INCOME (LOSS) (1,573) 6,800 3,430 32 8,689
Interest income 55 9 64
Interest expense 9,084 3,522 828 13,434
Intercompany interest expense (income) (9,352) 8,502 850
Management fees (income) (1,850) 1,558 292
Other expense (income), net (2,152) (43) 1,604 (591)
Equity loss (income) in subsidiary 5,540 756 (6,296)
------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (2,843) (7,440) (135) 6,328 (4,090)
Income tax provision 1,052 (1,868) 621 (195)
------- -------- -------- -------- --------
NET INCOME (LOSS) $(3,895) $ (5,572) $ (756) $ 6,328 $ (3,895)
======= ======== ======== ======== ========
</TABLE>
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING CASH FLOWS
FOR THREE MONTHS ENDED MARCH 30, 1995
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities $(23,043) $12,237 $(3,730) $(14,536)
Cash flows from investing activities:
Capital expenditures (5,826) (1,805) (7,631)
------- -------- -------- -------- --------
Net cash (used in) investing activities (5,826) (1,805) (7,631)
Cash flows from financing activities:
Proceeds from revolving loan and
long term borrowings 13,900 28,349 42,249
Deferred financing costs (464) (464)
Repayment of revolving loan, long-term
borrowings and capital lease obligations (2,837) (5,450) (11,686) (19,973)
Increase (decrease) in Envirodyne loan 14,705 (14,705)
------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities 25,304 (5,450) 1,958 21,812
Effect of currency exchange rate
changes on cash 275 275
------- -------- -------- -------- --------
Net increase (decrease) in cash
and equivalents 2,261 961 (3,302) (80)
Cash and equivalents at beginning of period 555 1,853 4,881 7,289
------- -------- -------- -------- --------
Cash and equivalents at end of period $ 2,816 $ 2,814 $ 1,579 $ 7,209
======= ======== ======== ======== ========
</TABLE>
F-70
<PAGE> 336
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
The financial information included in this quarterly report has been prepared
in conformity with the accounting principles and practices reflected in the
financial statements included in the annual report on Form 10-K filed with the
Securities and Exchange Commission for the year ended December 28, 1995 (1995
Form 10-K). These quarterly financial statements should be read in conjunction
with the financial statements and the notes thereto included in the 1995 Form
10-K. The accompanying financial information, which is unaudited, reflects all
adjustments which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented.
The condensed consolidated balance sheet as of December 28, 1995 was derived
from the audited Viskase Holding Corporation's consolidated financial
statements included in Envirodyne Industries, Inc.'s annual report of Form
10-K.
Reported interim results of operations are based in part on estimates which may
be subject to year-end adjustments. In addition, these quarterly results of
operations are not necessarily indicative of those expected for the year.
F-71
<PAGE> 337
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 28, December 28,
1996 1995
---------------- ---------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 8,436 $ 11,826
Receivables, net 49,351 53,022
Receivables, affiliates 51,328 51,829
Inventories 38,124 38,233
Other current assets 9,473 9,106
-------- -------
Total current assets 156,712 164,016
Property, plant and equipment 148,705 150,417
Less accumulated depreciation 22,859 20,217
---------- --------
Property, plant and equipment, net 125,846 130,200
Deferred financing costs 951 1,042
Other assets 1,655 1,869
Excess reorganization value 39,737 40,517
-------- --------
$324,901 $337,644
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current
portion of long-term debt $ 4,963 $ 6,097
Accounts payable 15,819 13,720
Accounts payable and advances, affiliates 50,044 54,152
Accrued liabilities 22,711 21,942
--------- ----------
Total current liabilities 93,537 95,911
Long-term debt 7,389 7,721
Accrued employee benefits 4,295 4,281
Deferred and noncurrent income taxes 24,811 25,895
Intercompany loans 71,514 81,094
Commitments and contingencies
Stockholders' equity:
Common stock, $1.00 par value,
1,000 shares authorized;
100 shares issued and outstanding
Paid in capital 103,463 103,463
Retained earnings 14,029 12,100
Cumulative foreign currency
translation adjustments 5,863 7,179
--------- ----------
Total stockholders' equity 123,355 122,742
-------- --------
$324,901 $337,644
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-72
<PAGE> 338
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
March 28, March 30,
1996 1995
--------- ---------
(in thousands, except for number of shares and per share amounts)
<S> <C> <C>
NET SALES $66,212 $62,520
COSTS AND EXPENSES
Cost of sales 50,458 48,903
Selling, general
and administrative 8,912 8,846
Amortization of intangibles
and excess reorganization value 863 844
------- -------
OPERATING INCOME 5,979 3,927
Interest income 175 39
Interest expense 593 858
Intercompany interest expense 1,134 838
Management fees 373 292
Other expense, net 653 1,299
------- -------
INCOME BEFORE INCOME TAXES 3,401 679
Income tax provision 1,472 848
------- -------
NET INCOME (LOSS) $ 1,929 $ (169)
======= =======
WEIGHTED AVERAGE
COMMON SHARES 100 100
PER SHARE AMOUNTS:
NET INCOME (LOSS) $19,290 $(1,690)
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-73
<PAGE> 339
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------
March 28, March 30,
1996 1995
------------ ------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,929 $ (169)
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 2,982 2,808
Amortization of intangibles and excess
reorganization value 863 844
Amortization of deferred financing fees and discount 57 54
Increase (decrease) in deferred and
noncurrent income taxes (536) (91)
(Gain) on sales of property, plant and equipment (14)
Changes in operating assets and liabilities:
Accounts receivable 2,872 (88)
Accounts receivable, affiliates 97 (2,325)
Inventories (338) (6,652)
Other current assets 591 1,276
Accounts payable and accrued liabilities 2,865 (1,321)
Accounts payable and advances, affiliates (3,964) 1,225
Other (3) (689)
-------- --------
Total adjustments 5,472 (4,959)
-------- --------
Net cash provided by (used in) operating activities 7,401 (5,128)
Cash flows from investing activities:
Capital expenditures (621) (1,805)
Proceeds from sale of property, plant and equipment 14
-------- --------
Net cash (used in) investing activities (607) (1,805)
Cash flows from financing activities:
Proceeds from revolving loan and long-term borrowings 28,349
Repayment of revolving loan and long-term borrowings (1,150) (11,686)
Increase (decrease) in Envirodyne loan (9,540) (14,627)
-------- --------
Net cash provided by (used in) financing activities (10,690) 2,036
Effect of currency exchange rate changes on cash 506 275
-------- --------
Net (decrease) in cash and equivalents (3,390) (4,622)
Cash and equivalents at beginning of period 11,826 6,201
-------- --------
Cash and equivalents at end of period $ 8,436 $ 1,579
======== ========
- ----------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid $138 $ 250
Income taxes paid $250 $ 685
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-74
<PAGE> 340
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INVENTORIES (dollars in thousands)
Inventories consisted of:
<TABLE>
<CAPTION>
March 28, December 28,
1996 1995
--------- ------------
<S> <C> <C>
Raw materials $ 4,653 $ 5,299
Work in process 13,045 13,342
Finished products 20,426 19,592
-------- -------
$38,124 $38,233
======= =======
</TABLE>
2. CONTINGENCIES (dollars in thousands)
Viskase Holding Corporation and its subsidiaries are involved in various legal
proceedings arising out of its business and other environmental matters, none
of which is expected to have a material adverse effect upon its results of
operations, cash flows or financial position.
F-75
<PAGE> 341
ANNEX D
<PAGE> 342
===============================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
------------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 25, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 33-66392
HOULIHAN'S RESTAURANT GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 43-0913506
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OR ORGANIZATION)
</TABLE>
TWO BRUSH CREEK BOULEVARD, KANSAS CITY, MISSOURI 64112
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(816) 756-2200
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days. Yes X No ___
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No ___
The aggregate market value of the registrant's stock held by non-affiliates
as of February 26, 1996 was $13,238,782 based upon the average bid and ask price
on February 26, 1996.
The number of shares of the registrant's common stock outstanding as of
February 26, 1996 was 9,998,012.
The exhibit index is located on page E-1.
===============================================================================
<PAGE> 343
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
FORM 10-K
FISCAL YEAR ENDED DECEMBER 25, 1995
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business.................................................................... 3
Item 2. Properties.................................................................. 8
Item 3. Legal Proceedings........................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......................... 9
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters.... 10
Item 6. Selected Financial Data..................................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................. 12
Item 8. Financial Statements and Supplementary Data................................. 16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................ 16
PART III
Item 10. Directors and Executive Officers of the Registrant.......................... 16
Item 11. Executive Compensation...................................................... 18
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 21
Item 13. Certain Relationships and Related Transactions.............................. 21
PART IV
Item 14. Exhibits, Financial Statements and Reports on Form 8-K...................... 22
Signatures............................................................................... 23
</TABLE>
2
<PAGE> 344
PART I
ITEM 1. BUSINESS
GENERAL
Houlihan's Restaurant Group, Inc. and its wholly-owned subsidiary,
Houlihan's Restaurants, Inc. and its subsidiaries (the "Company") operates full
service casual dining restaurants in 25 states. At December 25, 1995, it
operated 98 restaurants, including 61 Houlihan's, 28 Darryl's, three upscale
Seafood Grills and six Specialty Restaurants comprised of four dinnerhouses, one
upscale steakhouse and the Buena Vista Cafe. At that date, the Company also
franchised 18 Houlihan's restaurants in seven states and the Commonwealth of
Puerto Rico. The Company is a Delaware corporation formed on May 31, 1968 and is
the successor to a business founded in 1962 in Kansas City, Missouri. The
restaurant business is the only business in which the Company is engaged.
OVERVIEW OF THE COMPANY'S RESTAURANT CONCEPTS
The Company's primary restaurant concepts are Houlihan's and Darryl's,
which operate in the casual dining segment of the restaurant industry. During
1995, sales for these concepts comprised 67% and 23%, respectively, of the
Company's total sales. All of the Company's restaurants serve beer, wine and
cocktails, both in the restaurant areas and in the separate bar areas. Sales of
alcoholic beverages constituted 23% of the Company's net sales for the fiscal
year ended December 25, 1995.
Houlihan's. The first Houlihan's restaurant was opened in Kansas City,
Missouri in 1972. As of December 25, 1995, the Company operated 61 Houlihan's
restaurants located in 21 states, primarily along the East Coast and in the
Midwest and franchised 18 additional Houlihan's restaurants in seven states and
the Commonwealth of Puerto Rico.
Houlihan's is the Company's largest restaurant concept. The concept has a
strong appeal to adult casual dining guests, principally in the 25 to 49 age
group. Almost all menu items are freshly prepared on the restaurant premises.
Houlihan's restaurants are open seven days a week, serving lunch, dinner and
late evening meals. The average Houlihan's dinner guest check for the fiscal
year ended December 25, 1995 was $11.46.
The following table sets forth, for the periods indicated, information
concerning Company-owned Houlihan's:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Number of Houlihan's:
Open at beginning of period......... 56 53 51 59 61
Opened or converted during period... 5 5 3(a) -- --
Closed or divested during period.... -- (2) (1) (8) (2)
------ ------ ------ ------ ------
Open at end of period....... 61 56 53 51 59
Average sales per restaurant open for
full period (in thousands).......... $3,118 $3,148 $3,092 $3,114 $2,990
Percentage increase (decrease) in
comparable restaurant sales......... (0.6)% 0.6% (1.7)% (1.4)% (3.7)%
</TABLE>
- ---------------
(a) Includes two Specialty Restaurants which were closed and in the process of
being converted to Houlihan's.
Darryl's. Darryl's restaurants are also casual dining restaurants that
offer a diverse menu that includes traditional items such as barbecued ribs and
steaks. As with Houlihan's, almost all items are prepared on the restaurant
premises. In late 1995, the Company adopted a new strategy for the concept that
includes a new menu emphasizing wood-fired steaks. The new strategy requires the
update of facilities with new wood grills as well as a new smallware package in
each restaurant. The menu is expected to be fully implemented in all restaurants
by the end of the first quarter of 1996. In December 1995, one of the concept's
three Area Directors was promoted to Vice President and put in charge of the
Darryl's concept. Darryl's restaurants are
3
<PAGE> 345
open seven days a week, serving lunch, dinner and late evening meals. As of
December 25, 1995, the Company operated 28 Darryl's restaurants located in eight
states, primarily in the Southeast. The average Darryl's dinner guest check for
the fiscal year ended December 25, 1995 was $11.48.
The following table sets forth, for the periods indicated, information
concerning Darryl's:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Number of Darryl's:
Open at beginning of period....... 30 31 31 31 31
Opened or converted during
period......................... -- -- -- -- --
Closed or divested during
period......................... (2)(a) (1)(b) -- -- --
------ ------ ------ ------ ------
Open at end of period..... 28 30 31 31 31
Average sales per restaurant open
for full period (in thousands).... $2,178 $2,226 $2,302 $2,368 $2,467
Percentage increase (decrease) in
comparable restaurant sales....... (3.6)% (3.7)% (2.8)% (4.0)% (4.9)%
</TABLE>
- ---------------
(a) Includes one Darryl's which was converted to J. Gilbert's in August 1995.
(b) Represents one Darryl's which was converted to a Houlihan's.
Seafood Grills. The Seafood Grills compete in the upscale restaurant market
under the names "Bristol", "Braxton" and "Chequers." These restaurants target
special occasion and business entertainment diners by offering an extensive
selection of seafood and steaks, an upscale level of service and well-appointed
facilities. The Seafood Grill restaurants are open seven days a week, serving
lunch, dinner and late evening meals. As of December 25, 1995, the Company
operated three Seafood Grills located in St. Louis, Chicago and Atlanta. The
average Seafood Grill dinner guest check for the fiscal year ended December 25,
1995 was $24.11.
The following table sets forth, for the periods indicated, information
concerning the Seafood Grills:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Number of Seafood Grills:
Open at beginning of period....... 4 4 4 6 6
Opened or converted during
period......................... -- -- -- -- --
Closed or divested during
period......................... (1) -- -- (2) --
------ ------ ------ ------ ------
Open at end of period..... 3 4 4 4 6
Average sales per restaurant open
for full period (in thousands).... $4,024 $4,070 $3,813 $3,668 $3,194
Percentage increase (decrease) in
comparable restaurant sales....... 4.9% 6.8% 3.9% 1.5% (7.9)%
</TABLE>
Specialty Restaurants. The Specialty Restaurants consist of four
dinnerhouses, one upscale steakhouse and the Buena Vista Cafe. The dinnerhouses,
which operate under the names "Charley's Place" and "Phineas," compete in the
high end of the casual dining market, target special occasion diners, and
feature full menus which emphasize steak and prime rib and are open seven days a
week, serving lunch, dinner and late evening meals. The average dinner guest
check for the dinnerhouses for the fiscal year ended December 25, 1995 was
$13.21. The steakhouse, which operates under the name "J. Gilbert's," is the
Company's newest concept. It also competes in the upscale restaurant market and
features a menu that is printed daily and specializes in Black Angus steaks,
chicken and seafood. J. Gilbert's is open seven days a week, serving dinner and
late evening meals only. The average dinner guest check for J. Gilbert's for the
fiscal year ended December 25, 1995 was $20.58. The Buena Vista Cafe, located
near Fisherman's Wharf in San Francisco, California, is known for having
introduced the Irish Coffee drink in the United States. Sales of Irish Coffee
represent a significant portion of the Buena Vista Cafe's sales.
4
<PAGE> 346
The following table sets forth, for the periods indicated, information
concerning the Specialty Restaurants:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Number of Specialty Restaurants:
Open at beginning of period....... 5 5 7 7 7
Opened or converted during
period......................... 1(a) -- -- -- --
Closed or divested during
period......................... -- -- (2)(b) -- --
------ ------ ------ ------ ------
Open at end of period..... 6 5 5 7 7
Average sales per restaurant open
for full period (in thousands).... $2,277 $2,311 $2,258 $2,227 $2,196
Percentage increase (decrease) in
comparable restaurant sales....... (1.5)% 2.4% 1.5% 1.5% (4.3)%
</TABLE>
- ---------------
(a) Represents one restaurant which was converted to J. Gilbert's from Darryl's.
(b) Represents two restaurants which were closed and in the process of
conversion to Houlihan's.
BUSINESS DEVELOPMENT
The Company's expansion strategy consists of three main elements: opening
Company-owned Houlihan's restaurants, franchising the Houlihan's concept in
non-corporate markets and expanding the Seafood Grills concept and J. Gilbert's
concept on a limited basis. The Company opened five new Houlihan's in 1995 and
plans to open three new Company-owned Houlihan's restaurants in 1996.
Additionally, the Company expects that ten to twelve franchised Houlihan's
restaurants will open in 1996.
In addition to the expansion of the Houlihan's concept, the Company will
also open one new Seafood Grill in April 1996 and one new J. Gilbert's in late
1996.
The Company believes it has a sufficient number of qualified restaurant
managers that will enable it to meet its expansion goals without compromising
quality. The Company will designate managers of new restaurants by drawing on
the pool of managers at existing restaurants. In this way, the Company will
maintain its high standards by utilizing managers who have a proven track record
with the concept. The Company has also designated a team of employees
responsible for opening new locations, including the hiring and training of
kitchen personnel and other individuals who will serve as hosts, waiters,
bartenders and restaurant managers. In addition, the Company has its own
construction and design group with overall responsibilities for restaurant
design and construction management. Management believes this group reduces the
required investment in new restaurants.
The Company believes that its ability to select high profile restaurant
sites is critical to its success. The Company has developed a customer profile
for each restaurant concept based on the demographics and dining habits of its
existing customer base. The Company utilizes a lifestyle and demographics
software system in combination with several other factors in the site selection
process, including local market demographics, site visibility, aesthetics,
accessibility and proximity to significant generators of potential guests such
as major retail centers, office complexes, hotel concentrations and
entertainment facilities including sports arenas and theaters. As of December
25, 1995, the Company had secured all the sites for anticipated new restaurants
in 1996 and has begun working on sites for 1997.
FRANCHISE OPERATIONS
The Company considers its franchising program to be a key element of its
expansion strategy. The Company intends to expand its franchising activities
primarily in areas where it does not currently operate Company-owned Houlihan's
restaurants. In this way, the Company hopes to increase customer awareness
nationwide at a more rapid pace than corporate expansion alone would allow. The
addition of franchised restaurants also provides the Company with operating
efficiencies as well as an important source of income.
5
<PAGE> 347
During 1995, the Company signed eight new franchise development agreements
for an aggregate commitment of 33 new Houlihan's restaurants to be developed
over a five-year period. Since the beginning of 1994, the Company has signed 14
franchise agreements that provide for the development of a total of 67 new
Houlihan's, including those franchise restaurants that are currently open.
During 1995, seven Houlihan's franchise restaurants opened in six states and the
Commonwealth of Puerto Rico, bringing the total number of franchised restaurants
opened to 18. The Company expects to sign five to six new agreements in 1996 and
expects that ten to twelve more franchised restaurants will open in 1996. In
addition, the Company intends to pursue international expansion through
franchising.
The Company has franchised areas that include Portland, Oregon; Denver and
Colorado Springs, Colorado; Reno and Las Vegas, Nevada; Tucson, Arizona; Austin,
Texas; North Carolina; Wisconsin; South Carolina; North Dakota; South Dakota;
Cleveland and certain counties in Ohio; Tennessee; certain counties in Indiana
and Kentucky; Orlando, Florida; and Puerto Rico. Additionally, one of the
franchise development agreements provides for the development of five
restaurants in airports in Atlanta, Chicago, Los Angeles and Philadelphia.
The Company's standard franchise agreement has a 20-year term, with four
five-year renewal options, and provides for a payment to the Company of a
one-time initial franchise fee and a continuing royalty fee at a rate of 4% of
gross sales. Under the standard franchise agreement, the franchisees must
operate their restaurants in accordance with the Company's operational
standards.
MANAGEMENT AND EMPLOYEES
The Company strives to maintain quality and consistency in its restaurants
through the careful training and supervision of personnel and the establishment
of standards relating to food and beverage preparation and presentation, alcohol
service, maintenance of facilities, sanitation, safety, recordkeeping and
employee relations.
Each restaurant has a general manager and two to five assistant managers,
depending on the size of the restaurant. The Company has 14 Area Directors that
are responsible for the overall operations of four to ten restaurants in a
particular geographic region. Additionally, the Area Directors have oversight
responsibilities for any franchise restaurants in their designated region. The
Company provides its management with ongoing training tools and programs
designed to help enhance employee knowledge of menu items, sales techniques and
guest service. Management of the Company's franchise restaurants also take part
in the various management training programs. Training teams enlisted from among
the Company's most qualified and experienced employees provide one-on-one
instruction to the staff of new Company-owned and franchise restaurants.
At December 25, 1995, the Company employed 8,239 persons, of whom 8,103
were restaurant employees and 136 were corporate personnel. Of the restaurant
employees, 533 performed managerial functions. Except for restaurant management
and most corporate personnel, employees are paid on an hourly basis.
Approximately 44% of the Company's employees were employed on a part-time basis
(25 hours or less per week).
The Company believes it provides working conditions and wages that compare
favorably with those offered by its competitors, and it believes its relations
with employees are good. The Company has a collective bargaining agreement with
one union covering certain employees of the Buena Vista Cafe.
PURCHASING
In order to provide uniform quality and obtain competitive pricing, the
corporate purchasing department monitors and purchases major commodities such as
beef, pork, poultry and seafood products and negotiates and administers national
and regional contracts for various items. As the prices of certain of these
products vary significantly based on seasonal and market supply/demand factors,
the purchasing department often enters into forward purchase agreements to
secure advantageous pricing. Each restaurant typically purchases bakery products
and supplies and other perishable items from local vendors or through the
Company's arrangements with national distributors. The Company purchases produce
on a regional basis. Franchise
6
<PAGE> 348
restaurants are required to use suppliers that are pre-approved by the Company
in order to maintain quality control.
ADVERTISING
The Company believes that the food, service and decor offered by its
restaurants provides its best advertising, and it relies principally upon
satisfied guests to promote its restaurants by word-of-mouth. In addition, the
Company uses a certain amount of radio and newspaper advertising in selected
markets, runs print advertisements in several travel and entertainment magazines
and engages in limited promotional activities before opening a new restaurant.
During 1996, the Company plans to utilize quarterly promotional campaigns that
incorporate a market-specific media mix, including television in certain
markets.
Houlihan's continues to use a dining for miles program with American
Airlines. The program creates increased awareness and provides added value to a
highly targeted and desirable consumer segment. Platinum and Gold American
AAdvantage(R) members receive a Dining Advantage Guide which features Houlihan's
as the only national casual dining chain. Members receive miles for every dollar
spent at Houlihan's. During 1995, Houlihan's also participated in the Visa
Rewards for Dining and Diversions program with Visa in which Visa utilized bill
inserts and advertising to notify cardholders that savings certificates would be
rewarded for purchases made during a specified time period. Savings certificates
could then be redeemed at Houlihan's for a free dessert or appetizer with an
entree purchase.
During 1995, the Company entered into an agreement for the right to name
the Tampa Bay Buccaneer Football Stadium "Houlihan's Stadium". Additionally, the
agreement provides the Company with advertising rights inside the stadium and in
Tampa Bay Buccaneer programs and brochures. See "Certain Relationships and
Related Transactions".
COMPETITION
The restaurant business is highly competitive and the competition can be
expected to increase. Price, restaurant location, food quality, service and
attractiveness of facilities are important aspects of competition, and the
competitive environment is often affected by factors beyond the Company's or a
particular restaurant's control. These factors include changes in the public's
dining habits, population and traffic patterns and local economic conditions.
The Company and its franchisees compete with a wide variety of restaurants,
ranging from national and regional restaurant chains to locally-owned
restaurants, some of which have greater financial resources than the Company.
There is also active competition for management personnel and hourly restaurant
employees, as well as intense competition for attractive commercial real estate
sites suitable for restaurants.
GOVERNMENTAL REGULATION
Each of the Company's restaurants is subject to state and/or local laws and
regulations governing health, sanitation and safety and the sale of alcoholic
beverages. The selection of new restaurant sites is affected by federal, state
and local laws and regulations regarding environmental matters, zoning and land
use. The Company has not encountered any difficulties or failures in obtaining
necessary licenses and approvals that could delay or prevent new restaurant
openings and does not, at this time, anticipate any.
The Company is subject to a variety of federal and state laws that regulate
the sale of franchises and the franchise relationship. Generally, these laws and
regulations impose certain disclosure and registration requirements prior to the
sale and marketing of franchises. These laws and regulations have not had a
material effect on the Company's franchise operations.
The Company is subject to the Fair Labor Standards Act, which governs such
matters as minimum wages, overtime and other working conditions. Approximately
53% of the Company's employees as of December 25, 1995 were paid at rates tied
to the minimum wage. The Company is also subject to the Americans With
Disabilities Act and various family leave mandates.
7
<PAGE> 349
TRADE AND SERVICE MARKS
The Company owns a number of trade and service marks used in conjunction
with its business. The following trade and service marks are among those owned
by the Company: Houlihan's(R), Darryl's(R), Charley's Place(SM), Phineas(SM), J.
Gilbert's(SM), The Buena Vista(R) and Braxton Seafood Grill & Chophouse(R). In
addition, the Company is entitled to limited use of the service mark Bristol Bar
& Grill(SM) in the St. Louis and Kansas City areas and has obtained the use of
the service mark Chequers Bar & Grill(SM) under license from Checkers of North
America.
The Company has registered with state and federal authorities and will
continue to register, or renew the registration of, those trade and service
marks it deems important to the continued operation and recognition of its
restaurant businesses. The Company regards its service marks and logos as
important to the identification of its restaurants and believes they have
significant value in the conduct of its business. The Company's policy is to
utilize marks when appropriate, to pursue registration of its marks whenever
possible and to vigorously oppose infringement activities that might diminish
the value of its marks.
ITEM 2. PROPERTIES
As of December 25, 1995, the Company owned the land and buildings on and in
which it operates 25 restaurants, owned the buildings and leased the land for
three restaurants and leased 70 restaurants. The Company's restaurants are
approximately 8,600 square feet on average, and they have been open an average
of 10.5 years as of December 25, 1995. The Company's 25 owned properties consist
of three Houlihan's, 20 Darryl's and two Specialty Restaurants. Substantially
all owned and leased properties are mortgaged as collateral under the Company's
bank credit agreement (the "Bank Credit Agreement").
The leases for the Company's open and operating restaurants generally
provide for an initial term from ten to twenty years and renewal options of five
to twenty-five years. The leases generally provide for payment of a fixed rental
and, in most cases, percentage rentals based on sales.
The Company leases approximately 35,000 square feet in a building in Kansas
City, Missouri, which houses its corporate headquarters. The Company also leases
a facility in Kansas City, Missouri, which contains approximately 22,000 square
feet, which is utilized to manufacture, refurbish, warehouse and distribute
restaurant furnishings and decor items.
8
<PAGE> 350
The following table sets forth the jurisdiction in which both the
Company-owned restaurants and franchise restaurants are located and the number
of restaurants in each as of December 25, 1995:
<TABLE>
<CAPTION>
COMPANY-OWNED
------------------------------------------------------- FRANCHISE
SEAFOOD SPECIALTY -----------
HOULIHAN'S DARRYL'S GRILLS RESTAURANTS TOTAL HOULIHAN'S
---------- -------- ------ ----------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
Alabama....................... 3 3
Arizona....................... 3 3
California.................... 3 1 4
Colorado...................... 1 1 2
Connecticut................... 1 1 2
Florida....................... 2 3 5
Georgia....................... 3 1 4
Illinois...................... 6 1 7
Indiana....................... 1 1 2 1
Kansas........................ 1 1 2
Kentucky...................... 2 2
Louisiana..................... 1 1
Maryland...................... 1 1 2
Massachusetts................. 4 4
Michigan...................... 2 2
Missouri...................... 6 1 1 8
Nevada........................ 0 1
New Jersey.................... 7 7
New York...................... 3 3 10
North Carolina................ 11 11 1
Ohio.......................... 3 3 1
Pennsylvania.................. 10 1 11
Tennessee..................... 3 3
Texas......................... 1 1
Virginia...................... 1 4 1 6
Wisconsin..................... 1 1 1
Puerto Rico................... 0 1
-- -- -- -- -- --
61 28 3 6 98 18
== == == == == ==
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various claims and pending legal actions arising
in the normal course of business. Management believes that the final disposition
of these claims and pending actions will not have a material adverse effect,
individually or in the aggregate, on the business or the financial position of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
<PAGE> 351
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the over-the-counter ("OTC") market
under the symbol "HOUL" (formerly "HOPS"). There has been limited public trading
on the OTC of the Common Stock. Bid quotations reflect interdealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions. The following table sets forth the quarterly high
and low bid quotations of the Common Stock, as reported by the OTC Bulletin
Board.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
Fiscal year ended December 25, 1995:
First Quarter.................................... $ 8 1/2 $6 1/2
Second Quarter................................... 8 7/8 8 1/2
Third Quarter.................................... 8 7/8 7 1/8
Fourth Quarter................................... 7 1/8 4 1/2
Fiscal year ended December 26, 1994:
First Quarter.................................... $11 1/4 $8 1/8
Second Quarter................................... 11 1/4 9 3/4
Third Quarter.................................... 10 8
Fourth Quarter................................... 10 1/4 6 1/2
</TABLE>
As of December 25, 1995, there were less than 50 stockholders of record.
Holders of Common Stock are entitled to receive dividends when, as and if
declared by the Company's Board of Directors out of funds legally available
therefor. However, the ability of Houlihan's Restaurants, Inc., to declare and
pay dividends to Houlihan's Restaurant Group, Inc. is restricted by the terms of
the Bank Credit Agreement to 35% of the cash flow in excess of certain amounts
as set forth in the Bank Credit Agreement. As of December 25, 1995, the Company
has not paid any dividends and does not anticipate the payment of cash dividends
in the foreseeable future.
10
<PAGE> 352
ITEM 6. SELECTED FINANCIAL DATA
The following selected Statement of Income data and Balance Sheet data for
the periods indicated has been derived from the Consolidated Financial
Statements of Houlihan's Restaurant Group, Inc. and Subsidiary. Such financial
statements have been audited by Deloitte & Touche LLP, independent certified
public accountants. The information below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company and notes
thereto included elsewhere in this Form 10-K.
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED (A)(B)
-----------------------------------------------------------------------
DECEMBER 25, DECEMBER 26, DECEMBER 27, DECEMBER 28, DECEMBER 29,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
(PREDECESSOR) (PREDECESSOR)
STATEMENT OF INCOME DATA:
Net sales........................ $ 267,622 $ 259,367 $ 257,225 $266,532 $287,060
Cost of sales, including
operating expenses (exclusive
of depreciation and
amortization shown
separately).................... 222,375 215,562 208,532 228,926 245,580
----------- ----------- ---------- -------- --------
Gross profit........... 45,247 43,805 48,693 37,606 41,480
Depreciation and amortization.... 14,865 16,245 19,610 18,428 19,829
General and administrative
expenses....................... 16,938 17,176 17,736 15,038 14,646
Loss on disposition of
properties, net................ 605 847 624 601 587
Interest expense................. 8,189 6,562 6,428 10,242(c) 24,637(c)
Other (income), net.............. (3,531) (2,883) (2,700) (3,606) (3,712)
Reorganization items and
restructuring costs............ -- -- -- 3,612 13,913
Income tax provision (benefit)... 3,916 2,900 4,026 (1,173) (6,206)
----------- ----------- ---------- -------- --------
Income (loss) before
extraordinary item.......... 4,265 2,958 2,969 (5,536) (22,214)
Extraordinary gain on discharge
of prepetition liabilities..... -- -- -- 31,031 --
----------- ----------- ---------- -------- --------
Net income (loss)...... $ 4,265 $ 2,958 $ 2,969 $ 25,495 $(22,214)
=========== =========== ========== ======== ========
Earnings per common and common
equivalent share(d)............ $ 0.43 $ 0.30 $ 0.30 -- --
=========== =========== ========== ======== ========
Weighted average common and
common equivalent shares(d).... 10,032,254 10,012,928 9,998,012 -- --
=========== =========== ========== ======== ========
BALANCE SHEET DATA:
Working capital surplus
(deficit)...................... $ (15,494) $ (12,270) $ (9,220) $ (8,947) $ 5,512
Total assets..................... 191,016 192,508 204,235 197,301 235,627
Total debt, including capitalized
leases......................... 83,981 89,553 99,997 103,276 202,033
Stockholders' equity (deficit)... 70,192 65,927 62,969 60,000 (17,951)
OTHER FINANCIAL DATA:
Capital expenditures............. $ 14,626 $ 17,814 $ 10,521 $ 7,978 $ 5,240
</TABLE>
- ---------------
(a) Unless otherwise indicated, references herein to years pertain to the
Company's 52- or 53- week fiscal years ending the last Monday in December.
All fiscal years presented were 52-week fiscal years.
(b) "Predecessor" refers to the Company prior to December 28, 1992.
(c) From November 1991 to December 1992, interest expense attributable to senior
subordinated notes was stayed resulting in a decrease in interest expense of
$11,767 for 1992 and $1,260 for 1991.
(d) Earnings per common share for fiscal years 1992 and 1991 are not meaningful
due to reorganization and revaluation entries and the significant changes in
the Company's capital structure upon its reorganization which was completed
December 28, 1992.
11
<PAGE> 353
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto included elsewhere in
this Form 10-K. The Company reports fiscal year results of operations based on
52-or 53-week periods. The fiscal years ended December 25, 1995, December 26,
1994 and December 27, 1993 were 52-week fiscal years and are referred to
hereafter as 1995, 1994 and 1993, respectively.
The following table sets forth, for the periods indicated, information
derived from the Consolidated Financial Statements of the Company (dollars in
thousands). All percentages contained in the table below are percentages of net
sales for the period indicated.
<TABLE>
<CAPTION>
1995 1994 1993
---------------- ---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales.............................. $267,622 100.0% $259,367 100.0% $257,225 100.0%
Cost of sales:
Food and bar costs................... 78,363 29.3 76,329 29.4 74,832 29.1
Labor costs.......................... 85,351 31.9 83,186 32.1 80,825 34.1
Operating expenses (exclusive of
depreciation and amortization).... 58,661 21.9 56,047 21.6 52,875 20.6
-------- ------ -------- ------ -------- ------
Total cost of sales.......... 222,375 83.1 215,562 83.1 208,532 81.1
-------- ------ -------- ------ -------- ------
Gross profit................. 45,247 16.9 43,805 16.9 48,693 18.9
Depreciation and amortization.......... 14,865 5.5 16,245 6.3 19,610 7.6
General and administrative expenses.... 16,938 6.3 17,176 6.6 17,736 6.9
Loss on disposition of properties,
net.................................. 605 0.2 847 0.3 624 0.2
Other (income), net.................... (3,531) (1.3) (2,883) (1.1) (2,700) (1.0)
Interest expense....................... 8,189 3.1 6,562 2.6 6,428 2.5
Income tax provision................... 3,916 1.5 2,900 1.1 4,026 1.6
-------- ------ -------- ------ -------- ------
Net income................... $ 4,265 1.6% $ 2,958 1.1% $ 2,969 1.1%
======== ====== ======== ====== ======== ======
</TABLE>
FISCAL 1995 COMPARED WITH FISCAL 1994
Net sales for 1995 increased $8,255,000, or 3.2%, to $267,622,000 from
$259,367,000 in 1994. The increase in net sales was due to sales of $17,780,000
generated by five new restaurants and one conversion opened in 1995, four new
restaurants opened in 1994 and three restaurants that were converted to
Houlihan's from other concepts in 1994. The increase in sales was offset by a
decrease in comparable restaurant sales of $2,899,000, or 1.2%, and a decrease
of $6,626,000 due to the closing of two restaurants in 1995 and two in 1994.
"Comparable restaurants" are restaurants open throughout fiscal years 1994
and 1995. The increases (decreases) in comparable restaurant sales, by concept,
from 1994 to 1995 were as follows:
<TABLE>
<CAPTION>
FOOD BAR TOTAL
------ ------ ------
<S> <C> <C> <C>
Houlihan's......................... 0.5 % (4.0)% (0.6)%
Darryl's........................... (3.6)% (3.7)% (3.6)%
Seafood Grills..................... 6.1 % (0.5)% 4.9 %
Specialty Restaurants.............. (0.3)% (3.8)% (1.5)%
Total.................... (0.4)% (3.8)% (1.2)%
</TABLE>
The decrease in total comparable restaurant sales for the Company from 1994
to 1995 reflects a 0.4% decrease in food sales and a 3.8% decrease in sales of
alcoholic beverages. The percentage of the Company's net sales generated by the
sale of alcoholic beverages in 1995 remained consistent with 1994 at 23%. The
Company has implemented several strategies to improve and/or maintain alcoholic
beverage sales in
12
<PAGE> 354
consideration of a continuing industry-wide declining trend in customer drinking
habits. These strategies included offering several micro-brewery beer products,
a new drink menu and various local promotions.
Cost of sales as a percentage of net sales remained consistent with 1994 at
83.1% Cost of sales are composed of three major items: food and bar costs, labor
costs and operating expenses.
Combined food and bar costs were 29.3% and 29.4% of net sales in 1995 and
1994, respectively. The decrease was due to favorable poultry and dairy prices
during 1995, as well as a menu price increase which became effective in the
fourth quarter of 1995.
Labor costs improved to 31.9% of sales in 1995 from 32.1% of net sales in
1994. The decrease was primarily due to the implementation of new labor
scheduling systems in eleven of the Company's restaurants. The new systems rely
on estimated guest counts based upon historical information to assist restaurant
management in scheduling employees in the most efficient manner possible. The
new systems should be fully implemented in all of the Company's restaurants by
the second quarter of 1996.
Operating expenses as a percentage of net sales increased 0.3% to 21.9% in
1995 from 21.6% in 1994. The increase is due primarily to rent increases in
several of the Company's restaurants. Approximately 71% of the Company's
restaurants are leased. Additionally, paper goods and supplies increased due to
new packaging for the "To Go" and delivery service sales, which increased in
volume during 1995.
Depreciation and amortization expense decreased to $14,865,000 from
$16,245,000 during the year due to an increased number of assets which are
fully-depreciated. The decrease is also due, in part, to the closing of two
restaurants during the first quarter of 1995.
General and administrative expenses decreased $238,000, or 1.4%, to
$16,938,000 in 1995 from $17,176,000 in 1994. The decrease is a result of cost
savings associated with a staff and procedural restructuring in January 1995.
The restructuring was undertaken to improve the efficiency and productivity of
the overhead and support areas of the Company. The savings were partially offset
by approximately $600,000 of expenses associated with a registration statement
that was withdrawn by the Company during 1995 due to unfavorable developments in
the high-yield financing market.
Other income increased to $3,531,000 in 1995 from $2,883,000 in 1994
primarily due to a 47% increase in franchise income as a result of an increase
in royalty income and the recognition of franchise fees associated with opening
seven new franchise restaurants during 1995.
Interest expense for 1995 increased to $8,189,000 from $6,562,000 in 1994
due to higher interest rates related to the Company's bank debt during 1995. The
weighted average interest rate related to the Company's bank debt was 8.5% for
1995 as compared to 7.0% for 1994. Also, additional interest expense was
incurred related to the $7,000,000 the Company borrowed on its Revolving Credit
Facility during the year, of which all but $1,000,000 was repaid by year end.
The effective income tax rate was 48% for 1995 and 50% for 1994. The
decrease in the effective rate is due primarily to the increase in pre-tax book
income of $2,323,000.
Net income increased $1,307,000 to $4,265,000, or 1.6% of sales, from
$2,958,000, or 1.1% of sales, in 1994 primarily due to increased sales and
stable cost of sales. Earnings per common and common equivalent share increased
to $0.43 in 1995 from $0.30 due to the factors discussed above.
FISCAL 1994 COMPARED WITH FISCAL 1993
Net sales for 1994 increased $2,142,000, or 0.8%, to $259,367,000 from
$257,225,000 in 1993. The increase in net sales was due to sales of $6,188,000
generated by four new restaurants opened in 1994, one new restaurant opened in
1993 and three restaurants that were converted to Houlihan's from other concepts
in 1994. The increase in sales was offset by a decrease in comparable restaurant
sales of $326,000, or 0.1%, and a decrease of $3,720,000 due to the closing of
two restaurants in 1994 and one in 1993.
13
<PAGE> 355
"Comparable restaurants" are restaurants open throughout fiscal years 1993
and 1994. The increases (decreases) in comparable restaurant sales, by concept,
from 1993 to 1994 were as follows:
<TABLE>
<CAPTION>
FOOD BAR TOTAL
------ ------ ------
<S> <C> <C> <C>
Houlihan's............................. 1.5 % (1.7)% 0.6 %
Darryl's............................... (3.9)% (2.2)% (3.7)%
Seafood Grills......................... 7.5 % 3.9 % 6.8 %
Specialty Restaurants.................. 2.5 % 2.1 % 2.4 %
Total.................................. 0.2 % (1.3)% (0.1)%
</TABLE>
The decrease in total comparable restaurant sales for the Company from 1993
to 1994 reflects a 0.2% increase in food sales and a 1.3% decrease in sales of
alcoholic beverages at comparable restaurants. The percentage of the Company's
net sales generated by the sale of alcoholic beverages decreased from 23.6% in
1993 to 23.3% in 1994, which is believed to be the result of a continuing
industry-wide trend in customer drinking habits. During 1994, the Company
implemented several strategies to diminish the effect of the trend of decreasing
alcoholic beverage sales. These strategies included offering several
micro-brewery beer products, a new drink menu and various local promotions. As a
result, the decrease in the sales of alcoholic beverages slowed to 1.3% in 1994
compared to a decrease of 5.2% in 1993 and 8.4% in 1992. The Company believes
that its ongoing implementation of new promotional strategies will continue to
diminish the effect of the general trend of declining alcoholic beverage sales.
Cost of sales as a percentage of net sales increased 2.0% from 81.1% in
1993 to 83.1% in 1994. Cost of sales are composed of three major items: food and
bar costs, labor costs and operating expenses.
Combined food and bar costs were 29.1% and 29.4% of net sales in 1993 and
1994, respectively. The increase in food and bar costs as a percentage of net
sales was due primarily to an increase in food costs resulting from a new "value
oriented" Darryl's menu implemented in April 1994, the costs associated with a
system-wide roll out of a new Houlihan's menu, the increased use of certain
products purchased from outside suppliers rather than prepared on the restaurant
premises, as well as increases in the prices of certain grocery items.
Labor costs were 31.4% and 32.1% of net sales in 1993 and 1994,
respectively. The increase is partially due to the initial costs of introducing
new service programs in the first quarter of 1994 in both the Houlihan's and
Darryl's concepts which were designed to enhance service to accommodate the
individual needs of the guests. In addition, as the percentage of net sales
generated by the sale of alcoholic beverages continues to decline, labor costs
as a percentage of net sales have increased due to the relatively fixed nature
of labor costs associated with sales of alcoholic beverages.
Operating expenses as a percentage of net sales increased 1.0% from 20.6%
in 1993 to 21.6% in 1994. The increase is due primarily to an increase in
pre-opening expense of $1,152,000 from $116,000 in 1993 to $1,268,000 in 1994
associated with opening four new restaurants and three restaurants that were
converted from other concepts. The increase is also due to an increase in
laundry and cleaning expenses caused by the change to outside laundering for
linens in all of the Company's restaurants.
Depreciation and amortization expense decreased by $3,365,000 from
$19,610,000 in 1993 to $16,245,000 in 1994. The decrease is due, in part, to the
closing of two restaurants and the conversion of three restaurants during 1994.
General and administrative expenses decreased by $560,000 from $17,736,000
in 1993 to $17,176,000 in 1994. As a percentage of net sales, general and
administrative expenses decreased from 6.9% in 1993 to 6.6% in 1994. The
decrease in the amount of general and administrative expenses is due, in part,
to the reduction in the bonus expense for corporate management and the increase
in the allocation of corporate development costs as a result of the increase in
new restaurant openings from 1993 to 1994.
Interest expense increased by $134,000 from $6,428,000 in 1993 to
$6,562,000 in 1994 due to higher interest rates related to the Company's bank
debt during 1994. The weighted average interest rate related to
14
<PAGE> 356
the Company's bank debt was 5.3% for 1993 as compared to 7.0% for 1994. The
Company reduced its bank debt in 1994 by $10,222,000.
The effective income tax rate was 58% for 1993 and 50% for 1994. The
decrease in the effective rate is due primarily to the recognition of the FICA
tax credit that was introduced for tax years after 1993.
Net income decreased by $11,000 from $2,969,000 for 1993 to $2,958,000 for
1994 due primarily to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At December 25, 1995, the Company had cash and cash equivalents of
$10,314,000. The Company's working capital deficit increased to $15,494,000 in
1995 from $12,270,000 in 1994. Cash flow from new and existing restaurants,
proceeds from new loans and proceeds from the disposition of properties
generated cash proceeds that were offset by capital expenditures and payments on
long-term debt. The Company historically has relied principally upon internally
generated funds to finance its restaurant expansion and to fund working capital
expenditures and has operated with working capital deficiencies. The Company's
ability to operate with working capital deficiencies is due to the nature of the
restaurant business, which does not require significant investments in accounts
receivable or inventories and which generally allows the procurement of food and
supplies on trade credit.
At December 25, 1995, the Company had $14,073,000 available to it under its
$20,000,000 revolving credit facility (reduced by $4,927,000 of outstanding
standby letters of credit and a $1,000,000 loan) provided pursuant to the Bank
Credit Agreement. The Bank Credit Agreement requires semi-annual payments of
$5,500,000 in March and September 1996, increasing over time to $6,750,000, with
the balance due at maturity on September 30, 1999. By means of an interest rate
cap, the Company has effectively protected itself against increases in LIBOR
above 10% on a notional amount of $30,000,000 of its indebtedness through March
1997.
The Company's capital expenditures (excluding capital leases) totaled
$14,626,000, $17,814,000 and $10,521,000 in 1995, 1994 and 1993, respectively.
Subject to restrictions on capital expenditures contained in the Bank Credit
Agreement, the Company expects to incur capital expenditures in 1996 of
approximately $14,000,000 in connection with opening five new restaurants in
1996, for normal restaurant renovations and replacements and for the continuing
installation of new management information systems in the Company's restaurants.
The Company intends to continue to operate with working capital
deficiencies and to rely upon internally generated funds to finance its
restaurant operations and to fund working capital expenditures, including its
expansion plans. Management believes that cash on hand, funds to be generated
internally from operations and the use of working capital changes, lease
financing and funds available to the Company under its revolving credit facility
will be adequate to meet the Company's debt service and capital expenditure
requirements for the foreseeable future.
SEASONALITY
The Company's sales generally are not subject to seasonality, although
sales are generally slightly higher during the fourth quarter, and slightly
lower during the first quarter, due to weather and the dining habits of the
Company's guests.
IMPACT OF INFLATION
In the past, the Company has been able to recover inflationary cost
increases through increased food and beverage menu prices. There have been, and
there may be in the future, delays in implementing such menu price increases,
and competitive pressures may limit the Company's ability to recover such cost
increases in their entirety. Historically, the effects of inflation on the
Company's net income have not been materially adverse.
15
<PAGE> 357
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to Financial Statements on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age, and position of each person
who is a director or officer of the Company. Officers are elected for one-year
terms and serve at the pleasure of the Board. Each director will serve until his
successor is elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- ----------------------------------------
<S> <C> <C>
Malcolm I. Glazer............ 67 Chairman of the Board of Directors
Avram A. Glazer.............. 35 Director
Kevin E. Glazer.............. 33 Director
Bryan G. Glazer.............. 31 Director
Joel M. Glazer............... 28 Director
Warren H. Gfeller............ 43 Director
Frederick R. Hipp............ 45 President, Chief Executive Officer and
Director
William W. Moreton........... 35 Executive Vice President/Chief Financial
Officer, Treasurer and Secretary
Henry C. Miller.............. 41 Senior Vice President/Houlihan's and
Dinnerhouses
Andrew C. Gunkler............ 43 Senior Vice President/Franchising
Mark T. Walker............... 38 Vice President/Construction and Design
James W. Kaiser.............. 45 Vice President/Purchasing and Facilities
Marc L. Kuemmerlein.......... 41 Vice President/General Counsel
Kenneth C. Vetter............ 44 Vice President/Darryl's (appointed
January 1996)
</TABLE>
Malcolm I. Glazer has been the Chairman of the Board of the Company since
September 16, 1992. Malcolm Glazer has been President and Chief Executive
Officer of the First Allied Corporation since 1984. Mr. Glazer's diversified
portfolio consists of investments in television broadcasting, health care,
banking, natural gas services, real estate and food service equipment. He is
Chairman of the Board of Directors of Zapata Corporation, a natural gas company,
a director of Specialty Equipment Companies, Inc., a domestic manufacturer of
food service equipment, a director of Envirodyne Industries, Inc., a producer of
food packaging and food service supplies and a director of Buccaneers Limited
Partnership, the entity that owns the Tampa Bay Buccaneer National Football
League franchise.
Avram A. Glazer has been a director of the Company since September 16,
1992. Avram Glazer has been Vice President of the First Allied Corporation since
1985. Avram Glazer also serves as Chief Executive Officer and a director of
Zapata Corporation. He is also a member of the Board of Directors of Specialty
Equipment Companies, Inc. and Envirodyne Industries, Inc. Avram Glazer is the
son of Malcolm Glazer.
Kevin E. Glazer has been a director of the Company since September 16,
1992. Kevin Glazer has been Vice President of the First Allied Corporation since
1986. He is also a member of the Board of Directors of Specialty Equipment
Companies, Inc. Kevin Glazer is the son of Malcolm Glazer.
16
<PAGE> 358
Bryan G. Glazer has been a director of the Company since September 16,
1992. Bryan Glazer has been Vice President of the First Allied Corporation since
1989 and is a director of the Buccaneers Limited
Partnership. Bryan Glazer is the son of Malcolm Glazer.
Joel M. Glazer has been a director of the Company since September 16, 1992.
Joel Glazer has been Vice President of the First Allied Corporation since 1989
and is a director of the Buccaneers Limited Partnership. Joel Glazer is the son
of Malcolm Glazer.
Warren H. Gfeller has been a director of the Company since September 16,
1992. Mr. Gfeller is the owner of Clayton-Hamilton Equities and was the
President, Chief Executive Officer and a director of Ferrellgas, Inc. in
Liberty, Missouri from 1983 through 1991. He is also a director of Synergy Gas
Corp., the Kansas Wildscape Foundation, House Specialties Corporation, Gardner
Bancshares, Inc., and Stranger Valley Land Company.
Frederick R. Hipp has been the President, Chief Executive Officer, and a
director of the Company since August 1988. He served as President/Casual Dining
Division of the Company from June 1985 to August 1988 and as Executive Vice
President of the Company from May 1980 to June 1985. Prior to joining the
Company, Mr. Hipp served as President of Restaurant Data Systems, Inc. from 1978
to 1980 and served in a number of operations and support positions with the
Steak & Ale Corporation from 1973 to 1978.
William W. Moreton joined the Company in October 1992 as the Vice
President, Chief Financial Officer, Treasurer and Secretary and was promoted to
Executive Vice President in April 1993. Prior to this position, Mr. Moreton
served as Vice President-Head of Special Asset Management-U.S. for Credit
Agricole-CNCA from April 1989 to October 1992. Prior to that he was with Arthur
Andersen & Co. from July 1982 to April 1989 where he served as a Manager in the
Audit and Financial Consulting Division.
Henry C. Miller has been Senior Vice President/Houlihan's and Dinnerhouses
since October 22, 1993. He served as Vice President/Operations and General
Manager -- Houlihan's and Dinnerhouses from April to October 1993. He served as
Vice President/Operations -- Houlihan's and Dinnerhouses from August 1988 to
April 1993 and served as Vice President/Operations -- Houlihan's from October
1985 to August 1988. He served as Director/Franchise Operations from October
1984 to October 1985 and served in the capacity of Area Director from May 1982
to October 1984. Prior to May 1982, Mr. Miller served in a variety of restaurant
operations positions.
Andrew C. Gunkler was elected Senior Vice President/Franchising in January
1996. He served as Vice President/Franchising from February 1994 to December
1995. Prior to joining the Company in 1994, he served as Vice President of
Franchising for East Side Mario's from October 1992 to December 1993 and as
Director of Franchise Development for Perkins Family Restaurants from October
1985 to October 1992.
Mark T. Walker has been Vice President/Construction and Design since
October 1991. He served as Director of Facilities from October 1987 to October
1991 and as Manager of Construction from September 1985 until October 1987.
Prior to holding these positions, Mr. Walker served as a regional facilities
manager with Montgomery Ward from September 1983 until September 1985.
James W. Kaiser was elected Vice President/Purchasing and Facilities in
February 1995. He served as Director/Purchasing from October 1988 to September
1994. Prior to joining the Company he served as Director of Purchasing for
ChiChi's Mexican Restaurants.
Marc L. Kuemmerlein was elected Vice President/General Counsel in December
1995. He served as General Counsel from January 1993 to December 1995 and as
Corporate Counsel from July 1990 to January 1993. Prior to joining the Company,
Mr. Kuemmerlein practiced general corporate and real estate law with the firm
Smith, Gill, Fisher & Butts, which merged with Bryan Cave LLP in July 1995.
Kenneth C. Vetter was appointed Vice President/Darryl's in January 1996. He
served as a Darryl's Area Director from December 1977 to January 1996. Mr.
Vetter served as a General Manager in Darryl's restaurant operations from
December 1975 to December 1977. Prior to December 1975, he served in a variety
of restaurant operations positions.
17
<PAGE> 359
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation of the Company's Chief Executive Officer and the other four most
highly compensated executive officers of the Company in 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION ALL
ANNUAL COMPENSATION AWARDS OTHER
------------------------ ----------- COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(A) OPTIONS (#) ($) (B)
- --------------------------------------- ---- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Frederick R. Hipp...................... 1995 370,055 74,011 50,000 24,953
President and Chief Executive Officer 1994 362,024 -- 250,000 28,223
1993 362,024 325,387 -- 33,195
William W. Moreton..................... 1995 170,683 68,273 16,000 5,651
Executive Vice President/ 1994 159,192 -- 74,000 6,932
Chief Financial Officer 1993 147,884 118,130 -- 270
Henry C. Miller........................ 1995 155,019 62,008 14,000 5,339
Senior Vice President/ 1994 146,269 -- 68,000 6,932
Houlihan's and Dinnerhouses 1993 135,769 108,452 -- 4,168
Andrew C. Gunkler...................... 1995 105,481 83,547 -- 474
Senior Vice President/Franchising 1994 97,385 50,300 32,000 274
1993 -- -- -- --
Mark T. Walker......................... 1995 99,827 14,974 -- 2,776
Vice President/Construction and 1994 90,798 -- 31,000 3,869
Design
1993 85,923 68,635 -- 3,792
</TABLE>
- ---------------
(a) Reflects bonus amounts earned in each year as provided under the annual
incentive plan, employment agreements and letter agreements with the
executive officers discussed below.
(b) Includes Company contributions to the retirement savings plan, group term
life insurance premiums and disability insurance premiums.
The named executive officers received automobile allowances, reimbursements
of automobile expenses, moving expenses and/or reimbursements for financial
planning services. Such other compensation did not exceed in the aggregate the
lesser of $50,000 or 10% of the total of annual salary and bonus reported for
such officers.
The following table sets forth certain information concerning options to
purchase the Company's Common Stock granted in 1995 to the five individuals
named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
- ----------------------------------------------------------------------------------------- AT ASSUMED ANNUAL RATES
% OF TOTAL OF STOCK PRICE
OPTIONS APPRECIATION FOR
GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---- ------- ------------- --------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Frederick R. Hipp.......... 50,000 30.4% $5.875 Oct. 26, 2005 $ 184,800 $ 468,200
William W. Moreton......... 16,000 9.7% $5.875 Oct. 26, 2005 59,100 149,800
Henry C. Miller............ 14,000 8.5% $5.875 Oct. 26, 2005 51,700 131,100
Andrew C. Gunkler.......... -- -- -- -- -- --
Mark T. Walker............. -- -- -- -- -- --
</TABLE>
18
<PAGE> 360
As of December 25, 1995, the options were not exercisable and the stock
price was below the exercise price.
The Certificate of Incorporation states that the seven member board will
serve concurrent terms of one year. All directors who are not full-time
employees of the Company receive fees of $10,000 per annum and $500 per meeting
and are eligible to receive stock options pursuant to the Company's option plan
for outside directors. See "Benefit Plans and Arrangements."
In December 1992, the Board of Directors established the Compensation
Committee composed of Messrs. Malcolm Glazer and Warren Gfeller. The duties of
the Compensation Committee are to review remuneration for corporate officers and
to make recommendations to the Board of Directors regarding changes in
compensation. The Committee's objectives are to establish compensation programs
designed to attract, retain and reward executives who will lead the Company in
achieving its business goals in a highly competitive industry and to ensure that
management compensation is reasonable in light of the Company's objectives,
compensation for similar personnel in other companies and other relevant
criteria.
The Company's present compensation program consists of an annual component,
which includes base salary plus an annual incentive bonus, and a long-term
component consisting of stock options. During 1995, the Compensation Committee
met informally and after considering the report of external consultants, the
Committee recommended increases in executive salaries for 1995. The increases
were believed to be competitive with similar personnel in other companies within
the industry.
EMPLOYMENT AGREEMENTS
On March 23, 1989, the Company entered into an employment agreement with
Frederick R. Hipp. The agreement, as amended on August 5, 1991, provides for a
minimum base annual salary of $362,000 subject to adjustment, for severance
payments under certain circumstances, and permits Mr. Hipp to receive bonuses.
Mr. Hipp's employment agreement also provides other fringe benefits including
(i) additional term life insurance equal to 5.5 times base salary, (ii)
additional long-term disability coverage which, when combined with the Company's
standard long-term disability insurance, equals 60% of base salary paid out
annually to age 65, (iii) an automobile allowance plus related operating and
maintenance expenses, and (iv) financial and estate planning and associated
legal expenses. Additionally, pursuant to the agreement, the Company must
indemnify Mr. Hipp, if, among other things, he becomes a party to a legal action
or lawsuit arising in connection with the proper exercise of his duties. The
agreement was further amended on February 11, 1992 to provide for a severance
payment if his employment is terminated upon a change of control of the Company
in an amount equal to 2.99 times Mr. Hipp's average annual compensation for the
previous five years. This amount would equal $954,000 as of December 25, 1995.
On August 5, 1991, the Company entered into a letter agreement with Henry
C. Miller which, as amended, provides for the payment of severance payments if
Mr. Miller's employment is terminated under certain change of control
circumstances in an amount equal to 2.99 times Mr. Miller's average annual
compensation for the previous five years, or $407,000 as of December 25, 1995. A
"change of control" as defined in the agreements with respect to Messrs. Hipp
and Miller, occurred on December 28, 1992. In March 1993, the Company entered
into agreements with Messrs. Moreton and Walker providing for severance payments
of 2.99 times the executive's average annual compensation for the previous five
years if their employment is terminated under certain change of control
circumstances. Such amounts would aggregate to $891,000 as of December 25, 1995.
In all of the above agreements, there is no limitation with respect to the
passage of time between the change of control and the termination of the
employee. Such individuals are not entitled to a severance payment in the event
of a termination of employment resulting from (a) death or retirement, (b)
termination by the Company for "cause", or termination by the employee for a
reason other than a "good reason". A "good reason" is defined to include an
assignment of duties materially inconsistent with such individual's status as a
senior executive officer, a reduction in annual salary, a transfer of the
employee to a location more than 50 miles from the current corporate office
location, a failure of the Company to pay an installment of a previous bonus
award, the failure of the Company to maintain the individual's current level of
employment
19
<PAGE> 361
benefits, or the failure of the Company to obtain a satisfactory employment
agreement for the individual from a successor company. The agreements do not
have an expiration date.
BENEFIT PLANS AND ARRANGEMENTS
Annual Incentive Plan. The Company maintains an annual incentive plan which
includes executive officers and other key employees of the Company. Under the
plan, participants generally are eligible to receive cash bonuses based on the
Company's earnings before interest, taxes, depreciation and amortization.
Retirement Savings Plans. The Company has two retirement savings plans for
its employees, a trusted plan under Section 401(k) of the Internal Revenue Code
("RSP I"), and an untrusted deferred compensation plan ("RSP II"). RSP I covers
employees of the Company whose total annual compensation is less than $66,000,
as adjusted pursuant to Internal Revenue Code Section 415(d), and who have
completed at least one year of employment. Participants are able to reduce their
taxable salary compensation by a specified percentage and receive a 50% matching
contribution by the Company of up to 3% of the individual participant's
qualified compensation as defined in the plan. RSP II covers employees of the
Company whose total annual compensation is $66,000 or more and matches the
provisions of RSP I, except for certain exceptions. RSP II is unfunded, and all
salary reduction contributions and the Company's contributions remain a part of
the Company's general assets. RSP II permits eligible employees to contribute 1%
to 15% of their base salary plus bonus.
Stock Option Plans. The Company maintains two stock option plans, one plan
for outside directors ("Option Plan I") and one plan for executives and certain
key employees ("Option Plan II"), providing for the issuance of options to
purchase 540,000 and 750,000 shares, respectively. Options for 360,000 and
653,600 shares were issued and outstanding as of December 25, 1995 under Option
Plans I and II, respectively. The Board of Directors determines the option price
based upon the estimated market value of the Company's Common Stock at the date
of grant based on the price of the shares as traded in the over-the-counter
market. The options generally vest over a four-year period from the date of
grant and are exercisable over the period stated in each option. Option Plan I
provides for the issuance of up to 30,000 shares to each outside director per
year to the extent the options are available under the plan.
20
<PAGE> 362
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to beneficial
ownership of shares of the Company's Common Stock as of December 25, 1995 by
each beneficial owner of more than five percent of the Company's Common Stock,
each director, each executive officer named in the Summary Compensation Table
and all directors and officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NUMBER OF OF
OF SHARES FULLY
SHARES OF DILUTED
OF COMMON SHARES
COMMON STOCK OF
NAME OF STOCKHOLDER(A) STOCK OUTSTANDING(B) COMMON STOCK(C)
---------------------- -------- -------------- ---------------
<S> <C> <C> <C>
Glazer Group(d).............................. 7,325,815 73.27% 72.92%
1482 S. Ocean Blvd.
Palm Beach, FL 33480
Merrill Lynch & Co., Inc.(e)................. 1,154,769 11.55 11.50
World Financial Center, N. Tower
250 Vesey Street
New York, NY 10281
Euram Management, Inc. ...................... 502,596 5.03 5.00
One EAB Plaza
Uniondale, NY 11555
Warren H. Gfeller............................ -- -- --
Frederick R. Hipp(f)......................... 56,129 * *
William W. Moreton(f)........................ -- -- --
Henry C. Miller(f)........................... -- -- --
Andrew C. Gunkler(f)......................... -- -- --
Mark T. Walker(f)............................ 1,000 * *
All directors and officers as a group........ 7,212,042 72.13 71.79
--------- ----- -----
</TABLE>
- ---------------
* Less than 1% of outstanding Common Stock.
(a) Because the Company is not subject to the provisions of Section 13(d) of
the Securities Act of 1934, as amended, the Company is unable to ascertain
beneficial ownership based upon statements filed with the Commission
pursuant to Sections 13(d) of 13(g) of the Securities Exchange Act of 1934,
as amended.
(b) Based on 9,998,012 shares of Common Stock outstanding.
(c) Assumes the exercise of 47,710 warrants outstanding at an exercise price of
$37.92.
(d) Includes Malcolm I. Glazer, Chairman of the Board of Directors, and his
sons, Avram A. Glazer, Kevin E. Glazer, Bryan G. Glazer and Joel M. Glazer,
each a director. See "Directors and Executive Officers of the Registrant."
(e) Based on information contained in a Schedule 13G dated as of January 18,
1996.
(f) Excludes 300,000, 90,000, 82,000, 32,000 and 31,000 shares of Common Stock
subject to outstanding options granted to Messrs. Hipp, Moreton, Miller,
Gunkler and Walker, respectively, none of which are exercisable within 60
days of the date of this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 11, 1995, the Company entered into an option agreement with
First Allied Tampa which granted the Company the exclusive right to operate a
casual dining restaurant in the existing Tampa Bay Buccaneer Football Stadium or
in a new Tampa Bay Stadium, if built. First Allied Tampa is wholly owned by the
Glazer Group, owners of 73% of the Company's stock on a fully diluted basis.
After performing due diligence, the Company and First Allied Tampa mutually
agreed to terminate the option on February 6, 1995. Full return of all
consideration paid under the agreement occurred on April 28, 1995.
21
<PAGE> 363
On October 13, 1995, the Company entered into an Advertising and
Sponsorship Agreement (the "Agreement") with the Buccaneers Limited Partnership
for the exclusive naming rights to the Tampa Bay Buccaneer Football Stadium (the
"Stadium"). The Buccaneers Limited Partnership is 100% controlled by the Glazer
Group. The Agreement provides the Company with the right to name the Stadium
"Houlihan's Stadium". Additionally, it provides the Company with advertising
rights inside the Stadium and in Tampa Bay Buccaneer programs and brochures. The
Agreement is for a ten-year period at a total cost of $10,000,000. The payment
terms are $2,000,000 per year for the first five years of the Agreement. The
Company made the first payment under the Agreement on December 5, 1995. If the
Tampa Bay Buccaneers move to a new stadium and the Buccaneers Limited
Partnership retains the naming rights, the Agreement will continue. If the
Buccaneers Limited Partnership loses the naming rights, the Agreement will be
terminated and the monies paid by the Company for future years will be refunded.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) Financial Statements
The financial statements are listed in the accompanying "Index to
Financial Statements" on page F-1.
Exhibits
The exhibits filed with or incorporated by reference in this report
are listed on the Exhibit Index beginning on page E-1.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the
period covered by this Report.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT
No annual report or proxy statement was sent to security holders during the
fiscal year ended December 25, 1995.
22
<PAGE> 364
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES ACT
OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
HOULIHAN'S RESTAURANT GROUP, INC.
Date: March 6, 1996 By: /s/ WILLIAM W. MORETON
----------------------------------
William W. Moreton
Executive Vice President and
Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS
BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------- -------------
<C> <S> <C>
By: /s/ FREDERICK R. HIPP President, Chief Executive March 6, 1996
- ------------------------------------------ Officer and Director
Frederick R. Hipp (principal executive
officer)
By: /s/ WILLIAM W. MORETON Executive Vice President/Chief March, 6, 1996
- ------------------------------------------ Financial Officer (principal
William W. Moreton financial and accounting
officer)
By: /s/ MALCOLM I. GLAZER Chairman and Director March 6, 1996
- ------------------------------------------
Malcolm I. Glazer
By: /s/ AVRAM A. GLAZER Director March 6, 1996
- ------------------------------------------
Avram A. Glazer
By: /s/ KEVIN E. GLAZER Director March 6, 1996
- ------------------------------------------
Kevin E. Glazer
By: /s/ BRYAN G. GLAZER Director March 6, 1996
- ------------------------------------------
Bryan G. Glazer
By: /s/ JOEL M. GLAZER Director March 6, 1996
- ------------------------------------------
Joel M. Glazer
By: /s/ WARREN H. GFELLER Director March 6, 1996
- ------------------------------------------
Warren H. Gfeller
</TABLE>
23
<PAGE> 365
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of December 25, 1995 and December 26, 1994............. F-3
Consolidated Statements of Income for the fiscal years ended December 25, 1995,
December 26, 1994 and December 27, 1993............................................. F-4
Consolidated Statements of Stockholders' Equity for the fiscal years ended December
25, 1995, December 26, 1994 and December 27, 1993................................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended December 25, 1995,
December 26, 1994 and December 27, 1993............................................. F-6
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
All schedules are omitted as the required information is not present in amounts
sufficient to require submission of the schedule, or because the required
information is included in the consolidated financial statements or the notes
thereto.
F-1
<PAGE> 366
INDEPENDENT AUDITORS' REPORT
To Houlihan's Restaurant Group, Inc.:
We have audited the accompanying consolidated balance sheets of Houlihan's
Restaurant Group, Inc. and subsidiary (the "Company") as of December 25, 1995
and December 26, 1994 and the related consolidated statements of income,
stockholders' equity and cash flows for the fiscal years ended December 25,
1995, December 26, 1994 and December 27, 1993. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Houlihan's
Restaurant Group, Inc. and subsidiary as of December 25, 1995 and December 26,
1994, and the results of their operations and their cash flows for the fiscal
years ended December 25, 1995, December 26, 1994 and December 27, 1993 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
March 6, 1996
F-2
<PAGE> 367
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER DECEMBER
25, 26,
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 10,314 $ 10,310
Receivables........................................................ 1,661 1,515
Inventories........................................................ 2,276 2,446
Other current assets............................................... 2,918 2,451
Deferred income taxes.............................................. 1,401 1,413
-------- --------
Total current assets....................................... 18,570 18,135
Property, equipment and leaseholds, net.............................. 104,521 102,843
Reorganization value in excess of amounts allocable to identifiable
assets, net........................................................ 62,108 65,759
Deferred debt issuance costs, net.................................... 330 440
Other assets, net.................................................... 5,487 5,331
-------- --------
$191,016 $192,508
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capitalized lease
obligations..................................................... $ 11,202 $ 6,177
Accounts payable................................................... 8,811 10,050
Accrued interest................................................... 676 1,652
Accrued liabilities................................................ 13,375 12,526
-------- --------
Total current liabilities.................................. 34,064 30,405
Long-term debt and capitalized lease obligations, less current
portion............................................................ 72,779 83,376
Other liabilities.................................................... 10,834 9,253
Deferred income taxes................................................ 3,147 3,547
-------- --------
Total liabilities.......................................... 120,824 126,581
-------- --------
Stockholders' equity:
Common stock -- par value $.01 per share, 20,000,000 shares
authorized, 9,998,012 shares issued and outstanding............. 100 100
Additional paid-in capital......................................... 59,900 59,900
Retained earnings.................................................. 10,192 5,927
-------- --------
Total stockholders' equity................................. 70,192 65,927
-------- --------
$191,016 $192,508
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 368
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
DECEMBER DECEMBER DECEMBER
25, 26, 27,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net sales......................................... $ 267,622 $ 259,367 $ 257,225
Cost of sales:
Food and bar costs.............................. 78,363 76,329 74,832
Labor costs..................................... 85,351 83,186 80,825
Operating expenses (exclusive of depreciation
and amortization shown separately)........... 58,661 56,047 52,875
----------- ----------- -----------
Total cost of sales..................... 222,375 215,562 208,532
----------- ----------- -----------
Gross profit............................ 45,247 43,805 48,693
Depreciation and amortization..................... 14,865 16,245 19,610
General and administrative expenses............... 16,938 17,176 17,736
Loss on disposition of properties, net............ 605 847 624
Other (income), net............................... (3,531) (2,883) (2,700)
Interest expense.................................. 8,189 6,562 6,428
----------- ----------- -----------
Income before income taxes.............. 8,181 5,858 6,995
Income tax provision.............................. 3,916 2,900 4,026
----------- ----------- -----------
Net income.............................. $ 4,265 $ 2,958 $ 2,969
=========== =========== ===========
Earnings per common and common equivalent share
(Note 2)........................................ $ 0.43 $ 0.30 $ 0.30
=========== =========== ===========
Weighted average common and common equivalent
shares.......................................... 10,032,254 10,012,928 9,998,012
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 369
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS ADDITIONAL TOTAL
------------------ ---------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT WARRANTS AMOUNT CAPITAL EARNINGS EQUITY
-------- ------ -------- ------ ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 28, 1992.... 9,998,012 $ 100 47,710 $ -- $59,900 $ -- $60,000
Net income.................. -- -- -- -- -- 2,969 2,969
--------- ------ ------ ------ ------- ------- -------
Balance, December 27, 1993.... 9,998,012 100 47,710 -- 59,900 2,969 62,969
Net income.................. -- -- -- -- -- 2,958 2,958
--------- ------ ------ ------ ------- ------- -------
Balance, December 26, 1994.... 9,998,012 100 47,710 -- 59,900 5,927 65,927
Net income.................. -- -- -- 4,265 4,265
--------- ------ ------ ------ ------- ------- -------
Balance, December 25, 1995.... 9,998,012 $ 100 47,710 $ -- $59,900 $10,192 $70,192
========= ====== ====== ====== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 370
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
DECEMBER 25, DECEMBER 26, DECEMBER 27,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 4,265 $ 2,958 $ 2,969
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 14,865 16,245 19,610
Amortization of deferred debt issuance costs........ 110 110 144
Loss on disposition of properties, net.............. 605 847 624
Deferred income tax provision (benefit)............. (388) 390 (887)
Changes in operating assets and liabilities:
Receivables....................................... (146) (244) 130
Inventories....................................... 170 (3) 98
Other current assets.............................. (467) (399) (713)
Accounts payable.................................. (1,239) 476 3,395
Accrued interest.................................. (976) 97 1,526
Accrued liabilities............................... 849 (7,176) 3,305
Other assets........................................ 141 (1,228) 276
Other liabilities................................... 1,581 2,024 (1,140)
-------- -------- --------
Net cash provided by operating activities...... 19,370 14,097 29,337
-------- -------- --------
Cash flows from investing activities:
Capital expenditures, excluding capitalized leases..... (14,626) (17,814) (10,521)
Proceeds from disposition of properties................ 832 91 52
-------- -------- --------
Net cash used for investing activities......... (13,794) (17,723) (10,469)
-------- -------- --------
Cash flows from financing activities:
Net proceeds from issuance of long-term debt, excluding
capitalized lease obligations....................... 7,000 -- --
Payments on long-term debt, including capitalized lease
obligations......................................... (12,572) (10,444) (3,279)
-------- -------- --------
Net cash used for financing activities......... (5,572) (10,444) (3,279)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents..... 4 (14,070) 15,589
Cash and cash equivalents at beginning of period......... 10,310 24,380 8,791
-------- -------- --------
Cash and cash equivalents at end of period............... $ 10,314 $ 10,310 $ 24,380
======== ======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest............................................ $ 9,055 $ 6,355 $ 4,758
======== ======== ========
Income taxes........................................ $ 3,500 $ 6,917 $ 3,546
======== ======== ========
</TABLE>
DISCLOSURE OF ACCOUNTING POLICY:
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 371
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Houlihan's Restaurant Group, Inc., together with its wholly-owned
subsidiary, Houlihan's Restaurants, Inc. and its subsidiaries (the "Company")
operates full service casual dining restaurants in twenty-five states. At
December 25, 1995, it operated 98 restaurants, including 61 Houlihan's, 28
Darryl's, three upscale Seafood Grills and six Specialty Restaurants comprised
of four dinnerhouses, one upscale steakhouse and the Buena Vista Cafe. At that
date the Company also franchised 18 Houlihan's in seven states and the
Commonwealth of Puerto Rico. Houlihan's Restaurant Group, Inc. does not engage
in any business or activity other than holding the capital stock of Houlihan's
Restaurants, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All significant intercompany balances and
transactions have been eliminated.
Fiscal year
The Company reports fiscal year results of operations based on 52- or
53-week periods. The fiscal years ended December 25, 1995, December 26, 1994 and
December 27, 1993 were composed of 52 weeks. References to years are to the
fiscal years then ended.
Use of Estimates in Preparing Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories
Inventories consist primarily of food and liquor and are stated at the
lower of cost or market. Costs are determined using the first-in, first-out
(FIFO) method.
Property, equipment and leaseholds
Property, equipment and leaseholds are depreciated on a straight-line basis
over their estimated useful lives (buildings - 20 years and furniture, fixtures
and equipment - 2 to 10 years). Leasehold improvements are amortized on a
straight-line basis over the shorter of their estimated useful lives or the
remaining terms of the leases. Property under capitalized leases is amortized
over the terms of the leases using the straight-line method.
Losses on disposition of properties in the normal course of business are
recognized when a commitment to divest a restaurant property is made by the
Company and include estimated carrying costs through the expected date of
disposal. Gains on disposition of properties in the normal course of business
are recognized at the date of sale.
Pre-opening expenses
Certain costs incurred in connection with the opening of new or converted
restaurants (principally the initial food and liquor order, smallwares and the
cost associated with training staff) are expensed upon opening
F-7
<PAGE> 372
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
or conversion of restaurants. Pre-opening expenses, included in cost of sales in
the accompanying consolidated statements of income, were $969,000, $1,268,000
and $116,000 for 1995, 1994 and 1993, respectively.
Franchise rights
Franchise rights are attributable to the Company's franchise agreements
existing prior to 1994 and have been capitalized in the accompanying
consolidated balance sheets (included in other assets). The rights are being
amortized over 14 years.
Franchise revenues
Franchise revenues from area franchise development agreements are
recognized proportionately upon opening of the restaurants in accordance with
Statement of Financial Accounting Standards No. 45. Revenues from individual
restaurant franchise agreements are recognized upon opening of the restaurants.
Franchise revenues included in other income in the accompanying consolidated
statements of income aggregated $1,596,000, $1,087,000 and $949,000 for 1995,
1994 and 1993, respectively.
Reorganization value in excess of amounts allocable to identifiable assets
The reorganization value in excess of amounts allocable to identifiable
assets is being amortized using the straight-line method over 20 years.
Accumulated amortization at December 25, 1995 and December 26, 1994 was
$10,901,000 and $7,250,000, respectively.
The Company annually evaluates the carrying value of the reorganization
value in excess of amounts allocable to identifiable assets based on
expectations of undiscounted cash flows and operating income.
Deferred debt issuance costs
Deferred debt issuance costs at December 25, 1995 include approximately
$516,000 and $135,000 of fees and financing costs related to the Company's bank
credit agreement and the interest rate cap, respectively. Such costs are
amortized over the expected lives of the respective debt issues and the interest
rate cap period (see Note 7). As of December 25, 1995, the unamortized costs
were $287,000 and $43,000, respectively.
Temporary cash investments
Cash and cash equivalents include temporary cash investments, consisting of
commercial paper, of $6,212,000 and $6,216,000 at December 25, 1995 and December
26, 1994, respectively. Temporary cash investments are carried at cost which
approximates market.
Earnings per common and common equivalent share
Earnings per common and common equivalent share are based on the weighted
average number of shares outstanding and the assumed exercise of outstanding
dilutive stock options issued under the Company's stock option plans (see Note
11) less the number of treasury shares assumed to be purchased from the proceeds
using the average market price of the Company's common stock. At December 25,
1995, warrants to purchase up to 47,740 shares of common stock at a price of
$37.92 per share were outstanding. Additional shares of common stock issuable
upon the exercise of the warrants have not been considered in the calculation as
the effect would be antidilutive. At December 25, 1995, December 26, 1994 and
December 27, 1993, the weighted average number of common and common equivalent
shares outstanding was 10,032,254, 10,012,928 and 9,998,012, respectively, which
results in earnings per common and common equivalent shares of $0.43, $0.30 and
$0.30, respectively.
F-8
<PAGE> 373
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
New Accounting Standard
Effective January 1, 1996, SFAS No. 123, "Accounting for Stock-Based
Compensation," will require increased disclosure of compensation expense arising
from stock compensation plans. The Statement encourages rather than requires
companies to adopt a new method that accounts for stock compensation awards
based on their estimated fair value at the date they are granted. Companies will
be permitted, however, to continue accounting under APB Opinion No. 25 which
requires compensation cost be recognized based on the difference, if any,
between the quoted market price of the stock and the amount an employee must pay
to acquire the stock. The Company will continue to apply APB Opinion No. 25 in
its consolidated financial statements.
3. RECEIVABLES
Receivables are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER DECEMBER
25, 26,
1995 1994
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Trade, principally credit cards....................... $ 1,093 $ 1,041
Franchise royalties and related receivables........... 431 63
Other................................................. 137 411
-------- --------
$ 1,661 $ 1,515
======== ========
</TABLE>
4. OTHER CURRENT ASSETS
Other current assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER DECEMBER
25, 26,
1995 1994
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Prepaid advertising rights (See Note 10).............. $ 1,000 $ --
Prepaid occupancy costs............................... 467 1,205
Prepaid insurance..................................... 379 366
Prepaid licenses...................................... 128 149
Deposits with vendors................................. 130 200
Other................................................. 814 531
-------- --------
$ 2,918 $ 2,451
======== ========
</TABLE>
5. PROPERTY, EQUIPMENT AND LEASEHOLDS
Property, equipment and leaseholds are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER DECEMBER
25, 26,
1995 1994
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Land and improvements................................. $ 19,546 $ 20,004
Buildings and improvements............................ 29,798 29,938
Leasehold improvements................................ 45,108 37,398
Furniture, fixtures and equipment..................... 47,007 42,579
-------- --------
141,459 129,919
Less: Accumulated depreciation and amortization....... 36,938 27,076
-------- --------
$104,521 $102,843
======== ========
</TABLE>
F-9
<PAGE> 374
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property under capitalized leases in the amount of $1,865,000 and
$2,112,000 at December 25, 1995 and December 26, 1994, respectively, is included
principally in buildings and improvements. Capitalized leases relate primarily
to the buildings on certain restaurant properties. The land portions of the
restaurant property leases are accounted for as operating leases.
Depreciation and capitalized lease amortization expense relating to
property, equipment and leaseholds for 1995, 1994 and 1993 was $11,058,000,
$12,438,000 and $15,852,000, respectively. Of these amounts, $247,000, $226,000
and $226,000, respectively, related to capitalized lease amortization.
Substantially all of the capitalized and operating leases have terms,
including all options, expiring after 1999 and most leases have renewal options.
The leases generally provide for payment of minimum annual rent, real estate
taxes, insurance and maintenance and, in most cases, contingent rent (calculated
as a percentage of sales) in excess of minimum rent.
There were no contingent rents under capitalized leases for the periods
presented. Total rental expense for all operating leases is composed of the
following:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Minimum rent................................ $10,364 $ 9,303 $ 8,863
Contingent rent............................. 2,107 2,298 2,455
------- ------- -------
$12,471 $11,601 $11,318
======= ======= =======
</TABLE>
The present value of capitalized lease payments and the future minimum
lease payments on noncancelable operating leases as of December 25, 1995 are as
follows:
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
LEASES LEASES
------ -------
<S> <C> <C>
(IN THOUSANDS)
1996.................................................... $ 596 $10,725
1997.................................................... 596 10,679
1998.................................................... 596 10,065
1999.................................................... 596 9,541
2000.................................................... 579 8,515
Thereafter.............................................. 2,084 49,883
------ -------
Total minimum lease payments............................ 5,047 $99,408
=======
Less: Interest.......................................... 2,178
------
Present value of minimum lease payments................. $2,869
======
</TABLE>
F-10
<PAGE> 375
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. OTHER ASSETS
Other assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Franchise rights, net.................................... $1,718 $1,874
Liquor licenses.......................................... 2,464 2,464
Advertising rights (See Note 10)......................... 1,000 --
Construction allowances.................................. 94 382
Other.................................................... 211 611
------ ------
$5,487 $5,331
====== ======
</TABLE>
Construction allowances represent advances made for restaurant construction
or remodeling which are recovered through reductions in future contingent rent
payments. These amounts are expensed as such reductions are realized.
7. LONG-TERM DEBT
Long-term debt, including capitalized lease obligations, is comprised of
the following:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Bank Debt:
Term Loan............................................. $40,112 $46,506
Real Estate Loan...................................... 40,000 40,000
Revolving Credit Facility............................. 1,000 --
Capitalized lease obligations (Note 5).................. 2,869 3,047
------- -------
83,981 89,553
Less: Current portion 11,202 6,177
------- -------
$72,779 $83,376
======= =======
</TABLE>
Scheduled maturities of outstanding long-term debt for each of the five
fiscal years subsequent to December 25, 1995, including capitalized lease
obligations, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996............................................... $11,202
1997............................................... 52,231
1998............................................... 13,765
1999............................................... 4,915
2000............................................... 330
</TABLE>
Bank Credit Agreement
The Company entered into a credit agreement on December 28, 1992, (the
"Bank Credit Agreement") with Credit Agricole-CNCA, New York Branch (the "Bank")
providing for a $62,939,000 Term Loan, a $40,000,000 Real Estate Loan and a
$20,000,000 Revolving Credit Facility (collectively, the "Bank Debt").
F-11
<PAGE> 376
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Term Loan requires semi-annual principal payments as follows:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OF
PAYMENT DATES PAYMENT
----------------------------------------------------------- -------
<S> <C>
(IN
THOUSANDS)
March 31, 1996 and September 30, 1996...................... $ 5,500
March 31, 1997 and September 30, 1997...................... 5,500
March 31, 1998 and September 30, 1998...................... 6,750
</TABLE>
The final Term Loan installment is payable on March 31, 1999 and will be
equal to the unpaid principal amount of the Term Loan. The Real Estate Loan and
the Revolving Credit Facility are scheduled to mature on March 31, 1997.
Under the terms of the Bank Credit Agreement, the Company is required to
reduce its Bank Debt with the net proceeds resulting from any permitted sales of
assets, issuances of debt or equity, and 65% of the Company's Excess Cash Flow
(as defined in the Bank Credit Agreement). The Term Loan shall be repaid first,
the Real Estate Loan shall be repaid second and the Revolving Credit Facility
shall be permanently reduced last. All such prepayments of the Term Loan will be
applied 50% in the order of maturity and 50% in the inverse order of maturity.
In 1995, the Company reduced the balance of the Term Loan by $6,394,000 which
consisted of $5,606,000 as required by the Bank Credit Agreement and $788,000 of
net cash proceeds resulting from the disposition of assets during 1995.
The Revolving Credit Facility can be used for working capital purposes and
to provide up to a maximum of $20,000,000 of standby letters of credit. The
amount available under the Revolving Credit Facility is reduced by the principal
amount of any outstanding standby letters of credit. A commitment fee of 1/2 of
1% per annum is required based upon the daily unused amount of the Revolving
Credit Facility. A fee of 1% per annum is also required based upon the daily
amount of outstanding standby letter of credit commitments. Standby letters of
credit totaling $4,927,000 issued under the Revolving Credit Facility were
outstanding as of December 25, 1995.
The Bank Debt interest is calculated at 2% over the reserve adjusted London
Interbank Offered Rate ("LIBOR"). At December 25, 1995, interest on the Term
Loan, the Real Estate Loan and the Revolving Credit Facility loan was being
charged at 7.875%.
As required by the Bank Credit Agreement, during 1993 the Company purchased
an interest rate cap for a four-year period on an aggregate notional amount of
$30,000,000 pursuant to which the Company shall be protected against increases
in LIBOR in excess of the greater of (i) 10% per annum and (ii) 2 1/2% per annum
plus the Alternate Base Rate (as defined in the Bank Credit Agreement) through
March 29, 1997.
Collateral Arrangements
Substantially all of the Company's assets are pledged as collateral under
the Bank Credit Agreement. In addition, borrowings under the Bank Credit
Agreement are guaranteed by the parent company and by each of its active
wholly-owned subsidiaries. This guarantee is secured by a pledge of all of the
capital stock of Houlihan's Restaurants, Inc., and the guarantees of the active
wholly-owned subsidiaries are collateralized by security interests in all of the
assets of each such subsidiary.
Financing Covenants and Restrictions
The Bank Credit Agreement contains various covenants and restrictions,
including (i) restriction of additional indebtedness, mergers or consolidations,
payment of indebtedness, affiliated transactions and investments in affiliates,
unless certain financial tests are met, and (ii) restriction on the payment of
dividends
F-12
<PAGE> 377
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to 35% of the Company's future Excess Cash Flow (as defined). The Bank Credit
Agreement also contains various covenants which, among other things, restrict
the amount of annual capital expenditures and require the maintenance of certain
financial ratios and minimum consolidated net worth (as defined). Based on the
Bank Credit Agreement covenants, there were no retained earnings available for
payment of dividends at December 25, 1995. Failure to comply with any of the
financial and operating covenants included in the Bank Credit Agreement or the
occurrence of a Change of Control (as defined in the Bank Credit Agreement)
would permit the Bank to accelerate the maturity of the Bank Debt.
8. ACCRUED LIABILITIES
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Wages, salaries and bonuses............................. $ 2,141 $ 1,670
Payroll taxes........................................... 474 401
Sales and property taxes................................ 1,984 1,902
Rent.................................................... 1,830 1,686
Federal and state taxes................................. 816 --
Gift certificates....................................... 1,087 991
Advertising............................................. 1,418 1,196
Vacation................................................ 425 425
Worker's compensation................................... 618 601
Utilities............................................... 610 750
Employee insurance...................................... 399 468
Other................................................... 1,573 2,436
------- -------
$13,375 $12,526
======= =======
</TABLE>
9. INCOME TAXES
The income tax provisions (benefits) consist of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current provision.............................. $4,304 $2,510 $4,913
Deferred provision (benefit)................... (388) 390 (887)
------ ------ ------
$3,916 $2,900 $4,026
====== ====== ======
</TABLE>
Current tax liabilities are included in accrued liabilities in the
accompanying consolidated balance sheets.
F-13
<PAGE> 378
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes result from temporary differences between the
financial statement and tax basis of the Company's assets and liabilities. The
sources of the differences and their cumulative tax effects are as follows:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current:
Assets:
Insurance reserves................................ $ 370 $ 183
Net operating losses.............................. 1,425 1,425
Liabilities:
Other............................................. (394) (195)
------- -------
1,401.. 1,413
------- -------
Noncurrent:
Assets:
Development fees.................................. 255 121
Insurance reserves................................ 2,965 2,595
Deferred debt issuance costs...................... 247 326
Net operating losses.............................. 587 2,059
General business credit carryforwards............. 6,238 5,737
Other............................................. 620 478
Less: Valuation allowance......................... (1,000) (1,000)
Liabilities:
Excess tax depreciation........................... (12,389) (13,132)
Franchise rights.................................. (670) (731)
------- -------
(3,147) (3,547)
------- -------
$(1,746) $(2,134)
======= =======
</TABLE>
A reconciliation between the actual income tax provision and income taxes
computed by applying the statutory Federal income tax rate to the income before
income taxes is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--- --- ---
<S> <C> <C> <C>
Statutory federal tax rate............................. 34% 34% 34%
State and local income taxes (net of Federal tax
benefit)............................................. 9 10 8
General business credits............................... (12) (16) --
Nondeductible amortization of reorganization value in
excess of amounts allocable to identifiable assets... 15 21 18
Other.................................................. 2 1 (2)
--- --- ---
Effective tax rate..................................... 48% 50% 58%
=== === ===
</TABLE>
As of December 25, 1995, the Company has total net operating loss and
general business credit carryforwards of approximately $5,159,000 and
$6,238,000, respectively. The carryforwards will expire from 1996 through 2010.
The utilization of the net operating loss carryforwards is limited due to the
change of ownership which occurred in 1992 to $3,654,000 per year. The
utilization of $5,737,000 of the general business credit carryforwards is also
limited due to the change in ownership. The first $4,320,000 of the general
business credit carryforwards is limited to $574,000 per year, and the next
$1,417,000 is limited to $1,279,000 per year. To the extent net operating loss
and general business credit carryforward limitations are not utilized
F-14
<PAGE> 379
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in a year, the unused limitation increases the subsequent year limitation
amount. The general ordering rules for net operating losses and tax credits are
that net operating losses must be utilized before tax credits.
10. OTHER AFFILIATED TRANSACTIONS
On October 13, 1995, the Company entered into an Advertising and
Sponsorship Agreement (the "Agreement") with the Buccaneers Limited Partnership
for the exclusive naming rights to the Tampa Bay Buccaneer Football Stadium (the
"Stadium"). The Buccaneers Limited Partnership is 100% controlled by the Glazer
Group, owners of approximately 73% of the Company's common stock on a fully
diluted basis. The Agreement provides the Company with the right to name the
Stadium "Houlihan's Stadium". Additionally, it provides the Company with
advertising rights inside the Stadium and in Tampa Bay Buccaneer programs and
brochures.
The Agreement is for a ten-year period at a total cost of $10,000,000. The
payment terms are $2,000,000 per year for the first five years of the Agreement.
The Company made the first payment under the Agreement on December 5, 1995 of
which $1,000,000 is reflected as a current asset and $1,000,000 is reflected as
a noncurrent asset in the accompanying consolidated balance sheet.
If the Tampa Bay Buccaneers move to a new stadium and the Buccaneers
Limited Partnership retains the naming rights, the Agreement will continue. If
the Buccaneers Limited Partnership loses the naming rights, the Agreement will
be terminated and the monies paid by the Company for future years will be
refunded.
During 1995, the Company received $161,000 from First Allied Tampa
Corporation, which is wholly owned by the Glazer Group. The amount represents
accrued interest resulting from the termination of an option agreement that
granted the Company the exclusive right to operate a restaurant in the Tampa Bay
Buccaneer Football Stadium.
During 1995 and 1994, directors fees aggregating $24,000 and $40,000,
respectively, were paid to members of the Company's Board of Directors who are
members of the Glazer Group.
11. BENEFIT PLANS
The Company maintains several incentive compensation and related plans for
executives and key operating personnel. Total expenses for these plans included
in the accompanying consolidated statements of income for 1995, 1994 and 1993
were $2,615,000, $1,960,000 and $3,726,000, respectively.
Substantially all of the Company's salaried employees are eligible to
participate in defined contribution retirement savings plans under which Company
contributions are based on employee contributions and compensation. The
Company's expense during 1995, 1994 and 1993 under such plans was $672,000,
$462,000 and $564,000, respectively.
On February 9, 1994, the Company's Board of Directors approved two stock
option plans, one plan for outside directors ("Option Plan I") and one for
executives and certain key employees ("Option Plan II"), providing for the
issuance of options to purchase 540,000 and 750,000 shares, respectively. The
Board of Directors determines the option price based upon the estimated market
value of the Company's common stock at the date of grant based on the price of
the shares as traded in the over-the-counter market. The options generally vest
over a four-year period from the date of grant and are exercisable over the
period stated in each option. The Company makes no recognition in the balance
sheet of the options until such options are exercised and no amounts applicable
thereto are reflected in net income. Option Plan I provides for the issuance of
up to 30,000 shares to each outside director per year to the extent the options
are available under the plan.
F-15
<PAGE> 380
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of stock option transactions during 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Option Plan I:
Options outstanding at beginning of year............. 180,000 --
Granted.............................................. 180,000 180,000
Canceled............................................. -- --
-------- -------
Options outstanding at end of year................... 360,000 180,000
======== =======
Option Plan II:
Options outstanding at beginning of year............. 617,000 --
Granted.............................................. 164,600 699,000
Canceled............................................. (128,000) (82,000)
-------- -------
Options outstanding at end of year................... 653,600 617,000
======== =======
</TABLE>
12. CONTINGENCIES AND COMMITMENTS
Litigation
The Company is currently involved in various claims and pending legal
actions arising in the normal course of business. In the opinion of management,
the final disposition of these claims and pending actions will not have a
material adverse effect, individually or in the aggregate, on the business or
the financial position of the Company.
Severance Payment Agreements
In prior years, the Company entered into agreements with certain officers
which provide for severance payments in the event the employment of such
officers is terminated upon a change of control of the Company, as defined in
the agreements. The severance payments shall be equal to 2.99 times the average
compensation of each participant for the previous five years. As of December 25,
1995, the contingent liability under the agreements for all participants was
approximately $2,252,000.
Real Estate Consulting Contracts
In 1992, the Company entered into real estate consulting contracts expiring
in 2001 with management companies which employ two beneficial owners of a
company that previously had a controlling interest in the Company for a total of
$625,000 per year. The total expense incurred under the contracts during 1995,
1994 and 1993 was $625,000 each year.
F-16
<PAGE> 381
ANNEX E
<PAGE> 382
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 24, 1996
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-66392
HOULIHAN'S RESTAURANT GROUP, INC.
Incorporated pursuant to the Laws of Delaware State
Internal Revenue Service - Employer Identification No. 43-0913506
Two Brush Creek Boulevard, Kansas City, Missouri 64112
(816) 756-2200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days. Yes x No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes x No
Number of shares of common stock outstanding as of August 7, 1996: 9,998,012
<PAGE> 383
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets............................ 3
Consolidated Statements of Income...................... 4
Consolidated Statements of Cash Flows.................. 5
Notes to Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of Financial Condition 9
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................... 14
Signature............................................................. 15
2
<PAGE> 384
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
June 24, Dec. 25,
1996 1995
-------- --------
(Unaudited)(Audited)
ASSETS
Current assets:
Cash and cash equivalents ............................. $ 11,600 $ 10,314
Receivables ........................................... 1,320 1,661
Inventories ........................................... 2,327 2,276
Other current assets .................................. 2,194 2,918
Deferred income taxes ................................. 1,271 1,401
-------- --------
Total current assets .............................. 18,712 18,570
Property, equipment and leaseholds, net .................. 105,667 104,521
Reorganization value in excess of amounts allocable to
identifiable assets, net .............................. 60,283 62,108
Deferred debt issuance costs, net ........................ 275 330
Other assets, net ........................................ 5,391 5,487
-------- --------
Total assets ...................................... $190,328 $191,016
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capitalized lease
obligations ....................................... $ 57,216 $ 11,202
Accounts payable ...................................... 6,603 8,811
Accrued interest ...................................... 647 676
Accrued liabilities ................................... 13,552 13,375
-------- --------
Total current liabilities ......................... 78,018 34,064
Long-term debt, including capitalized lease obligations,
less current portion .................................. 26,168 72,779
Other liabilities ........................................ 11,516 10,834
Deferred income taxes .................................... 2,726 3,147
-------- --------
Total liabilities ................................. 118,428 120,824
-------- --------
Stockholders' equity:
Common stock-par value $.01 per share, 20,000,000
shares authorized, 9,998,012 shares issued and
outstanding ....................................... 100 100
Additional paid-in capital ............................ 59,900 59,900
Retained earnings ..................................... 11,900 10,192
-------- --------
Total stockholders' equity ........................ 71,900 70,192
-------- --------
Total liabilities and stockholders' equity ........ $190,328 $191,016
======== ========
See accompanying notes to consolidated financial statements.
3
<PAGE> 385
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
Quarter Ended Twenty-Six Weeks Ended
---------------------------- ----------------------------
June 24, June 26, June 24, June 26,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ............................. $ 68,224 $ 67,012 $ 135,198 $ 134,419
Cost of sales:
Food and bar costs ................... 19,867 19,576 39,395 39,011
Labor costs .......................... 21,459 21,805 42,810 43,327
Operating expenses (exclusive of
depreciation and amortization
shown separately) ................... 15,557 14,642 31,386 29,270
------------ ----------- ------------ -----------
Total cost of sales ................ 56,883 56,023 113,591 111,608
------------ ----------- ------------ -----------
Gross profit ....................... 11,341 10,989 21,607 22,811
Depreciation and amortization ......... 3,860 3,678 7,644 7,293
General and administrative expenses ... 4,140 3,587 8,559 8,079
Loss on disposition of properties, net. 65 43 204 389
Other (income), net ................... (1,162) (923) (2,441) (1,828)
Interest expense ...................... 1,670 2,178 3,510 4,439
Merger expenses ....................... 584 -- 584 --
------------ ----------- ------------ -----------
Income before taxes ................ 2,184 2,426 3,547 4,439
Income tax provision .................. 1,148 1,085 1,839 2,023
------------ ----------- ------------ -----------
Net income ......................... $ 1,036 $ 1,341 $ 1,708 $ 2,416
============ =========== ============ ===========
Earnings per common and common
equivalent share ..................... $ 0.10 $ 0.13 $ 0.17 $ 0.24
============ =========== ============ ===========
Weighted average common and common
equivalent shares .................... 10,049,322 9,998,012 10,021,307 9,998,012
============ =========== ============ ===========
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE> 386
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Twenty-Six Weeks Ended
----------------------
June 24, June 26,
1996 1995
--------- ---------
Cash flows from operating activities:
Net income .......................................... $ 1,708 $ 2,416
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................... 7,644 7,293
Amortization of deferred debt issuance costs .... 55 55
Loss on disposition of properties, net .......... 204 389
Deferred income tax benefit ..................... (291) (87)
Changes in operating assets and liabilities:
Receivables ................................... 341 313
Inventories ................................... (51) (48)
Other current assets .......................... 724 (424)
Accounts payable .............................. (2,208) (2,591)
Accrued interest .............................. (29) 349
Accrued liabilities ........................... 177 322
Other assets .................................... 253 (20)
Other liabilities ............................... 682 1,225
-------- --------
Net cash provided by operating activities ..... 9,209 9,192
-------- --------
Cash flows from investing activities:
Capital expenditures, excluding capital leases ...... (7,464) (6,625)
Proceeds from disposition of properties ............. 138 824
-------- --------
Net cash used for investing activities ........ (7,326) (5,801)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of long-term debt,
excluding capitalized lease obligations ........... 5,000 7,000
Payments on long-term debt, including capitalized
lease obligations ................................ (5,597) (8,480)
-------- --------
Net cash used for financing activities ........ (597) (1,480)
-------- --------
Net increase in cash and cash equivalents .............. 1,286 1,911
Cash and cash equivalents at beginning of period ....... 10,314 10,310
-------- --------
Cash and cash equivalents at end of period ............. $ 11,600 $ 12,221
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest ............................................ $ 3,484 $ 4,035
======== ========
Income taxes ........................................ $ 1,418 $ 792
======== ========
Disclosure of Accounting Policy:
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
See accompanying notes to consolidated financial statements.
5
<PAGE> 387
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended June 24, 1996
(Unaudited)
1. Basis of Presentation
The consolidated financial statements of Houlihan's Restaurant Group, Inc. and
subsidiary (the "Company") included in this Form 10-Q have been prepared without
audit (except that the balance sheet information as of December 25, 1995 has
been derived from consolidated financial statements which were audited) in
accordance with the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes that the disclosures are adequate to make the
information presented not misleading. The accompanying consolidated financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 25, 1995.
Company management believes that the information furnished herein reflects all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of the interim periods presented. The results
of operations for the interim periods presented are not necessarily indicative
of those to be expected for the full year.
The Company owns and operates full service casual dining restaurants under the
names of Houlihan's(R), Darryl's(R), Bristol Bar & Grill(sm), Braxton Seafood
Grill & Chophouse(R), Chequers Bar & Grill(sm), J. Gilbert's(sm), Charley's
Place(sm), Phineas(sm) and The Buena Vista(R).
2. Earnings Per Common and Common Equivalent Share
Earnings per common and common equivalent share are based on the weighted
average number of shares outstanding and the assumed exercise of outstanding
dilutive stock options issued under the Company's stock option plans less the
number of treasury shares assumed to be purchased from the proceeds using the
average market price of the Company's common stock. At June 24, 1996, warrants
to purchase up to 47,740 shares of common stock at a price of $37.92 per share
were outstanding. Additional shares of common stock issuable upon the exercise
of these warrants have not been considered in the calculation as the effect
would be antidilutive.
6
<PAGE> 388
3. Long-Term Debt
Long-term debt, including capitalized lease obligations, is comprised of the
following (in thousands):
June 24, December 25,
1996 1995
--------------- ---------------
Bank debt:
Term Loan $ 34,612 $ 40,112
Real Estate Loan 40,000 40,000
Revolving Credit Loan 6,000 1,000
Capitalized lease obligations 2,772 2,869
--------------- ---------------
83,384 83,981
Less: Current portion 57,216 11,202
--------------- ---------------
$ 26,168 $ 72,779
=============== ===============
On June 24, 1996, the Company's bank credit agreement was amended to revise
certain covenants of the agreement (the "Third Amendment"). Effective for the
second fiscal quarter of 1996, the minimum interest coverage ratio was reduced
to 3.8 and the minimum fixed charge coverage ratio was reduced to 1.6. The Third
Amendment also reduced the aggregate Revolving Credit Facility commitment to
$12,500,000 from $15,000,000 effective October 1, 1996. As of June 24, 1996, the
Company was in compliance with all covenants of its bank credit agreement as
amended.
The Real Estate Loan and the Revolving Credit Facility are scheduled to mature
on March 31, 1997. The Company expects to refinance its outstanding bank debt
concurrent with the closing of the merger transaction with Zapata Corporation
(see Note 5).
4. Merger Expenses
Merger expenses as of June 24, 1996 consisted primarily of professional fees
related to the merger of the Company with Zapata Corporation (see Note 5).
5. Contingencies and Commitments
Merger Agreement
On June 4, 1996, the Company entered into a definitive merger agreement with
Zapata Corporation "Zapata", providing for Zapata's acquisition of the Company
for a combination of cash and stock valued at $8.00 per share. Approximately 35%
of Zapata's outstanding shares of common stock are owned by the Glazer Group,
which owns approximately 73% of the Company's outstanding stock. The merger
agreement was approved by special committees of the directors of both the
Company and Zapata who are not members of the Glazer family and was also
approved by the Company's Board of Directors.
7
<PAGE> 389
The merger agreement provides that the Company will be merged into a newly
organized subsidiary of Zapata. Holders of the Company's common stock may elect
to receive for their shares (i) $8.00 in cash, without interest, (ii) $8.00 in
market value of Zapata common stock, (iii) $4.00 in cash, without interest, and
$4.00 in market value of Zapata common stock, or (iv) a residual combination of
cash and Zapata common stock (aggregating $8.00 in value) determined so that the
aggregate merger consideration to all holders of the Company's common stock is
equally divided between cash and Zapata common stock.
The merger is subject, among other things, to approval by the stockholders of
the Company and Zapata, registration of the Zapata shares issuable in the merger
under the Securities Act of 1933 and receipt of consent from the Company's
lending bank or the refinancing of the Company's outstanding bank debt. Subject
to the satisfaction of these conditions, it is expected that the transaction
will close in September 1996.
Severance Agreements
In prior years, the Company entered into agreements with certain officers which
provide for severance payments in the event the employment of such officers is
terminated upon a change of control of the Company, as defined in the
agreements. As of June 24, 1996, the contingent liability under the agreements
for all participants was approximately $2,300,000.
8
<PAGE> 390
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" presented in the Company's Annual Report on Form 10-K for the fiscal
year ended December 25, 1995.
General
The Company operates full service casual dining restaurants in 23 states. At
June 24, 1996, it operated 99 restaurants, including 61 Houlihan's, 28 Darryl's,
four upscale Seafood Grills and six Specialty Restaurants comprised of four
dinnerhouses, one upscale steakhouse and the Buena Vista Cafe. At that date, the
Company also franchised 25 Houlihan's restaurants in ten states and the
Commonwealth of Puerto Rico.
Results of Operations
The following table sets forth information derived from the Company's
Consolidated Statements of Income expressed as a percentage of net sales.
<TABLE>
Quarter Ended Twenty-Six Weeks Ended
--------------------------- ---------------------------
June 24, June 26, June 24, June 26,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales:
Food and bar costs 29.1 29.2 29.1 29.0
Labor costs 31.5 32.5 31.7 32.2
Operating expenses 22.8 21.9 23.2 21.8
------------ ------------ ------------ ------------
Total cost of sales 83.4 83.6 84.0 83.0
------------ ------------ ------------ ------------
Gross profit 16.6 16.4 16.0 17.0
Depreciation and amortization 5.7 5.5 5.7 5.4
General and administrative expense 6.1 5.4 6.3 6.0
Loss on disposition of properties, net 0.1 0.1 0.2 0.3
Other (income), net (1.8) (1.4) (1.9) (1.3)
Interest expense 2.4 3.2 2.6 3.3
Merger expenses 0.9 - 0.4 -
------------ ------------ ------------ ------------
Income before income taxes 3.2 3.6 2.7 3.3
Income tax provision 1.7 1.6 1.4 1.5
------------ ------------ ------------ ------------
Net income 1.5 % 2.0 % 1.3 % 1.8 %
============ ============ ============ ============
</TABLE>
Net Sales. Net sales for the second quarter increased 1.8% from the same quarter
of 1995 and increased 0.6% for the twenty-six week period over the same period
of 1995. The increase was primarily due to sales generated by nine new
restaurants that were opened during 1995 and 1996. The new restaurants included
seven Houlihan's, one Seafood Grill and one Specialty Restaurant.
9
<PAGE> 391
The increase in second quarter sales was also attributable to an increase in
comparable sales of 1.1% and 1.0% in the Darryl's concept and the Seafood Grills
concept, respectively. The increase in sales for the year-to-date period was
offset by poor sales during January and February due to inclement weather which
caused 43 of the Company's restaurants to close for an average of 1.7 days.
"Comparable restaurants" are restaurants open throughout fiscal years 1995 and
1996. The increases (decreases) in comparable restaurant sales, by concept, for
the second quarter and twenty-six week period of 1996 versus 1995 were as
follows:
<TABLE>
Second Quarter Twenty-Six Week Period
-------------------------------------- --------------------------------------
Food Bar Total Food Bar Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Houlihan's (2.0) % (3.6) % (2.4) % (2.1) % (4.5) % (2.7) %
Darryl's 1.5 (1.1) 1.1 (0.6) (1.2) (0.7)
Seafood Grills 0.7 2.5 1.0 0.9 3.0 1.3
Specialty (2.6) (3.9) (3.0) (5.2) (4.6) (5.0)
Total Company (1.0) % (3.0) % (1.4) % (1.7) % (3.7) % (2.1) %
</TABLE>
Cost of Sales. Cost of sales as a percentage of net sales decreased during the
second quarter of 1996 from the same period of 1995 and increased during the
1996 year-to-date period from the same period of 1995. Cost of sales are
composed of three major items: food and bar costs, labor costs and operating
expenses.
Combined food and bar costs decreased to 29.1% in the second quarter of 1996
from 29.2% for the same period in 1995 primarily due to operational improvements
and efficiencies, as well as stable commodity prices during the quarter.
Year-to-date food and bar costs increased to 29.1% in 1996 from 29.0% in 1995
due in part to cost increases and inefficiencies caused by the implementation of
a new menu in the Darryl's concept during the first quarter. The new menu, which
emphasizes quality wood-fired steaks, was implemented in all Darryl's
restaurants by April 1996.
Labor costs decreased in both the 1996 quarter and year-to-date period compared
to the 1995 quarter and year-to-date period due primarily to cost savings
realized from new labor scheduling systems that were implemented in a majority
of the Company's restaurants. The new systems are currently in place in all
Houlihan's restaurants and are scheduled to be rolled-out to the remainder of
the Company's restaurants by August 1996.
Operating expenses increased to 22.8% from 21.9% during the second quarter and
increased to 23.2% from 21.8% during the year-to-date period due primarily to
increases in promotional expenses. During 1996, the Company tested various
advertising promotions in selected markets using radio, print, billboard and
television. Additionally, promotional expenses increased due to the amortization
of costs associated with the agreement for the right to name the Tampa Bay
Buccaneer Football Stadium "Houlihan's Stadium".
10
<PAGE> 392
Depreciation and Amortization Expense. Depreciation and amortization expense as
a percentage of net sales increased during the second quarter and year-to-date
period due to increased capital expenditures from new unit construction and
ongoing restaurant renovation and replacements.
General and Administrative Expenses. General and administrative expenses
increased to 6.1% from 5.4% during the second quarter and increased to 6.3% from
6.0% during the year-to-date period. The increase was primarily caused by
increasing costs associated with the continuing rapid growth of the Company's
franchise program. The most significant expense related to the training teams
associated with franchise restaurant openings. During the 1996 year-to-date
period, seven franchise Houlihan's were opened as compared to the same period in
1995, in which two franchise Houlihan's were opened.
Other Income. Other income increased during the 1996 quarter and year-to-date
period primarily as a result of an increase in franchise revenues over the prior
periods. As of June 24, 1996, the Company franchised 25 restaurants and had
signed agreements with 15 franchise development groups providing for the
development of an aggregate of 53 additional Houlihan's over a five to six year
period.
Interest Expense. Interest expense decreased in the 1996 second quarter and
year-to-date period compared to same periods in 1995 due to lower interest rates
during the period, as well as a lower outstanding debt balance. The average
interest rate on the Company's outstanding bank debt for the 1996 year-to-date
period was 7.5% as compared to 9.1% for the same period in 1995.
Merger Expenses. Merger expenses as of June 24, 1996 consisted primarily of
professional fees related to the merger of the Company with Zapata Corporation
(see Liquidity and Capital Resources).
Income Taxes. The effective income tax rate, as a percentage of earnings before
income taxes, was 41.5% for the second quarter of 1996, compared to 44.7% for
the same period of 1995. The year-to-date effective rate was 44.5% in 1996 and
45.6% in 1995. The lower effective rate for the second quarter was a result of
the increase in pretax income for the period in relation to the fixed
amortization of the reorganization value in excess of amounts allocable to
identifiable assets.
Liquidity and Capital Resources
The Company relies principally upon internally generated funds to finance its
restaurant operations and to fund working capital expenditures. Historically,
the Company has operated with working capital deficiencies. The Company's
ability to operate with such deficiencies is due to the nature of the restaurant
business, which does not require significant investments in accounts receivable
or inventories and which generally allows the procurement of food and supplies
on trade credit. At June 24, 1996, the Company had cash and cash equivalents of
11
<PAGE> 393
$11,600,000 and a working capital deficiency of $59,306,000. The deficiency is
the result of an increase in the Company's current portion of long-term debt.
Current maturities include the $40,000,000 Real Estate Loan and the $6,000,000
Revolving Credit Loan which are scheduled to mature on March 31, 1997.
Additionally, the Company is required to make a $5,500,000 principal payment on
September 30, 1996 and March 31, 1997 on its outstanding Term Loan. The Company
expects to refinance all of its outstanding bank debt concurrent with the
closing of the merger transaction with Zapata Corporation (see below).
On June 4, 1996, the Company entered into a definitive merger agreement with
Zapata Corporation, providing for Zapata's acquisition of the Company for a
combination of cash and stock valued at $8.00 per share. Approximately 35% of
Zapata's outstanding shares of common stock are owned by the Glazer Group, which
owns approximately 73% of the Company's outstanding stock. The merger agreement
was approved by special committees of the directors of both the Company and
Zapata who are not members of the Glazer family and was also approved by the
Company's Board of Directors. The merger agreement provides that the Company
will be merged into a newly organized subsidiary of Zapata. The merger is
subject, among other things, to approval by the stockholders of both the Company
and Zapata, registration of the Zapata shares issuable in the merger under the
Securities Act of 1933 and receipt of consent from the Company's lending bank or
the refinancing of the Company's outstanding bank debt. Subject to the
satisfaction of these conditions, it is expected that the transaction will close
in September 1996.
The Company's bank credit agreement contains various covenants and restrictions
which, among other things, require the maintenance of minimum fixed charge
coverage ratios and interest coverage ratios. The Company did not maintain the
required ratios for the second quarter of 1996 and as a result, on June 24,
1996, the bank credit agreement was amended to revise certain covenants of the
agreement (the "Third Amendment"). Effective for the second fiscal quarter of
1996, the minimum interest coverage ratio was reduced to 3.8 and the minimum
fixed charge coverage ratio was reduced to 1.6. The Third Amendment also reduced
the aggregate Revolving Credit Facility commitment to $12,500,000 effective
October 1, 1996. At June 24, 1996, the Company had $4,477,000 available to it
under the $15,000,000 Revolving Credit Facility, reduced by $4,523,000 of
outstanding standby letters of credit and a $6,000,000 outstanding loan. The
Company is currently in compliance with all covenants of its bank credit
agreement as amended. While the Company intends to refinance its bank debt in
conjunction with the merger, there are no assurances the merger will be
consummated and the Company will continue to remain in compliance with all
covenants of its bank credit agreement.
Capital expenditures for the 1996 year-to-date period totalled $7,464,000. The
expenditures were incurred for two new Houlihan's and one new Seafood Grill that
were opened during the period, as well as ongoing remodeling projects, normal
restaurant renovations and replacements and the installation of new management
information systems in the Company's restaurants which was completed in the
second quarter. The Company expects to incur capital expenditures of
approximately $7,000,000 for the remainder of 1996, a majority of which will be
used in connection with opening one Houlihan's and one Specialty Restaurant.
Management believes that
12
<PAGE> 394
cash on hand, funds to be generated internally from operations and the use of
working capital changes will be adequate to meet the Company's capital
expenditure requirements for the foreseeable future.
Impact of Inflation
Inflationary increases in costs, namely food, labor and operating expenses,
could have a significant impact on the Company's operations. In the past, the
Company has been able to recover inflationary cost increases through increased
food and beverage menu prices. There have been, and there may be in the future,
delays in implementing such menu price increases, and competitive pressures may
limit the Company's ability to recover such cost increases in their entirety.
Historically, the effects of inflation have not had a significant impact on the
Company's net income.
A significant number of the Company's employees are paid hourly rates tied to
federal and state minimum wage and tip credit laws. An increase in the minimum
wage was recently passed by Congress and is currently proposed by various state
governments. Although the Company has and will continue to attempt to pass along
any increased labor costs through food and beverage price increases, there can
be no assurance that all such increased labor costs can be reflected in its
prices or that increased prices will be absorbed by consumers without
diminishing to some degree consumer spending at the restaurants. However, the
Company has not experienced to date a significant reduction in gross profit
margins as a result of changes in such laws, and management does not anticipate
any related future significant reductions in gross profit margins.
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<PAGE> 395
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The Exhibits listed on the accompanying Exhibit Index are filed as part of
this report.
(b) Reports on Form 8-K:
Current Report on Form 8-K dated May 9, 1996 - This Form 8-K
contained the text of the Letter of Intent between Houlihan's
Restaurant Group, Inc. and Zapata Corporation relating to the
proposed acquisition of the Company by Zapata Corporation.
Current Report on Form 8-K dated June 18, 1996 - This Form 8-K
contained the text of the Agreement and Plan of Merger by and
among Zapata Corporation and Houlihan's Restaurant Group, Inc.
In addition, the Form 8-K included the text of a press release
issued by the Company on June 5, 1996. The press release
announced that the Company and Zapata Corporation had entered
into a definitive merger agreement.
14
<PAGE> 396
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
HOULIHAN'S RESTAURANT GROUP, INC.
(Registrant)
Date: August 7, 1996 By: /s/ William W. Moreton
------------------------------ ------------------------------
William W. Moreton
Executive Vice President/Chief
Financial Officer (Principal
Financial and Accounting Officer)
15
<PAGE> 397
HOULIHAN'S RESTAURANT GROUP, INC.
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
- ---------- --------------------------------------------------------------------
10.1 Third Amendment and Consent to Credit Agreement among Houlihan's
Restaurants, Inc. and Caisse Nationale De Credit Agricole, New York
Branch, as agent, dated June 24, 1996.
10.2 Agreement and Plan of Merger dated June 4, 1996, by and among Zapata
Corporation, Zapata Acquisition Corp., a wholly owned subsidiary of
Zapata Corporation, and Houlihan's Restaurant Group, Inc. (1)
27 Financial Data Schedule (filed with EDGAR version).
(1) Filed as an exhibit to the Current Report on Form 8-K dated June 18,
1996 and incorporated herein by reference.
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<PAGE> 398
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware General Corporation Law
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgements, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 145(d) of the DGCL states that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in subsections (a) and (b). Such determination shall be made (1) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such a quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an
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undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in Section 145. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent, and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Restated Certificate of Incorporation
Zapata's Restated Certificate of Incorporation provides that a director of
Zapata shall not be personally liable to Zapata or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to Zapata or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for
any transaction from which the director derived an improper personal benefit.
Any repeal or modification of such provision of the Restated Certificate of
Incorporation by the stockholders of Zapata shall be prospective only, and shall
not adversely affect any limitation on the personal liability of a director of
Zapata existing at the time of such repeal or modification.
By-laws
Zapata's By-laws provide that each person who was or is made a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of Zapata), by reason of the fact that
he is or was a director or officer of Zapata or is or was serving or has agreed
to serve at the request of Zapata as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, shall,
subject to certain limitations, be indemnified against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection therewith, subject to certain
conditions. Zapata's By-laws also provide, subject to certain limitations, that
Zapata shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in the
right of Zapata to procure a judgment in its favor by reason of the fact that
such person is or was a director or officer of Zapata, or is or was serving at
the request of Zapata as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, against any expenses
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of Zapata.
Zapata's By-laws further specify procedures for advancement of expenses by
Zapata in certain circumstances. Zapata's By-laws also empower Zapata to
purchase and maintain insurance that protects its officers, directors, employees
and agents against any liabilities incurred in connection with their service in
such positions.
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<PAGE> 400
Indemnification Agreements
Zapata has entered into Indemnification Agreements with each of its
directors and executive officers. The Indemnification Agreements provide for
indemnification substantially consistent with the indemnification provisions of
Zapata's By-laws. The Indemnification Agreements also provide for specific
procedures regarding the right to indemnification and for the advancement of
expenses, including procedures for the submission of claims for indemnification,
procedures for determining entitlement to indemnification (including the
allocation of the burden of proof and selection of a reviewing party) and
provisions for the enforcement of the indemnification rights established
thereunder.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a list of all exhibits filed as a part of the
Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT
- -------------------- ------------------------------------------------------------------------
<S> <C>
2.1 -- Agreement and Plan of Merger dated as of June 4, 1996 among Zapata,
Zapata Acquisition Corp. and Houlihan's, as amended and restated as
of August 15, 1996 (included as Annex A to the Joint Proxy
Statement/Prospectus).
3.1* -- Restated Certificate of Incorporation of Zapata filed with Secretary
of State of Delaware on May 3, 1994 (filed as Exhibit 3(a) to Current
Report on Form 8-K dated April 27, 1994 (File No. 1-4219) and
incorporated herein by reference).
3.2* -- Certificate of Designation, Preferences and Rights of $1 Preference
Stock (filed as Exhibit 3(c) to Zapata's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1993 (File No. 1-4219)
and incorporated herein by reference).
3.3* -- Certificate of Designation, Preferences and Rights of $100 Preference
Stock (filed as Exhibit 3(d) to Zapata's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1993 (File No. 1-4219)
and incorporated herein by reference).
3.4* -- By-laws of Zapata (filed as Exhibit 3(d) to Zapata's Annual Report on
Form 10-K for the fiscal year ended September 30, 1995 (File No.
1-4219) and incorporated herein by reference).
4.1* -- Second Amended and Restated Master Restructuring Agreement, dated as
of April 16, 1993, between Zapata and Nortex Drilling Ltd. (filed as
Exhibit 12 to Zapata's Amendment No. 3 to Schedule 13D dated April
30, 1993 and incorporated herein by reference).
4.2* -- First Amendment to Second Amended and Restated Master Restructuring
Agreement dated as of May 17, 1993 between Zapata and Norex Drilling
Ltd. (filed as Exhibit 4(c) to Zapata's Registration Statement on
Form S-1 (File No. 33-68034) and incorporated herein by reference).
4.3* -- Second Amendment to Second Amended and Restated Master Restructuring
Agreement, dated as of December 17, 1993, between Zapata and Norex
Drilling Ltd. (filed as Exhibit 4(c) to Zapata's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993 (File No.
1-4219) and incorporated herein by reference).
4.4* -- Securities Liquidity Agreement, dated as of December 19, 1990, by and
among Zapata and each of the securities holders party thereto (filed
as Exhibit 4(b) to Zapata's Annual Report on Form 10-K for the fiscal
year ended September 30, 1990 (File No. 1-4219) and incorporated
herein by reference).
</TABLE>
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<PAGE> 401
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT
- -------------------- ------------------------------------------------------------------------
<S> <C>
4.5* -- Consent Letter and Waiver dated as of March 7, 1995, by and between
Norex America, Inc. and Zapata (filed as Exhibit 4(e) to Zapata's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1995 (File No. 1-4219) and incorporated herein by reference).
Certain instruments respecting long-term debt of Zapata and its subsidiaries have been
omitted pursuant to Regulation S-K, Item 601. Zapata hereby agrees to furnish a copy of any
such instrument to the Commission upon request.
5.1** -- Opinion of Baker & Botts, L.L.P.
5.2 -- Opinion of Richards, Layton & Finger.
8.1** -- Tax opinion of Baker & Botts, L.L.P.
10.1* -- Zapata 1990 Stock Option Plan (filed as Exhibit 10(b) to Zapata's
Annual Report on Form 10-K for the fiscal year ended September 30,
1990 (File No. 1-4219) and incorporated herein by reference).
10.2* -- First Amendment to Zapata 1990 Stock Option Plan (filed as Exhibit
10(c) to Zapata's Registration Statement on Form S-1 (Registration
No. 33-40286) and incorporated herein by reference).
10.3* -- Zapata Special Incentive Plan, as amended and restated effective
February 6, 1992 (filed as Exhibit 10(a) to Zapata's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1992 (File No. 1-4219)
and incorporated herein by reference).
10.4* -- Zapata 1981 Stock Incentive Plan, as amended and restated effective
February 12, 1986 (filed as Exhibit 19(a) to Zapata's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1986 (File
No. 1-4219) and incorporated herein by reference).
10.5* -- Zapata Supplemental Pension Plan effective as of April 1, 1992 (filed
as Exhibit 10(b) to Zapata's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992 (File No. 1-4219) and incorporated
herein by reference).
10.6* -- Zapata Annual Incentive Plan effective January 1, 1991 (filed as
Exhibit 10(h) to Zapata's Registration Statement on Form S-1
(Registration No. 33-40286) and incorporated herein by reference).
10.7* -- Cimarron Gas Companies, Inc. Incentive Appreciation Plan, effective
as of September 30, 1992 (filed as Exhibit 2(c) to Zapata's Current
Report on Form 8-K dated November 24, 1992 (File No. 1-4219) and
incorporated herein by reference).
10.8* -- Noncompetition Agreement dated as of November 9, 1993 by and among
Zapata and Peter M. Holt and Benjamin D. Holt, Jr. (filed as Exhibit
10(q) to Zapata's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994 (File No. 1-4219) and incorporated herein by
reference).
10.9* -- Termination Agreement between Cimarron Gas Companies, Inc. and James
C. Jewett dated as of January 24, 1994 (filed as Exhibit 10(a) to
Zapata's Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 1993 (File No. 1-4219) and incorporated herein by
reference).
10.10* -- Consulting Agreement dated as of July 1, 1994 between Zapata
Corporation and Thomas H. Bowersox (filed as Exhibit 10(w) to Zapata
Annual Report on Form 10-K for the fiscal year ended September 30,
1994 (File No. 1-4219) and incorporated herein by reference).
</TABLE>
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<PAGE> 402
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT
- -------------------- ------------------------------------------------------------------------
<S> <C>
10.11* -- Consulting Agreement between Ronald C. Lassiter and Zapata dated as
of July 15, 1994 (filed as Exhibit 10(a) to Zapata's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 1994 (File No.
1-4219) and incorporated herein by reference).
10.12* -- Employment Agreement between Lamar C. McIntyre and Zapata dated as of
October 1, 1994 (filed as Exhibit 10(v) to Zapata's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994 (File No.
1-4219) and incorporated herein by reference).
10.13* -- Purchase Agreement dated as of April 10, 1995 by and between Norex
America, Inc. and Zapata relating to 2,250,000 shares of Zapata
Common Stock (filed as Exhibit 10(c) to Zapata's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1995 (File No.
1-4219) and incorporated herein by reference).
10.14* -- Assignment and Assumption of Consulting Agreement effective as of
July 1, 1995 by and between Zapata and Zapata Protein, Inc. (filed as
Exhibit 10(b) to Zapata's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1995 (File No. 1-4219) and incorporated
herein by reference).
10.15* -- Stock Purchase Agreement dated as of August 7, 1995 between Zapata
Corporation and Malcolm I. Glazer (filed as Exhibit 10(o) to Zapata's
Annual Report on Form 10-K for the fiscal year ended September 30,
1994 (File No. 1-4219) and incorporated herein by reference).
10.16* -- Mutual Release Agreement dated as of December 1, 1995 by and among
Zapata Corporation, Cimarron Gas Holding Company, Robert W. Jackson,
and the Robert W. Jackson Trust (filed as Exhibit 10(P) to Zapata's
Annual Report on Form 10-K for the fiscal year ended September 30,
1994 (File No. 1-4219) and incorporated herein by reference).
10.18+ -- Standstill Agreement dated April 30, 1996 between Zapata and Malcolm
I. Glazer.
10.19+ -- Irrevocable proxy dated June 4, 1996 granted by Malcolm I. Glazer to
members of the Zapata Special Committee.
10.20+ -- Supplemental Agreement dated June 4, 1996 between Malcolm I. Glazer
and Zapata.
10.21+ -- 1996 Long-Term Incentive Plan of Zapata (included as Annex E to the
Joint Proxy Statement/Prospectus).
10.22+ -- Form of Indemnification Agreement between Zapata and each of its
directors and executive officers.
21+ -- Subsidiaries of the Registrant.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consents of Coopers & Lybrand L.L.P.
23.3 -- Consent of Deloitte & Touche LLP.
23.4** -- Consent of Baker & Botts, L.L.P. (contained in Exhibit 5.1).
23.5 -- Consent of Richards, Layton & Finger.
23.6 -- Consent of Warren H. Gfeller, as nominee for directorship.
23.7 -- Consent of Frederick R. Hipp, as nominee for directorship.
24+ -- Powers of Attorney.
</TABLE>
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<PAGE> 403
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT
- -------------------- ------------------------------------------------------------------------
<S> <C>
99.1 -- Form of Zapata Proxy.
99.2 -- Form of Houlihan's Proxy.
99.3 -- Form of Election
</TABLE>
- ---------------
* Incorporated by reference as indicated.
** To be filed by amendment.
+ Previously filed.
Zapata will furnish a copy of any exhibit described above to any beneficial
holder of Zapata's securities upon receipt of a written request therefor
provided that such request sets forth a good faith representation that as of
July 17, 1996, the record date for the Zapata Annual Meeting, such beneficial
owner is entitled to vote at such meeting, and provided further that such holder
pays to Zapata a fee compensating Zapata for its reasonable expenses in
furnishing such exhibits.
ITEM 22. UNDERTAKINGS
(a) 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;
(ii) To reflect in the prospectus any 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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective 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 in such information in the registration
statement:
Provided, however, that paragraph (a)(1)(i) and (a)(1)(ii) do not
apply if the Registration Statement is on Form S-3, Form S-8 or Form
F-3, and the information required to be included in a post-effective
amendment by those 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 Exchange Act that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment 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.
(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.
(b) 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
II-6
<PAGE> 404
Section 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.
(c) (1) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The Registrant hereby undertakes that every prospectus (i) that is
filed pursuant to Paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each post-effective amendment 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.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, 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 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 Act and will be governed by the final adjudication of
such issue.
(e) The undersigned Registrant hereby undertakes to respond to requests for
the information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE> 405
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas, on August 14, 1996.
ZAPATA CORPORATION
By: /s/ JOSEPH L. VON ROSENBERG III
--------------------------------
Joseph L. von Rosenberg III
Executive Vice President, General
Counsel and
Corporate Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on August 14, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------------- --------------------------------------------
<S> <C>
* President and Chief Executive Officer
- ------------------------------------------- (Principal Executive Officer)
Avram A. Glazer
/s/ ROBERT A. GARDINER Vice President, Chief Financial Officer
- ------------------------------------------- (Principal Financial and Accounting Officer)
Robert A. Gardiner
* Director
- -------------------------------------------
Malcom I. Glazer
* Director
- -------------------------------------------
Ronald C. Lassiter
* Director
- -------------------------------------------
Robert V. Leffler, Jr.
* Director
- -------------------------------------------
W. George Loar
*By: /s/ JOSEPH L. VON ROSENBERG III
- -------------------------------------------
Joseph L. von Rosenberg III, Attorney-in-Fact
</TABLE>
II-8
<PAGE> 406
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT
------- --------
<S> <C>
2.1 -- Agreement and Plan of Merger dated as of June 4, 1996 among Zapata,
Zapata Acquisition Corp. and Houlihan's, as amended and restated as
of August 15, 1996 (included as Annex A to the Joint Proxy
Statement/Prospectus).
3.1* -- Restated Certificate of Incorporation of Zapata filed with Secretary
of State of Delaware on May 3, 1994 (filed as Exhibit 3(a) to Current
Report on Form 8-K dated April 27, 1994 (File No. 1-4219) and
incorporated herein by reference).
3.2* -- Certificate of Designation, Preferences and Rights of $1 Preference
Stock (filed as Exhibit 3(c) to Zapata's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1993 (File No. 1-4219)
and incorporated herein by reference).
3.3* -- Certificate of Designation, Preferences and Rights of $100 Preference
Stock (filed as Exhibit 3(d) to Zapata's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1993 (File No. 1-4219)
and incorporated herein by reference).
3.4* -- By-laws of Zapata (filed as Exhibit 3(d) to Zapata's Annual Report on
Form 10-K for the fiscal year ended September 30, 1995 (File No.
1-4219) and incorporated herein by reference).
4.1* -- Second Amended and Restated Master Restructuring Agreement, dated as
of April 16, 1993, between Zapata and Nortex Drilling Ltd. (filed as
Exhibit 12 to Zapata's Amendment No. 3 to Schedule 13D dated April
30, 1993 and incorporated herein by reference).
4.2* -- First Amendment to Second Amended and Restated Master Restructuring
Agreement dated as of May 17, 1993 between Zapata and Norex Drilling
Ltd. (filed as Exhibit 4(c) to Zapata's Registration Statement on
Form S-1 (File No. 33-68034) and incorporated herein by reference).
4.3* -- Second Amendment to Second Amended and Restated Master Restructuring
Agreement, dated as of December 17, 1993, between Zapata and Norex
Drilling Ltd. (filed as Exhibit 4(c) to Zapata's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993 (File No.
1-4219) and incorporated herein by reference).
4.4* -- Securities Liquidity Agreement, dated as of December 19, 1990, by and
among Zapata and each of the securities holders party thereto (filed
as Exhibit 4(b) to Zapata's Annual Report on Form 10-K for the fiscal
year ended September 30, 1990 (File No. 1-4219) and incorporated
herein by reference).
4.5* -- Consent Letter and Waiver dated as of March 7, 1995, by and between
Norex America, Inc. and Zapata (filed as Exhibit 4(e) to Zapata's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1995 (File No. 1-4219) and incorporated herein by reference).
Certain instruments respecting long-term debt of Zapata and its subsidiaries have been
omitted pursuant to Regulation S-K, Item 601. Zapata hereby agrees to furnish a copy of any
such instrument to the Commission upon request.
5.1** -- Opinion of Baker & Botts, L.L.P.
5.2 -- Opinion of Richards, Layton & Finger.
8.1** -- Tax opinion of Baker & Botts, L.L.P.
</TABLE>
<PAGE> 407
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT
------- --------
<S> <C>
10.1* -- Zapata 1990 Stock Option Plan (filed as Exhibit 10(b) to Zapata's
Annual Report on Form 10-K for the fiscal year ended September 30,
1990 (File No. 1-4219) and incorporated herein by reference).
10.2* -- First Amendment to Zapata 1990 Stock Option Plan (filed as Exhibit
10(c) to Zapata's Registration Statement on Form S-1 (Registration
No. 33-40286) and incorporated herein by reference).
10.3* -- Zapata Special Incentive Plan, as amended and restated effective
February 6, 1992 (filed as Exhibit 10(a) to Zapata's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1992 (File No. 1-4219)
and incorporated herein by reference).
10.4* -- Zapata 1981 Stock Incentive Plan, as amended and restated effective
February 12, 1986 (filed as Exhibit 19(a) to Zapata's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1986 (File
No. 1-4219) and incorporated herein by reference).
10.5* -- Zapata Supplemental Pension Plan effective as of April 1, 1992 (filed
as Exhibit 10(b) to Zapata's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992 (File No. 1-4219) and incorporated
herein by reference).
10.6* -- Zapata Annual Incentive Plan effective January 1, 1991 (filed as
Exhibit 10(h) to Zapata's Registration Statement on Form S-1
(Registration No. 33-40286) and incorporated herein by reference).
10.7* -- Cimarron Gas Companies, Inc. Incentive Appreciation Plan, effective
as of September 30, 1992 (filed as Exhibit 2(c) to Zapata's Current
Report on Form 8-K dated November 24, 1992 (File No. 1-4219) and
incorporated herein by reference).
10.8* -- Noncompetition Agreement dated as of November 9, 1993 by and among
Zapata and Peter M. Holt and Benjamin D. Holt, Jr. (filed as Exhibit
10(q) to Zapata's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994 (File No. 1-4219) and incorporated herein by
reference).
10.9* -- Termination Agreement between Cimarron Gas Companies, Inc. and James
C. Jewett dated as of January 24, 1994 (filed as Exhibit 10(a) to
Zapata's Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 1993 (File No. 1-4219) and incorporated herein by
reference).
10.10* -- Consulting Agreement dated as of July 1, 1994 between Zapata
Corporation and Thomas H. Bowersox (filed as Exhibit 10(w) to Zapata
Annual Report on Form 10-K for the fiscal year ended September 30,
1994 (File No. 1-4219) and incorporated herein by reference).
10.11* -- Consulting Agreement between Ronald C. Lassiter and Zapata dated as
of July 15, 1994 (filed as Exhibit 10(a) to Zapata's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 1994 (File No.
1-4219) and incorporated herein by reference).
10.12* -- Employment Agreement between Lamar C. McIntyre and Zapata dated as of
October 1, 1994 (filed as Exhibit 10(v) to Zapata's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994 (File No.
1-4219) and incorporated herein by reference).
10.13* -- Purchase Agreement dated as of April 10, 1995 by and between Norex
America, Inc. and Zapata relating to 2,250,000 shares of Zapata
Common Stock (filed as Exhibit 10(c) to Zapata's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1995 (File No.
1-4219) and incorporated herein by reference).
</TABLE>
<PAGE> 408
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT
------- --------
<S> <C>
10.14* -- Assignment and Assumption of Consulting Agreement effective as of
July 1, 1995 by and between Zapata and Zapata Protein, Inc. (filed as
Exhibit 10(b) to Zapata's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1995 (File No. 1-4219) and incorporated
herein by reference).
10.15* -- Stock Purchase Agreement dated as of August 7, 1995 between Zapata
Corporation and Malcolm I. Glazer (filed as Exhibit 10(o) to Zapata's
Annual Report on Form 10-K for the fiscal year ended September 30,
1994 (File No. 1-4219) and incorporated herein by reference).
10.16* -- Mutual Release Agreement dated as of December 1, 1995 by and among
Zapata Corporation, Cimarron Gas Holding Company, Robert W. Jackson,
and the Robert W. Jackson Trust (filed as Exhibit 10(P) to Zapata's
Annual Report on Form 10-K for the fiscal year ended September 30,
1994 (File No. 1-4219) and incorporated herein by reference).
10.18+ -- Standstill Agreement dated April 30, 1996 between Zapata and Malcolm
I. Glazer.
10.19+ -- Irrevocable proxy dated June 4, 1996 granted by Malcolm I. Glazer to
members of the Zapata Special Committee.
10.20+ -- Supplemental Agreement dated June 4, 1996 between Malcolm I. Glazer
and Zapata.
10.21+ -- 1996 Long-Term Incentive Plan of Zapata (included as Annex E to the
Joint Proxy Statement/Prospectus).
10.22+ -- Form of Indemnification Agreement between Zapata and each of its
directors and executive officers.
21+ -- Subsidiaries of the Registrant.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consents of Coopers & Lybrand L.L.P.
23.3 -- Consent of Deloitte & Touche LLP.
23.4** -- Consent of Baker & Botts, L.L.P. (contained in Exhibit 5.1).
23.5 -- Consent of Richards, Layton & Finger.
23.6 -- Consent of Warren H. Gfeller, as nominee for directorship.
23.7 -- Consent of Frederick R. Hipp, as nominee for directorship.
24+ -- Powers of Attorney.
99.1 -- Form of Zapata Proxy.
99.2 -- Form of Houlihan's Proxy.
99.3 -- Form of Election
</TABLE>
- ---------------
* Incorporated by reference as indicated.
** To be filed by amendment.
+ Previously filed.
<PAGE> 1
EXHIBIT 5.2
[Richards, Layton & Finger Letterhead]
July 22, 1996
Special Committee of the
Board of Directors
Zapata Corporation
1717 St. James Place
Suite 550
Houston, Texas 77056
Ladies and Gentlemen:
We have acted as special Delaware counsel to a special committee (the
"Special Committee") of the Board of Directors of Zapata Corporation, a
Delaware corporation (the "Company"), in connection with the merger (the
"Merger") of Houlihan's Restaurant Group, Inc., a Delaware corporation
("Houlihan's"), with and into Zapata Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of the Company ("Merger Sub"). In this
connection, you have requested our opinion as to certain matters under the
General Corporation Law of the State of Delaware (the "General Corporation
Law").
For the purpose of rendering our opinion as expressed herein, we have
been furnished and have examined the following documents:
(i) the Restated Certificate of Incorporation of the Company as
filed with the Secretary of State of the State of Delaware (the "Secretary of
State") on May 3, 1994 (the "Restated Certificate");
(ii) the Agreement and Plan of Merger, dated June 4, 1996, among
Houlihan's, Merger Sub and the Company (the "Merger Agreement");
(iii) the Proxy Statement of the Company for the Annual Meeting of
Stockholders held on January 11, 1971 (the "Proxy Statement");
<PAGE> 2
Zapata Corporation
July 22, 1996
Page 2
(iv) the Registration Statement on Form S-4 of the Company
(No. 333-06729) as filed with the Securities and Exchange Commission on
June 25, 1996 (the "Registration Statement");
(v) the Standstill Agreement, dated April 30, 1996, between the
Company and Malcolm Glazer; and
(vi) the Irrevocable Proxy, dated June 4, 1996, from Malcolm Glazer
to the members of the Special Committee (as hereinafter defined).
With respect to the foregoing documents, we have assumed: (i) the
genuineness of all signatures of, and the incumbency, authority, legal right and
power and legal capacity under all applicable laws and regulations of, the
officers and other persons and entities signing each of said documents as or on
behalf of the parties thereto; (ii) the authenticity of all documents submitted
to us as originals; (iii) the conformity to authentic originals of the
above-referenced documents; (iv) the due authorization, execution and delivery
of each of the above-referenced documents by each of the parties thereto; and
(v) that the foregoing documents, in the forms submitted to us for our review,
have not been and will not be altered or amended in any respect material to our
opinion as expressed herein. We have not reviewed any documents other than the
documents listed above for purposes of rendering our opinion as expressed
herein, and we assume that there exists no provision of any document we have not
reviewed that bears upon or is inconsistent with our opinion as expressed
herein. In particular, we have assumed for purposes of our opinion as expressed
herein that there are no documents or other evidence admissible in a court of
law or equity that bear upon the intent of the parties with respect to Article
SEVENTH of the Restated Certificate that is inconsistent with the statements
contained in the Proxy Statement or otherwise with our opinion as expressed
herein. We have conducted no independent factual investigation of our own, but
rather have relied solely on the documents furnished for our review as listed
above, the statements and information set forth in said documents and the
additional matters recited or assumed herein, all of which we assume to be true,
complete and accurate in all material respects.
BACKGROUND
In July 1992, Malcolm Glazer ("Glazer") acquired 49,226,662 shares of
the common stock, par value $.25 per share, of the Company ("Company Common
Stock") representing a 38.8% interest in the voting stock of the Company. As a
result of subsequent acquisitions by Glazer, a one-for-five reverse stock split
effected in 1994, and a net reduction in the number of outstanding shares as a
result of repurchases, Glazer's current ownership of Company Common Stock is
10,395,384 shares, or approximately 35.2% of the outstanding voting stock
(excluding 20,000 shares that may be acquired upon exercise of exercisable
stock options). Since July 1994, Glazer has been the Chairman of the Board of
the Company. The shares of Company Common Stock beneficially owned by Glazer
(the "Glazer Shares") are currently owned by a trust (the "Glazer Trust") of
which Glazer is the Trustee.
<PAGE> 3
Zapata Corporation
July 22, 1996
Page 3
In late 1994 and early 1995, the Company began to develop a strategic
plan involving the repositioning of the Company into the food services
industry. In accordance with this objective, the Board of Directors of the
Company (the "Board") decided to consider an acquisition of all of the
outstanding shares of common stock, par value $.01 per share, of Houlihan's
(the "Houlihan's Common Stock"). Houlihan's operates, through subsidiaries,
full service casual dining restaurants in 25 states. Glazer and members of his
family beneficially own approximately 73% of the Houlihan's Common Stock.
The Board formed the Special Committee consisting solely of
disinterested directors to, inter alia, investigate a potential merger or
acquisition transaction with Houlihan's and, if the Special Committee deems it
appropriate, to approve such a transaction. Neither Glazer nor any member of
his family is a member of the Special Committee.
In the Merger, Houlihan's will be merged with and into Merger Sub, with
Merger Sub being the surviving corporation. Pursuant to the Merger Agreement,
each share of Houlihan Common Stock issued and outstanding immediately prior to
the effective time of the Merger, other than treasury shares, shares held by
the Company and Dissenting Shares (as defined in the Merger Agreement), by
virtue of the Merger, will be converted into the right to receive a combination
of cash and Company Common Stock valued at $8.00 per share. The issued and
outstanding shares of capital stock of Merger Sub will not be affected by the
Merger. Therefore, as a result of the Merger, the former holders of Houlihan's
Common Stock will become stockholders of the Company, and Merger Sub will
acquire the assets of Houlihan's by operation of law.
The Section 5.7 of the Merger Agreement provides that there will be an
annual meeting of the stockholders of the Company (the "Annual Meeting") at
which such stockholders will vote upon the issuance of shares of Company Common
Stock in the Merger (the "Share Issuance"). Pursuant to the Standstill
Agreement, Glazer has delivered to the members of the Special Committee the
Irrevocable Proxy, pursuant to which such members are authorized to vote all
the shares of Company Common Stock beneficially owned by Glazer. On June 13,
1996, a majority of the members of the Special Committee determined to vote the
shares of Company Common Stock beneficially owned by Glazer in accordance with
the vote of a majority of Company stockholders other than Glazer present and
voting at the Annual Meeting such that (i) if a majority of the shares present
and voting at the Annual Meeting (other than shares beneficially owned by
Glazer) are voted in favor of the Share Issuance, all shares subject to the
Irrevocable Proxy will be voted in favor of the Share Issuance, and (ii) if a
majority of the shares present and voting at the Annual Meeting (other than
shares beneficially owned by Glazer) are voted in opposition to the Share
Issuance, all shares subject to the Irrevocable Proxy will be voted in
opposition to the Share Issuance.
Because the Company is not a constituent corporation in the Merger
between Houlihan's and Merger Sub, no vote of the stockholders of the Company
is required in connection with the Merger under the General Corporation Law.
While, as noted above, the
<PAGE> 4
Zapata Corporation
July 22, 1996
Page 4
stockholders of the Company are being asked to approve the Stock Issuance, the
requirement that the Stock Issuance be approved by the stockholders of the
Company arises under the rules of the New York Stock Exchange, not the General
Corporation Law.
ARTICLE SEVENTH
Article SEVENTH of the Restated Certificate ("Article Seventh")
provides that the Company is prohibited from engaging in certain transactions
with a beneficial owner of five percent or more of the outstanding shares of
the Company's voting stock (an "Interested Stockholder") unless such a
transaction is approved by the holders of 80% of the Company's stock or such a
transaction is exempted from such vote pursuant to the provisions thereof. In
particular, subsection (A) of Article Seventh provides as follows:
SEVENTH: (A) Except as set forth in Paragraph (D) of this
Article SEVENTH, the affirmative vote or consent of the holders
of 80% of all stock of this corporation entitled to vote in
elections of directors, considered for the purposes of this
Article SEVENTH as one class, shall be required:
(i) for a merger or consolidation with or into any
other corporation, or
(ii) for any sale or lease of all or any substantial
part of the assets of this corporation to any other corporation,
person or other entity, or
(iii) any sale or lease to this corporation or any
subsidiary thereof of any assets (except assets having an
aggregate fair market value of less than $2,000,000) in
exchange for voting securities (or securities convertible into
voting securities or options, warrants, or rights to purchase
voting securities or securities convertible into voting
securities) of this corporation or any subsidiary by any other
corporation, person or entity,
if as of the record date for the determination of stockholders
entitled to notice thereof and to vote thereon or consent
thereto such other corporation, person or entity which is party
to such a transaction is the beneficial owner, directly or
indirectly, of 5% or more of the outstanding shares of stock of
this corporation entitled to vote in elections of directors,
considered for the purpose of this Article SEVENTH as one class.
Such affirmative vote or consent shall be in addition to the
vote or consent of the holders of the
<PAGE> 5
Zapata Corporation
July 22, 1996
Page 5
stock of this corporation otherwise required by law or
any agreement between this corporation and any national
securities exchange.
You have requested our opinion regarding whether the
supermajority vote requirement (the "Supermajority Vote") of Article Seventh
would be applicable to the Merger because of Glazer's equity interest in the
Company and Houlihan's.(1)
THE STANDARDS APPLICABLE TO
AN INTERPRETATION OF ARTICLE SEVENTH
In general, Delaware courts apply the rules of contract
interpretation when examining the provisions of a certificate of interpretation,
such as the Restated Certificate. Berlin v. Emerald Partners, 552 A.2d 482, 488
(Del. 1988). In Berlin, the Delaware Supreme Court construed a supermajority
vote provision and observed that "the best evidence of the intention of the
parties is often found in the express language of a written contract." Id. at
488. Courts have opined that this principle is particularly appropriate in the
interpretation of provisions contained in a corporation's charter in light of
the sophistication of the persons who normally draft such provisions:
Provisions in a corporate charter should receive a
literal and technical interpretation in most instances.
They are customarily drafted by experts who count on
them being respected in a precise and literal way.
Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1134, 1155 (Del. Ch. 1994),
aff'd, 663 A.2d 1156, 1171 (Del. 1995).
The Delaware Supreme Court has further recognized that
supermajority vote provisions, such as those contained in Article Seventh,
should be narrowly interpreted:
[H]igh vote requirements which purport to protect
minority shareholders by disenfranchising the majority,
must be clear and unambiguous. There must be no doubt
that the shareholders intended that a supermajority
would be required. When a provision which seeks to
require the approval of a supermajority is unclear or
ambiguous, the fundamental principle of majority rule
will be held to apply.
- -------------------------
(1)Even though the Glazer Shares are actually owned by the Glazer
Trust, Glazer is deemed to be the beneficial owner of such shares under
subsection (B) of Article Seventh by reason of his control over the voting
and disposition of such shares.
<PAGE> 6
Zapata Corporation
July 22, 1996
Page 6
Centaur Partners, IV v. National Intergroup, Inc., 582 A.2d 923, 927 (Del.
1990) (emphasis added). In Centaur Partners, the Court held that a provision
in a corporation's charter requiring an 80% vote for by-law amendments was
clear and unambiguous, and applied to an amendment purporting to expand the
corporation's board of directors.
WHETHER THE MERGER IS SUBJECT TO
THE REQUIREMENTS OF ARTICLE SEVENTH
Subsection (A)(i) of Article Seventh requires a Supermajority
Vote "for a merger or consolidation with or into any other corporation." By its
literal terms, subsection (A)(i) does not apply to a merger of a subsidiary of
the Company with or into another corporation such as that contemplated by the
Merger.(2) The fact that other subsections of Article Seventh (i.e.,
subsections (A)(iii) and (D)(ii)(3)) refer to subsidiaries of the Company
suggests that the failure to refer expressly to subsidiaries in subsection
(A)(i) was not inadvertent. Accordingly, we believe that a Delaware court would
find that subsection (A)(i) does not apply to mergers of subsidiaries of the
Company because its express language does not state clearly that it applies to
such mergers. Centaur Partners, 582 A.2d at 927.
In the event that a Delaware court were to find subsection
(A)(i) to be ambiguous, the Centaur Partners decision would seem to preclude a
finding that such provision could impose a Supermajority Vote for transactions
other than those clearly covered thereby (i.e., a merger in which the Company
is a constituent corporation). See 582 A.2d at 927. Nevertheless, since Centaur
Partners does not expressly prohibit consideration of extrinsic evidence of the
parties'
- -------------------------
(2)By contrast, a supermajority vote provision adopted by United
States Gypsum Company on May 12, 1976, which is relatively contemporaneous
with and almost identical to Article Seventh in virtually all other
respects, provided that the supermajority vote would be required "for a
merger or consolidation of this corporation or any subsidiary thereof with
or into any other corporation." Robert H. Winter et al., Shark Repellents
and Golden Parachutes Ex. 5.2D, at 184 (1992) (emphasis added).
(3)Subsection (D)(ii) of Article Seventh provides that Article
Seventh shall not apply to:
any merger or consolidation of this corporation with,
or any sale or lease to this corporation or any
subsidiary thereof of any assets of or sale or lease
by this corporation or any subsidiary thereof of any
its assets to any corporation of which a majority of
the outstanding shares of all classes of stock
entitled to vote in elections of directors is owned
of record or beneficially by this corporation and its
subsidiaries.
(Emphasis added).
<PAGE> 7
Zapata Corporation
July 22, 1996
Page 7
intent in interpreting a supermajority vote provision, it is possible that a
Delaware court would consider such evidence in construing Article Seventh.
We are aware of no extrinsic evidence of the intent behind Article
Seventh other that the Proxy Statement. With respect to the purpose of Article
Seventh, the Proxy Statement, in pertinent part, states:
Absent the voting requirements described herein, Delaware law
and the present Certificate of Incorporation would permit the
stockholders of the Company to authorize any corporate transaction . . .
by the affirmative vote of the holders of a majority of the voting stock
of the Company. The Board of Directors considers the majority voting
requirement to be desirable as to most proposals which would be
submitted to the stockholders and desires to retain such voting
requirements in those instances. However, the Board of Directors is of
the opinion that where a proposed merger or similar transaction involves
a corporation or other business entity having a direct or indirect
substantial ownership or control of the voting power of the Company,
acquired without the consent of the Board of Directors, a substantially
higher voting requirement is preferable. The intended effect of the
proposed amendments would be to make more difficult the use by a
corporation of its ownership in the Company to effect a transaction
which might not be in the best interests of the Company and its
stockholders. However, such voting provisions may also have the effect
of giving the management of the Company power to reject certain
transactions which might be desired by holders of a majority, but less
than 80%, of the voting stock of the Company, and giving a minority of
the stockholders veto power over certain transactions which might at the
time be thought desirable by both management and the holders of a
majority, but less than 80%, of the outstanding voting stock.
Proxy Statement at 7 (emphasis added).
In our view, the foregoing passage does not provide substantial guidance
regarding the proper interpretation of subsections (A)(i) and (A)(iii) of
Article Seventh as applied to the matter under consideration.
Subsection (A)(ii) of Article Seventh, which addresses a sale of assets
by the Company, should not be implicated by the Merger because no assets of the
Company are being sold, leased or otherwise transferred in the Merger.
Moreover, the Delaware Supreme Court
<PAGE> 8
Zapata Corporation
July 22, 1996
Page 8
has held that a statutory merger does not constitute a "sale of assets,"
Sterling v. Mayflower Hotel Corp., 93 A.2d 107, 112 (Del. 1952).
With respect to subsection (A)(iii) of Article Seventh, the issue
presented is whether stock of a parent corporation issued in a forward
triangular merger would constitute the consideration for a "sale" to the parent
corporation or a subsidiary of assets by a corporation, person or entity that
is an Interested Stockholder. From the standpoint of the Merger Sub, the Merger
could arguably be said to involve the sale to it of the assets of Houlihan's
(since as a result of the Merger, Merger Sub will, as indicated above, acquire
the assets of Houlihan's by operation of law). Under this analysis, Houlihan's
(the seller of assets) would be an Interested Stockholder because, under the
definition of "beneficial ownership" in subsection (B) of the Article Seventh,
Glazer's ownership would be attributed to it by reason of the affiliate
relationship. However, such an argument would be inconsistent with the holding
of Sterling v. Mayflower Hotel, that a statutory merger does not constitute a
"sale of assets" and the well recognized doctrine of "independent legal
significance" discussed below. Therefore, as to Merger Sub, we do not believe
the Merger would be considered to involve a sale to it of assets.
From the standpoint of the Company, the Merger could arguably be said to
involve the sale to the Company by Glazer of Glazer's Houlihan's Common Stock.
However, following the Merger, the Company will not own Houlihan's Common Stock
but will instead continue to own stock of Merger Sub. Moreover, there would be
a question as to whether Glazer (the assumed seller) would even be a "party to
the transaction" (as Article Seventh requires an Interested Stockholder to be
in order for the Supermajority Vote to apply) because Glazer is not a party to
the Merger Agreement. Finally, Delaware courts have repeatedly recognized that
the conversion of stock in a merger pursuant to Section 251 is not subject to
statutory and charter provisions applicable to other forms of transactions even
if the ultimate result of the merger is comparable to that obtained by means of
such other transactions. For example, the Court of Chancery has held that:
The statutory conversion of stock in a constituent
corporation into stock in the surviving corporation that is
effected by a stock for stock merger ought not to be considered
a sale, transfer or exchange of that stock for purposes of an
agreement among stockholders restricting their power to transfer
their stock.
Shields v. Shields, 498 A.2d 161, 167 (Del. Ch. 1985). See also Sterling v.
Mayflower, 93 A.2d at 112 (holding that a statutory merger is not a sale of
assets).
In rendering the foregoing decisions, the courts relied on, among other
things, the well established principle referred to by Delaware courts as the
doctrine of "independent legal significance", which provides that "action taken
under one section of [the General Corporation Law] is legally independent, and
its validity is not dependent upon, nor to be tested by the requirements of
other unrelated sections under which the same final result might be attained by
<PAGE> 9
Zapata Corporation
July 22, 1996
Page 9
different means." Orzeck v. Englehart, 195 A.2d 375, 378 (Del. 1963). The
doctrine reflects the practice of Delaware courts to accord independent legal
significance to the form of a transaction as long as it is effected in
accordance with the statutory requirements for such a transaction under the
General Corporation Law, even though the practical effect of the transaction may
be similar to or the same as the result which could have been achieved through a
different form of transaction which would have been subject to different
requirements. See, e.g., Rothschild Int'l Corp. v. Liggett Group Inc., 474 A.2d
133 (Del. 1984) (holding that the conversion of stock into cash pursuant to a
merger does not implicate a charter provision addressing the rights of such
stock upon the liquidation of the corporation); Warner Communications Inc. v.
Chris-Craft Indus., Inc., 583 A.2d 962 (Del. Ch.), aff'd, 567 A.2d 419 (Del.
1989) (holding that the conversion of stock in a merger does not implicate
statutory or charter provisions applicable to an amendment of the certificate of
incorporation); Sullivan Money Management, Inc. v. FLS Holdings Inc., C.A. No.
12731 (Del. Ch. Nov. 20, 1992), aff'd, 628 A.2d 84 (Del. 1993) (same); Dart v.
Kohlberg, Kravis, Roberts & Co., C.A. No. 7366, slip op. at 13 (Del Ch. May 6,
1985) (holding that the conversion of a corporation's redeemable stock into cash
in a merger is not subject to the redemption provisions of its certificate of
incorporation).
The doctrine of independent legal significance supports the conclusion
that the issuance of stock by the Company in the Merger to the former
stockholders of Houlihan's upon conversion in the Merger of shares of
Houlihan's Common Stock, which is authorized as a merger transaction by Section
251,(4) should not be subject to the provisions of Article Seventh applicable
to transactions in which stock is issued in connection with a sale of assets to
the Company (i.e., subsection (A)(iii)).
The conclusion is bolstered by the fact that the drafters of Article
Seventh created a separate provision imposing the Supermajority Vote with
respect to certain mergers (i.e., subsection (A)(i)). In Warner v. Chris-Craft,
the Court of Chancery addressed the proper construction of a similar provision
and based its decision, in part, on the fact that there was a separate class
vote provision in the certificate of designation at issue which applied to
mergers. 583 A.2d at 970-71. The Court inferred from that fact that the class
vote provision at issue was not intended to apply in the event of a merger.
Similarly, a Delaware court should be reluctant
- ------------
(4) Section 251(b) of the General Corporation Law expressly provides
that shares of a constituent corporation may be converted into securities of
another corporation. 8 Del. C. Section 251(b). This statutory language
authorizes Delaware corporations to engage in "triangular mergers" and "reverse
triangular mergers". The Merger is structured as a typical triangular merger in
which the acquired corporation merges with and into a wholly-owned subsidiary of
the parent corporation (which subsidiary is the surviving corporation) and the
stock of the acquired corporation is converted into shares of the parent
corporation.
<PAGE> 10
Zapata Corporation
July 22, 1996
Page 10
to find subsection (A)(iii) applicable to a merger because subsection (A)(i)
expressly applies to such a transaction.
We note that the Court of Chancery, in Bacine v. Scharffenberger, C.A.
No. 7862 (Del. Ch. Dec. 11, 1984), applied a statutory sale of assets analysis
to determine whether a "sale" by a corporation of three of its wholly-owned
subsidiaries by means of a merger required a vote of the corporation's
stockholders under Section 271. In response to the defendants' position that
the transaction was a merger and should not be subject to Section 271's
requirements under the doctrine of independent legal significance, the
plaintiffs' asserted that "equity looks to the substance of a transaction and
not to its form, and the realities of modern business are such that the stock
of wholly-owned subsidiary corporations necessarily constitutes the assets of a
holding company . . . ." Slip op. at 7. The Court observed that "I must admit
that I find considerable logic in [plaintiffs'] proposition." Id.
Significantly, however, the Court did not adopt the plaintiffs' position, and
instead held that:
conceding without deciding that it is true for the purpose of
argument, I find that the transaction is still not one which
appears to require the approval of [the corporation's]
shareholders . . . because I cannot find from the facts of
record that the transfer of the three subsidiaries will
constitute a sale of "substantially all" of [the corporation's]
assets.
Id. We do not believe that Bacine would cause a Delaware court to find that the
Merger is subject to the Supermajority Vote. Bacine, which was decided in the
context of a motion for a preliminary injunction, did not actually hold that
the merger of a subsidiary would be viewed at the parent level as a sale of
assets subject to Section 271, but instead accepted that proposition arguendo
for purposes of its determination. Because the plaintiffs' position failed even
assuming that the transaction was viewed as a sale of assets, the Court never
had to decide whether, notwithstanding the Delaware Supreme Court's holding in
Sterling v. Mayflower Hotel, the merger should be deemed to be a sale of
assets. In addition, Bacine did not address a charter provision requiring a
supermajority vote, which the Delaware Supreme Court has held must be
interpreted literally and narrowly. Centaur Partners, 582 A.2d at 927.
CONCLUSION
We are aware of no decision of a Delaware court which directly addresses
the question posed for our consideration,(5) and consequently the matter is not
completely free from
- ------------
(5) We note that an action styled Pasternak v. Glazer, C.A. No. 15026,
seeking to enjoin the Merger on the grounds, inter alia, that the Supermajority
Vote requirement of Article Seventh is applicable to the Merger and will not be
complied with, has been filed in the Court of Chancery of the State of
Delaware. A hearing on plaintiff's motion for a
<PAGE> 11
Zapata Corporation
July 22, 1996
Page 11
doubt. Nevertheless, based upon and subject to the foregoing, and subject to
the qualifications, assumptions, exceptions and limitations set forth herein,
it is our opinion that the Merger is not subject to the Supermajority Vote
requirement of Article Seventh.
The foregoing opinion is limited to the General Corporation Law, and we
have not considered and express no opinion on the effect of any other laws or
the laws of any other state or jurisdiction, or the rules and regulations of
stock exchanges or any other regulatory body. We express no opinion as to the
possible outcome of any challenge to the Merger and the manner of its approval
premised upon equitable considerations.
We hereby consent to the reference to this opinion in the Registration
Statement, provided, however, that in giving such consent we do not admit that
we come within the category of persons whose consent is required under Section
7 of the Securities Act of 1933 or the rules and regulations of the Securities
Exchange Commission thereunder. Except as provided in the immediately preceding
sentence, our opinion as expressed herein is rendered solely for your benefit
in connection with the matters addressed herein, and, without our prior written
consent, may not be relied upon by you for any other purpose or be furnished or
quoted to, or relied upon, by any other person or entity for any purpose.
Very truly yours,
RICHARDS, LAYTON & FINGER
AMT/MJG/CSB/MJF
- ----------------
preliminary injunction is scheduled for September 6, 1996. No opinion is
expressed herein as to the outcome of such litigation.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Joint Proxy Statement/Prospectus of our report dated
December 17, 1993, included in Zapata Corporation's Form 10-K for the year ended
September 30, 1993, and to all references to our Firm included in this Joint
Proxy Statement/Prospectus.
ARTHUR ANDERSEN LLP
Houston, Texas
August 14, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Joint Proxy
Statement/Prospectus of Zapata Corporation of our reports dated March 26, 1996,
which include explanatory paragraphs discussing the comprehensive financial
restructuring through implementation of reorganization under Chapter 11 of the
United States Bankruptcy Code, on our audits of the consolidated financial
statements and financial statement schedules of Envirodyne Industries, Inc. and
subsidiaries as of December 28, 1995 and December 29, 1994, and for the period
December 30, 1994 to December 28, 1995 and January 1 to December 29, 1994 (Post-
consummation) and January 1 to December 31, 1993 (Pre-consummation) and the
consolidated financial statements and financial statement schedules for Viskase
Holding Corporation and subsidiaries as of December 28, 1995 and December 29,
1994, and for the period December 30, 1994 to December 28, 1995 and January 1 to
December 29, 1994 (Post-consummation) and January 1 to December 31, 1993 (Pre-
consummation), which reports are included in the Zapata Corporation Form 8-K
dated June 19, 1996. We also consent to the reference to our firm under the
caption "Experts."
Coopers & Lybrand L.L.P.
Chicago, Illinois
August 14, 1996
<PAGE> 2
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Joint Proxy
Statement/Prospectus of Zapata Corporation of our reports dated December 15,
1995, on our audits of the consolidated financial statements and financial
statement schedule of Zapata Corporation as of September 30, 1995 and 1994, and
for the years then ended. We also consent to the reference to our firm under the
caption "Experts."
Coopers & Lybrand L.L.P.
Houston, Texas
August 14, 1996
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement number 333-06729 on Form S-4 of Zapata Corporation of our
report dated March 6, 1996, appearing in the Annual Report on Form 10-K of
Houlihan's Restaurant Group, Inc. for the year ended December 25, 1995 and to
the reference to us under the heading "Experts" in the Joint Proxy
Statement/Prospectus, which is a part of this Registration Statement.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
August 13, 1996
<PAGE> 1
EXHIBIT 23.5
[Richards, Layton & Finger Letterhead]
Zapata Corporation August 13, 1996
1717 St. James Place
Suite 550
Houston, Texas 77056
Ladies and Gentlemen:
We hereby consent to the filing of our opinion, dated July 22, 1996,
addressed to the Special Committee of the Board of Directors of Zapata
Corporation as an exhibit to the Registration Statement on Form S-4 of Zapata
Corporation, as amended (Reg. No. 333-06729); provided, however, that in giving
such consent we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933 or the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ RICHARDS, LAYTON & FINGER
<PAGE> 1
EXHIBIT 23.6
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended (the
"Act"), I hereby consent to the use of my name and any references to me as a
person nominated to become a director of Zapata Corporation ("Zapata") in the
Joint Proxy Statement/Prospectus constituting a part of Zapata's Registration
Statement on Form S-4 to be filed with the Securities and Exchange Commission
pursuant to the Act in connection with the proposed acquisition by Zapata of
Houlihan's Restaurant Group, Inc.
Dated: June 24, 1996
/s/ WARREN H. GFELLER
-------------------------------
Warren H. Gfeller
<PAGE> 1
EXHIBIT 23.7
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended (the
"Act"), I hereby consent to the use of my name and any references to me as a
person nominated to become a director of Zapata Corporation ("Zapata") in the
Joint Proxy Statement/Prospectus constituting a part of Zapata's Registration
Statement on Form S-4 to be filed with the Securities and Exchange Commission
pursuant to the Act in connection with the proposed acquisition by Zapata of
Houlihan's Restaurant Group, Inc.
Dated: June 24, 1996
/s/ FREDERICK R. HIPP
---------------------
Frederick R. Hipp
<PAGE> 1
PROXY
<TABLE>
<S> <C> <C>
ZAPATA THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
CORPORATION The undersigned hereby appoints Joseph L. von Rosenberg III, Robert A. Gardiner,
P.O. BOX 4240 Sharon M. Brunner and each of them, attorneys and agents with full power of
HOUSTON, TX 77210 substitution, to vote as proxy all the shares of Common Stock and $2 Noncumulative
Convertible Preference Stock of Zapata Corporation held of record by the undersigned
on August 19, 1996 at the 1996 Annual Meeting of Stockholders of Zapata Corporation to
be held on September 27, 1996 and at any adjournment or postponement thereof, in the
manner indicated on the reverse hereof and in their discretion on such other matters
as may properly come before said meeting or any adjournments thereof.
If you wish to vote in accordance with the recommendations of the Board of Directors, you may just sign and date below
and mail in the postage paid envelope provided. Specific choices may be made on the reverse side.
Dated ___________________________________, 1996
_____________________________________________________________________
Signature
_____________________________________________________________________
Signature if held jointly
When signing as Executor, Administrator, Trustee or the like, please
give full title.
PROXY (CONTINUED)
This proxy will be voted as directed, or if no direction is indicated, will be voted FOR Proposal 1, FOR Proposal 2 -
all nominees listed below for election as directors, FOR Proposal 3, and AGAINST Proposal 4. The Board of Directors
recommends a vote FOR Proposals 1, 2 and 3, and recommends a vote AGAINST Proposal 4.
(1) Approval of the issuance of shares of Zapata FOR [ ] AGAINST [ ] ABSTAIN [ ]
Common Stock pursuant to the Agreement and
Plan of Merger dated as of June 4, 1996, as
amended and restated as of August 15, 1996,
among Zapata Corporation, Zapata Acquisition
Corp. and Houlihan's Restaurant Group, Inc.
(2) Election of Directors FOR ALL [ ] WITHHOLD AUTHORITY TO VOTE FOR [ ]
(except as specified below)
Term Ending 1999:
Malcolm I. Glazer
R. C. Lassiter
Instructions: To withhold vote for individual(s) write name(s) below.
- ------------------------------------------------------------------------------------------------------------------------------------
(3) Approval of the 1996 Long-Term Incentive FOR [ ] AGAINST [ ] ABSTAIN [ ]
Plan
(4) Stockholder proposal for cumulative voting FOR [ ] AGAINST [ ] ABSTAIN [ ]
(Sign and date on reverse side)
</TABLE>
<PAGE> 1
HOULIHAN'S RESTAURANT GROUP, INC.
Two Brush Creek Boulevard
Kansas City, Missouri 64112
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 26, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned Stockholder(s) hereby appoint(s) William W. Moreton and
Frederick R. Hipp, and each of them, with power of substitution, as attorneys
and proxies for and in the name and place of the undersigned, and hereby
authorizes them to represent and to vote all of the shares of Common Stock of
Houlihan's Restaurant Group, Inc. ("Houlihan's") held of record as of August 19,
1996, which the undersigned is entitled to vote at the Special Meeting of
Stockholders of Houlihan's to be held on September 26, 1996, at Houlihan's
offices located at Two Brush Creek Boulevard, Kansas City, Missouri, at 10:00
a.m. (local time), and at any adjournments or postponements thereof.
The Special Committee of the Board of Directors recommends a vote FOR
Proposal 1.
1. APPROVAL AND ADOPTION OF THE AGREEMENT AND PLAN OF MERGER DATED AS OF
JUNE 4, 1996, AS AMENDED AND RESTATED AS OF AUGUST 15, 1996, AMONG
ZAPATA CORPORATION, ZAPATA ACQUISITION CORP. AND HOULIHAN'S.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THIS SPECIAL MEETING OF
STOCKHOLDERS.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR PROPOSAL 1.
Dated:
---------------------------------------------
---------------------------------------------------
Signature
---------------------------------------------------
Signature (if held jointly)
Number of Shares:
--------------------------------
PLEASE MARK, SIGN, DATE AND MAIL
THIS PROXY IN THE ENVELOPE PROVIDED
If you expect to attend the
Special Meeting of Stockholders
please check this box [ ]
<PAGE> 1
FORM OF ELECTION AND
LETTER OF TRANSMITTAL
FOR SHARES OF
HOULIHAN'S RESTAURANT GROUP, INC.
COMMON STOCK
This Form of Election and Letter of Transmittal (this "Form of Election")
is to be used by record holders of common stock, par value $.01 per share
("Houlihan's Common Stock"), of Houlihan's Restaurant Group, Inc. ("Houlihan's")
to make Consideration Elections (as defined below) with respect to their
Houlihan's Common Stock and to surrender certificates for their shares of
Houlihan's Common Stock to the Exchange Agent in exchange for the Merger
Consideration corresponding to their Consideration Elections, all as
contemplated by the Agreement and Plan of Merger dated as of June 4, 1996 (as
amended and restated as of August 15, 1996, the "Merger Agreement") among Zapata
Corporation ("Zapata"), Zapata Acquisition Corp. ("Sub") and Houlihan's,
providing for the merger of Houlihan's with and into Sub (the "Merger"). Except
as otherwise indicated, capitalized terms used but not defined herein have the
meanings given to them in the Joint Proxy Statement/Prospectus dated August ,
1996 of Zapata and Houlihan's relating to the Merger (the "Joint Proxy
Statement/Prospectus").
EXCHANGE AGENT: AMERICAN STOCK TRANSFER & TRUST COMPANY
Delivery by overnight courier, by hand or by mail:
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, New York 11219
Attention: Ms. Geraldine Zarbo
CONFIRM BY TELEPHONE: (718) 921-8208
TO BE EFFECTIVE, THIS FORM OF ELECTION TOGETHER WITH CERTIFICATES FOR SHARES OF
HOULIHAN'S COMMON STOCK AND ANY OTHER DOCUMENTS REQUIRED HEREBY, MUST BE
RECEIVED BY THE EXCHANGE AGENT AT ITS ADDRESS SET FORTH ABOVE PRIOR TO 5:00
P.M., NEW YORK CITY TIME, ON THE DATE ONE CALENDAR DAY PRIOR TO THE DATE OF THE
HOULIHAN'S SPECIAL MEETING (AS EXTENDED, THE "ELECTION DEADLINE").
HOLDERS OF HOULIHAN'S COMMON STOCK WHO DO NOT TIMELY SUBMIT A PROPERLY
COMPLETED FORM OF ELECTION WILL RECEIVE THE DEFAULT CONSIDERATION UPON
CONSUMMATION OF THE MERGER. ANY HOLDER OF HOULIHAN'S COMMON STOCK WHO DOES NOT
INTEND TO VOTE IN FAVOR OF THE MERGER SHOULD NEVERTHELESS CONSIDER FILING A FORM
OF ELECTION IN ORDER TO AVOID BEING TREATED AS A NON-ELECTING STOCKHOLDER IN THE
EVENT THE MERGER IS APPROVED AND CONSUMMATED. THE FILING OF A FORM OF ELECTION
WILL NOT CONSTITUTE A WAIVER OF A STOCKHOLDER'S DISSENTERS' RIGHTS. HOWEVER,
HOULIHAN'S STOCKHOLDERS WHO WITHDRAW OR FAIL TO PERFECT DISSENTERS' RIGHTS WILL
BE DEEMED TO HAVE MADE NO ELECTION AND WILL THEREFORE RECEIVE THE DEFAULT
CONSIDERATION WITH RESPECT TO THEIR SHARES FOR WHICH DEMANDS FOR APPRAISAL WERE
MADE, NOTWITHSTANDING ANYTHING TO THE CONTRARY INDICATED ON A FORM OF ELECTION.
ANY RECORD HOLDER OF HOULIHAN'S COMMON STOCK MAY AT ANY TIME PRIOR TO THE
ELECTION DEADLINE CHANGE A PREVIOUSLY MADE CONSIDERATION ELECTION BY WRITTEN
NOTICE TO THE EXCHANGE AGENT ACCOMPANIED BY A PROPERLY COMPLETED, LATER-DATED
FORM OF ELECTION.
DO NOT SEND THIS FORM OF ELECTION TO ZAPATA OR HOULIHAN'S.
DELIVERY OF THIS FORM OF ELECTION AND CERTIFICATES REPRESENTING SHARES OF
HOULIHAN'S COMMON STOCK OTHER THAN TO THE EXCHANGE AGENT AT THE ADDRESS SHOWN
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
Ladies and Gentlemen:
In accordance with the Merger Agreement, the undersigned, as the registered
holder(s) of the certificates for shares of Houlihan's Common Stock listed below
or the assignee(s) of such registered holder(s), hereby (a) makes the
Consideration Election(s) indicated below for the number of shares of Houlihan's
Common Stock specified below and (b) surrenders the certificates for shares of
Houlihan's Common Stock described below in exchange for the Merger Consideration
corresponding to the Consideration Election(s) made below with respect to such
Houlihan's Common Stock. Such Consideration Election(s) is subject to the terms
and conditions set forth in (i) the Joint Proxy Statement/Prospectus, (ii) the
Merger Agreement, a copy of which is attached as Appendix A to the Joint Proxy
Statement/Prospectus and (iii) the Instructions hereto.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE JOINT PROXY
STATEMENT/PROSPECTUS. If the undersigned has made a Cash Election, a Cash/Stock
Election or Stock Election, the undersigned hereby represents that no
certificates for Houlihan's Common Stock listed below are owned of record or
Beneficially Owned (as defined in the Merger Agreement) by any member of the
Glazer Group.
The undersigned understands that delivery of the Merger Consideration
corresponding to the Consideration Election(s) made hereunder will be made as
promptly as practicable after the Effective Time, provided that surrender of
certificates for Houlihan's Common Stock is made in acceptable form. The
undersigned acknowledges that surrender is not made in acceptable form until the
Exchange Agent has received this Form of Election, or a copy hereof, duly
completed and signed, together, in the circumstances in which evidences of
authority are required hereby, with all accompanying evidences of authority in
satisfactory form to the Exchange Agent. Upon request, the undersigned will
execute and deliver any additional document that Zapata or the Exchange Agent
reasonably deems necessary or appropriate in connection with the surrender of
certificates for Houlihan's Common Stock or in connection with the exchange
contemplated hereby. The undersigned also understands that delivery of
certificates for surrendered Houlihan's Common Stock shall be made only to the
Exchange Agent, and risk of loss and title to certificates for Houlihan's Common
Stock shall pass only upon proper delivery of such certificates to the Exchange
Agent.
The undersigned represents that the undersigned has full authority to
surrender the certificates for Houlihan's Common Stock surrendered hereby
without restriction, and that, upon payment by Zapata of the Merger
Consideration for the shares represented by such certificates in accordance with
the Consideration Election(s) indicated below, Zapata will acquire good,
marketable and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim.
Subject to consummation of the Merger, the undersigned hereby appoints American
Stock Transfer & Trust Company as the undersigned's attorney-in-fact, with full
power of substitution, for the purpose of causing the shares of Houlihan's
Common Stock represented by the accompanying certificates to be converted into
the Merger Consideration corresponding to the Consideration Election(s) made
above and the instructions contained in this Form of Election. All authority
conferred by this Form of Election and the surrender of the enclosed
certificates for Houlihan's Common Stock are irrevocable, will bind the
successors, assigns, heirs, executors, administrators and legal representatives
of the undersigned and will survive, and not be affected by, the death or
incapacity of the undersigned. If certificates for shares of Houlihan's Common
Stock are not delivered herewith, there is furnished below a guarantee of
delivery of such shares from a trust company organized in the United States or a
member of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc.
Unless otherwise directed by written instructions attached hereto, please
issue one stock certificate for the shares of Zapata Common Stock and, if
applicable, one check for the cash portion of the Merger Consideration to which
the undersigned is entitled. Unless otherwise specified under "Special Payment
Instructions" or "Special Mailing Instructions" below, the undersigned requests
that the undersigned's certificate or check, if applicable, be issued in the
name and mailed to the address of the undersigned as set forth below.
-2-
<PAGE> 3
Please complete the following boxes to indicate the Houlihan's Common Stock
to which this Form of Election relates and the Consideration Election(s) made
with respect to such Houlihan's Common Stock.
PLEASE READ THE INSTRUCTIONS SET FORTH AT THE END OF THIS FORM OF ELECTION
CAREFULLY BEFORE COMPLETING THIS FORM OF ELECTION.
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
DESCRIPTION OF HOULIHAN'S COMMON STOCK SURRENDERED
- ----------------------------------------------------------------------------------------------------------------
CERTIFICATE(S) BEING SURRENDERED
(ATTACH SEPARATE SCHEDULE IF NECESSARY)
NAME(S) OF REGISTERED HOLDER(S) ---------------------------------------------------------------
AS SHOWN ON THE CERTIFICATE(S) AND ADDRESS(ES) CERTIFICATE NUMBER OF SHARES NUMBER OF SHARES
OF SUCH REGISTERED HOLDERS NUMBERS REPRESENTED BY CERTIFICATES SURRENDERED*
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
TOTAL SHARES
- ----------------------------------------------------------------------------------------------------------------
*Unless otherwise indicated, the holder(s) of certificates will be deemed to have surrendered all of the
shares represented by such certificates.
- ----------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
CONSIDERATION ELECTION
- ------------------------------------------------------------------------------------------------
Check one or more of the boxes below to make the indicated Consideration Election and specify
the number of shares to which such Consideration Election applies:
Cash Election / / Number of Shares -------------------
Stock Election / / Number of Shares --------------------
Cash/Stock Election / / Number of Shares --------------------
Residual Election / / Number of Shares --------------------
IF NO BOX IS CHECKED, THE REGISTERED HOLDER(S) OF THE SHARES OF HOULIHAN'S COMMON STOCK TO
WHICH THIS FORM OF ELECTION RELATES WILL BE DEEMED TO HAVE MADE THE CASH/STOCK ELECTION (THE
DEFAULT CONSIDERATION) WITH RESPECT TO ALL SUCH SHARES.
- ------------------------------------------------------------------------------------------------
</TABLE>
-3-
<PAGE> 4
NOTE: ALL STOCKHOLDERS MUST SIGN HERE AND
ON THE ACCOMPANYING SUBSTITUTE FORM W-9
Dated_________________ , 1996
SIGNATURE(S)
SIGN
HERE____________________________________________________________________________
(Signature(s) of Registered Holder(s) or Authorized Signatory)
Telephone Number________________________________________________________________
(Include Area Code)
Must be signed above by registered holder(s) exactly as name(s) appear(s) on the
surrendered certificate(s) as indicated above or by person(s) authorized to
become registered holder(s). See Instruction 3. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, please provide
the following information and see Instruction 3(e).
Name(s)_________________________________________________________________________
PLEASE PRINT
Capacity (full title)___________________________________________________________
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 3(G), 4 AND 7)
To be completed ONLY if the certificate(s) representing Zapata Common Stock
and any check(s) for the cash portion of the Merger Consideration or cash issued
in lieu of fractional shares of Zapata Common Stock are to be issued in the
name(s) of someone other than the name(s) which appear above.
ISSUE TO:
PLEASE PRINT
(ATTACH SEPARATE SCHEDULE IF NECESSARY)
Name____________________________________________________________________________
Address_________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
Tax Identification or Social Security Number(s) of Person(s)
Named in this Box_______________________________________________________________
(Also complete the Substitute Form W-9)
SPECIAL MAILING INSTRUCTIONS
(SEE INSTRUCTION 4)
To be completed ONLY if the certificate(s) representing Zapata Common Stock
and any check(s) for the cash portion of the Merger Consideration or cash issued
in lieu of fractional shares of Zapata Common Stock are to be mailed to an
address other than indicated above.
MAIL TO:
PLEASE PRINT
Name____________________________________________________________________________
Address_________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
Attention:______________________________________________________________________
/ / PLEASE CHECK BOX IF THIS IS A
PERMANENT ADDRESS CHANGE.
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTION 3(g))
Authorized Signatures(s)________________________________________________________
Title___________________________________________________________________________
Name of Firm____________________________________________________________________
Dated_____________________________________________________________________, 1996
PLEASE RETURN THIS ELECTION AND YOUR CERTIFICATE(S) REPRESENTING SHARES OF
HOULIHAN'S COMMON STOCK COVERED HEREBY TO THE EXCHANGE AGENT IN THE ENCLOSED
YELLOW ENVELOPE.
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<PAGE> 5
GUARANTEE OF DELIVERY
(Not to be used for signature guarantee; to be used only if certificates
are not surrendered herewith. See Instruction 5.)
<TABLE>
<S> <C>
The undersigned, which is either a trust
company organized in the United States, a --------------------------------------------
member of a registered national securities (Firm -- Please Print)
exchange or a member of the National
Association of Securities Dealers, Inc., --------------------------------------------
guarantees to deliver to the Exchange Agent (Authorized Signature)
the certificates for shares of Houlihan's
Common Stock to which this Form of Election --------------------------------------------
relates, no later than 5:00 p.m., New York (Authorized Signature Name -- Please Print)
City time, on the fourth business day after
the Election Deadline. --------------------------------------------
(Address)
--------------------------------------------
(Telephone number, including area code)
</TABLE>
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<PAGE> 6
*IMPORTANT TAX INFORMATION*
Please be advised that, regardless of whether you have previously furnished
a taxpayer identification number (social security number for individual, or
employer identification number for corporation(s)) (a "TIN") or the
certification on Form W-9 with respect to dividend payments, you must again
furnish this number, certified to be correct under penalties of perjury, to
assure that back-up withholding of 31% will not be implemented. Certification
should be made to the Exchange Agent on the Substitute Form W-9 below. If the
Houlihan's Certificates are registered in more than one name or are not
registered in the name of the actual holder, consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidance on which number to report.
<TABLE>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE PART 1 -- PLEASE PROVIDE Social Security Number or
FORM W-9 YOUR TIN IN THE BOX AT THE Employer Identification Number
RIGHT AND CERTIFY BY SIGNING
AND DATE BELOW.
-----------------------------
- ------------------------------------------------------------------------------------------------------------------
DEPARTMENT OF TREASURY PART 2 -- For Payees exempt from backup withholding, see the
PAYER'S REQUEST FOR TAXPAYER enclosed Guidelines for Certification of Taxpayer Identification Number on
IDENTIFICATION NUMBER (TIN) Substitute Form W-9.
- ------------------------------------------------------------------------------------------------------------------
CERTIFICATION -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be
issued to me) and
(2) I am not subject to backup withholding either because (i) I am exempt from backup withholding, (ii) I have not
been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a
failure to report all interest or dividends or (iii) the IRS has notified me that I am no longer subject to
backup withholding.
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified by the IRS that you are
subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you received another notification from the
IRS that you are no longer subject to backup withholding, do not cross out item (2).
- ------------------------------------------------------------------------------------------------------------------
PART 3
SIGNATURE ________________________________________________________ DATE __________, 1996 Awaiting TIN / /
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 7
INSTRUCTIONS
1. GENERAL. This Form of Election is to be used by registered holders of
Houlihan's Common Stock to make a Cash Election, a Stock Election, a Cash/Stock
Election or a Residual Election (individually a "Consideration Election" and,
collectively, the "Consideration Elections") with respect to their shares of
Houlihan's Common Stock under the Merger Agreement, and to surrender
certificates for their shares of Houlihan's Common Stock to the Exchange Agent
in exchange for the Merger Consideration corresponding to their Consideration
Elections. When making elections, Houlihan's stockholders should read carefully
these Instructions and the information set forth in the Joint Proxy
Statement/Prospectus. A properly completed and duly executed copy of this Form
of Election, together with certificates for Houlihan's Common Stock and any
other documents required by this Form of Election, must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the date one calendar day prior to the date of the Houlihan's Special
Meeting (as extended, the "Election Deadline"), or the electing holder must
comply with the guaranteed delivery procedures set forth below. A registered
holder of Houlihan's Common Stock who does not submit a Form of Election with
respect to those shares that is received by the Exchange Agent prior to the
Election Deadline, or whose purported Consideration Election is determined by
Zapata or the Exchange Agent not to have been properly made, will be deemed to
have made a Cash/Stock Election with respect to those shares of Houlihan's
Common Stock. The method of delivery of this Form of Election, certificates for
Houlihan's Common Stock and all other required documents to the Exchange Agent
is at the option and risk of the electing holder and, except as otherwise
provided below, the delivery will be deemed made only when actually received by
the Exchange Agent. Instead of delivery by mail, it is recommended that the
holder use an overnight or hand delivery service. In all cases, sufficient time
should be allowed to assure delivery to the Exchange Agent before the Election
Deadline. All Consideration Elections will be void and of no effect if the
Merger is not consummated and, in that event, certificates submitted in
connection therewith will be returned to the persons submitting them.
2. ELECTION AND SURRENDER BY HOLDER. Only a registered holder of Houlihan's
Common Stock may make a Consideration Election and surrender certificates for
the Merger Consideration corresponding to such Consideration Election. Any
beneficial owner of Houlihan's Common Stock who is not the registered holder and
who wishes to make a Consideration Election and surrender certificates should
arrange with the registered holder to execute and deliver this Form of Election
reflecting such Consideration Election or must, prior to completing and
executing this Form of Election and delivering the certificates, either make
appropriate arrangements to register ownership of the certificates in such
beneficial owner's name or obtain a properly completed stock power from the
registered holder.
3. SIGNATURES ON THIS FORM OF ELECTION; STOCK POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES.
(a) If this Form of Election is signed by the registered holder of the
certificates for Houlihan's Common Stock described above, the signature must
correspond exactly with the name as written on the face of the certificates
without alteration, enlargement or any change whatsoever.
(b) If any certificates for Houlihan's Common Stock are owned of record by
two or more joint owners, all such owners must sign this Form of Election. If
any certificates for Houlihan's Common Stock are registered in different names
on several certificates, it will be necessary to complete, sign and submit as
many separate copies of this Form of Election as there are different
registrations of certificates.
(c) When this Form of Election is signed by the registered holder or
holders of certificates listed herein and surrendered hereby, and the Merger
Consideration therefor is to be delivered to the registered holder, no
endorsements on certificates or separate stock powers are required. In any other
case, such holder or holders must either properly endorse the certificates
surrendered or transmit properly completed separate stock powers with this Form
of Election, with the signatures on the endorsement or stock powers guaranteed
by an Eligible Institution (as defined below).
(d) If this Form of Election is signed by a person other than the
registered holder or holders of any shares of Houlihan's Common Stock
represented by certificates listed herein, such certificates must be endorsed or
accompanied by appropriate stock powers, in each case signed as the name or
names of the registered holder or holders appears on the certificates, and the
signatures on such certificates or stock powers must be guaranteed by an
Eligible Institution.
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<PAGE> 8
(e) If this Form of Election or any certificate for Houlihan's Common Stock
or stock powers is signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by Zapata, evidence satisfactory to Zapata of their authority so
to act must be submitted with this Form of Election.
(f) Endorsements on certificates for Houlihan's Common Stock or signatures
on stock powers required by this Instruction 3 must be guaranteed by an Eligible
Institution.
(g) Except as otherwise provided in this Instruction 3(g), all signatures
on this Form of Election must be guaranteed by a bank, brokerage firm, savings
and loan association or credit union, in any case with membership in an approved
Signature Guarantee Medallion Program (an "Eligible Institution"). Signatures on
this Form of Election need not be guaranteed if this Form of Election is signed
by the registered holder(s) of the Houlihan's Common Stock surrendered herewith
and such holder(s) have not completed the box set forth herein entitled "Special
Payment Instructions" or the box entitled "Special Mailing Instructions."
4. SPECIAL PAYMENT AND MAILING INSTRUCTIONS. Electing holders of Houlihan's
Common Stock should indicate, in the applicable box or boxes, the name and
address to which certificates for Zapata Common Stock or checks for cash are to
be issued or sent, if different from the name and address of the person signing
this Form of Election. In the case of issuance in a different name, the taxpayer
identification or social security number of the person named must also be set
forth.
5. GUARANTEED DELIVERY PROCEDURES. If any certificates representing shares
of Houlihan's Common Stock with respect to which this Form of Election relates
are not delivered herewith, there must be furnished a guarantee of delivery of
such shares on the Guarantee of Delivery form provided above from a trust
company organized in the United States, a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. A Form of Election containing such a guarantee of delivery shall
be subject to the condition that the certificates covered by such guarantee are
in fact delivered to the Exchange Agent no later than 5:00 p.m., New York City
time, on the fourth business day after the Election Deadline. Record holders of
shares of Houlihan's Common Stock represented by any such certificates that are
not so delivered will receive the Default Consideration.
6. REVOCATION OF ELECTION. Any Consideration Election may be revoked until
the Election Deadline. To revoke a Consideration Election, a written notice of
revocation must be received by the Exchange Agent at its address set forth on
the cover of this Form of Election prior to the Election Deadline. Any such
notice or revocation must (i) specify the name of the registered holder having
made the Consideration Election to be revoked, (ii) identify the certificate(s)
for Houlihan's Common Stock with respect to which the Consideration Election is
to be revoked and (iii) be signed by the record holder in the same manner as the
original signature on the Form of Election by which such Consideration Election
was made. A new Consideration Election may be made by submitting a new Form of
Election.
7. TRANSFER TAXES. If certificates for Zapata Common Stock are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered holder of the Houlihan's Common Stock surrendered hereby, or
if certificates for surrendered Houlihan's Common Stock are registered in the
name of any person other than the person(s) signing this Form of Election, or if
a transfer tax is imposed for any reason other than solely as a result of the
surrender of certificates for Houlihan's Common Stock for the Merger
Consideration, then the amount of any such transfer taxes (whether imposed on
the registered holder or on any other persons) will be payable by the
surrendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with this Form of Election, the amount of
such transfer taxes will be billed directly to such surrendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Houlihan's Common Stock listed in this
Form of Election.
8. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any holder whose
certificates for Houlihan's Common Stock have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions as soon as possible. In the event of a mutilated, lost,
stolen or destroyed certificate, certain procedures will be required to be
completed before this Form of Election can be
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<PAGE> 9
processed. Because these procedures may take a substantial amount of time to
complete, notice of any mutilated, lost, stolen or destroyed certificate should
be provided to the Exchange Agent as soon as possible.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for making a Consideration Election or surrendering certificates, as
well as requests for assistance or for additional copies of the Joint Proxy
Statement/Prospectus or this Form of Election, may be directed to the Exchange
Agent at the address or telephone number set forth on the cover of this Form of
Election.
10. TAX IDENTIFICATION NUMBER. Federal income tax law generally requires
that a holder whose certificates for Houlihan's Common Stock are surrendered for
the Merger Consideration must provide Zapata (as payor) with such holder's
correct Taxpayer Identification Number ("TIN") on Substitute Form W-9 above,
which, in the case of a surrendering holder who is an individual, is his or her
social security number. If Zapata is not provided with the current TIN or an
adequate basis for an exemption, such surrendering holder may be subject to a
$50 penalty imposed by the Internal Revenue Service. In addition, delivery to
such surrendering holder of the Merger Consideration may be subject to backup
withholding in an amount equal to 31% of all reportable payments. If withholding
results in an overpayment of taxes, a refund may be obtained.
Exempt holders of Houlihan's Common Stock (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. See the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 (the "W-9
Guidelines") for additional instructions.
To prevent backup withholding, each electing holder of Houlihan's Common
Stock must provide its correct TIN by completing the Substitute Form W-9 set
forth above, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN) and that (i) the holder is exempt from backup withholding, (ii)
the holder has not been notified by the Internal Revenue Service that such
holder is subject to backup withholding as a result of a failure to report all
interest or dividends or (iii) the Internal Revenue Service has notified the
holder that such holder is no longer subject to backup withholding. If the
electing holder of Houlihan's Common Stock is a nonresident alien or foreign
entity not subject to backup withholding, such holder must provide Zapata with a
completed Form W-8, Certificate of Foreign Status. These forms may be obtained
from the Exchange Agent. If certificates for the Houlihan's Common Stock are in
more than one name or are not in the name of the actual owner, such holder
should consult the W-9 Guidelines for information on which TIN to report. If
such holder does not have a TIN, such holder should consult the W-9 Guidelines
for instructions on applying for a TIN, check the box in Part 3 of the
Substitute Form W-9 and write "applied for" in lieu of its TIN in Part 1 of the
Substitute Form W-9. Note: Checking this box and writing "applied for" on the
form means that such holder has already applied for a TIN or that such holder
intends to apply for one in the near future. If such holder does not provide its
TIN to Zapata within 60 days, backup withholding will begin and continue until
such holder furnishes its TIN to Zapata.
11. MISCELLANEOUS. Zapata reserves the absolute right, which it may assign
in whole or in part to the Exchange Agent, to determine whether Forms of
Election have been properly completed, signed and submitted or revoked and to
disregard immaterial defects in Forms of Election. The decision of Zapata or the
Exchange Agent in such matters shall be conclusive and binding.
NEITHER ZAPATA, HOULIHAN'S NOR THE EXCHANGE AGENT WILL BE UNDER ANY
OBLIGATION WHATSOEVER TO NOTIFY ANY PERSON OF ANY DEFECT IN A FORM OF ELECTION
SUBMITTED TO THE EXCHANGE AGENT, ANY DEFECT IN THE SURRENDER OF CERTIFICATES
REPRESENTING SHARES OF HOULIHAN'S COMMON STOCK OR ANY OTHER IRREGULARITY IN
CONNECTION WITH THE SUBMISSION OF A FORM OF ELECTION AND ACCOMPANYING DOCUMENTS,
NOR WILL ANY OF THEM INCUR ANY LIABILITY FOR FAILURE TO GIVE SUCH NOTIFICATION.
A HOLDER OF ANY SHARES OF HOULIHAN'S COMMON STOCK COVERED BY THE SUBMISSION OF A
FORM OF ELECTION THAT IS DETERMINED BY ZAPATA OR THE EXCHANGE AGENT TO BE
INVALID AND THAT IS NOT CORRECTED BY THE ELECTION DEADLINE WILL RECEIVE THE
DEFAULT CONSIDERATION. ANY DISPUTE CONCERNING THE VALIDITY OR EFFECTIVENESS OF A
FORM OF ELECTION (INCLUDING ANY DISPUTES INVOLVING THE INTERPRETATION OF THESE
INSTRUCTIONS) WILL BE DETERMINED BY ZAPATA, WHOSE DETERMINATION WILL BE
CONCLUSIVE AND BINDING.
PLEASE RETURN THIS FORM OF ELECTION AND YOUR CERTIFICATE(S) REPRESENTING
SHARES OF HOULIHAN'S COMMON STOCK COVERED HEREBY TO THE EXCHANGE AGENT IN THE
ENCLOSED YELLOW ENVELOPE.
-9-
