ZAPATA CORP, 10-K405, 1996-12-30

ZAPATA CORP
10-K405, 1996-12-30
FATS & OILS

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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

For the fiscal year ended September 30, 1996

[ ] 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)

<TABLE>
<S> <C>
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 77056
HOUSTON, TEXAS (Zip Code)
(Address of principal executive offices)
</TABLE>

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 940-6100

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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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<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 26, 1996, there were outstanding 29,548,707 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 $66,781,269,
based on the closing price in consolidated trading on December 26, 1996, 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. X

DOCUMENTS INCORPORATED BY REFERENCE: NONE.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Items 1 and 2. Business and Properties.............................................. 1
General.............................................................. 1
Historical Contributions of Major Divisions.......................... 3
Marine Protein Operations............................................ 4
Oil and Gas Operations............................................... 6
Employees............................................................ 9
Geographical Information............................................. 9
Executive Officers of the Registrant................................. 9
Properties........................................................... 10
Item 3. Legal Proceedings.................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders.................. 12
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters............................................................ 13
Item 6. Selected Financial Data.............................................. 14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 15
Item 8. Financial Statements and Supplementary Data.......................... 22
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................... 58
PART III
Item 10. Directors and Executive Officers of the Registrant................... 58
Item 11. Executive Compensation............................................... 59
Item 12. Security Ownership of Certain Beneficial Owners and Management....... 63
Item 13. Certain Relationships and Related Transactions....................... 63
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...... 64
</TABLE>
<PAGE> 3

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
purchased additional gathering and processing assets and expanded its
operations. In November 1993, Zapata acquired the natural gas compression
businesses of Energy Industries, Inc. and certain other affiliated companies
(collectively, "Energy Industries"). Energy Industries was engaged in the
business of renting, fabricating, selling, installing and servicing natural gas
compressor packages, and served as the vehicle for the Company's expansion into
the compression segment of the natural gas services markets.

In late 1994 and early 1995, the Company began to develop a strategic plan
which involved repositioning 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 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. The Energy
Industries Sale closed in December 1995 after receiving stockholder approval.
The Energy Industries Sale resulted in an after-tax gain of approximately $12.6
million.

During fiscal 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.
Subsequently, the Company sold Cimarron's remaining assets for an additional
$700,000 (collectively with the sales to Conoco and Enogex, the "Cimarron
Sales"). The Cimarron 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.

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 as a result of the purchaser's failure to meet its obligations to close.
The Company has since decided to retain the marine protein operations.

In August 1995, the Company purchased 4,189,298 shares of the common stock
of Envirodyne Industries, Inc. ("Envirodyne"), representing 31% of the then
outstanding common stock of 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

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<PAGE> 4

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 the promissory note. In June
and July 1996, Zapata purchased 1,688,006 additional shares of Envirodyne common
stock in brokerage and privately negotiated transactions for an aggregate
consideration of approximately $7.0 million. As a result of these purchases,
Zapata currently owns approximately 40.6% of the outstanding shares of
Envirodyne common stock. 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 consider 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. Envirodyne has implemented a stockholder rights
plan the terms of which would effectively preclude the Company from acquiring
41% or more of Envirodyne's common stock without approval of Envirodyne's board
of directors. In addition, instruments governing certain debt of Envirodyne
provide that acquisition of more than 50% of Envirodyne's common stock would
give the holders of the debt the right to require Envirodyne to repurchase the
debt at a premium.

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 (the "Houlihan's Merger"). Zapata and
Houlihan's subsequently entered into an Agreement and Plan of Merger dated as of
June 4, 1996 (the "Houlihan's Merger Agreement") 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. The proposed transaction was 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. On October 8, 1996, Zapata
terminated the Houlihan's Merger Agreement pursuant to a provision of such
agreement that gave either party the right to terminate the merger agreement if
the Houlihan's Merger was not consummated before October 1, 1996. The
termination followed a decision of the Court of Chancery of Delaware that the
proposed transaction would require the approval of holders of 80% of Zapata's
outstanding voting stock. The Company does not believe that a supermajority vote
was required under the circumstances of the Houlihan's Merger and has appealed
the decision of the Court of Chancery.

On December 30, 1996, the Company announced its intention to commence a
tender offer to purchase for cash up to 15 million shares of Common Stock for a
price of $4.50 per share. The offer will be conditioned upon a minimum of 10
million shares of Common Stock being tendered and will be subject to the
satisfaction of other customary conditions. Malcolm Glazer, Chairman of the
Board of the Company and, through his beneficial ownership of a trust, the owner
of 10,395,384 shares of Common Stock intends to participate in the tender offer
by tendering 3 million shares of Common Stock. The Company intends to use its
available cash to purchase Common Stock pursuant to the tender offer.

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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 were restated in 1995 to reflect these operations as
discontinued operations, and therefore are not included below.

<TABLE>
<CAPTION>
DEPRECIATION,
OPERATING DEPLETION
AS OF OR FOR THE YEAR INCOME IDENTIFIABLE AND CAPITAL
ENDED SEPTEMBER 30, REVENUES (LOSS) ASSETS AMORTIZATION EXPENDITURES
-------------------------- -------- --------- ------------ ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1996
Marine protein.......... $ 93,609 $ 10,504 $ 86,969 $ 3,167 $ 4,009
Oil and gas............. 2,069 (4,799)(1) 9,887 240 2,580
Corporate............... -- (4,553)(2) 136,287(7) 85 1
-------- -------- -------- ------- -------
$ 95,678 $ 1,152 $233,143 $ 3,492 $ 6,590
======== ======== ======== ======= =======
1995
Marine protein.......... $ 94,959 $ (6,437)(3) $ 85,012 $14,977(3) $ 5,573
Oil and gas............. 8,109 658 13,571 2,856 1,767
Corporate............... -- (3,441) 38,914(7) 115 1
-------- -------- -------- ------- -------
$103,068 $ (9,220) $137,497(4) $17,948 $ 7,341
======== ======== ======== ======= =======
1994
Marine protein.......... $ 96,614 $ 5,445 $ 87,565 $ 4,535 $ 3,671
Oil and gas............. 12,549 (28,285)(6) 20,062 33,770(6) 11,792
Corporate............... -- (8,767) 44,044(5) 2,321 67
-------- -------- -------- ------- -------
$109,163 $ (31,607) $151,671(4) $40,626 $ 15,530
======== ======== ======== ======= =======
</TABLE>

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(1) Includes a $5.5 million write-down of a production payment receivable
related to the sale of the Company's domestic oil and gas properties.

(2) Includes $2.1 million of merger costs that were expensed when the proposed
merger with Houlihan's was terminated.

(3) 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.

(4) Excludes net assets of discontinued operations of $101.9 million and $103.1
million in fiscal 1995 and 1994, respectively.

(5) Includes Zapata's investment in Tidewater, Inc., which was sold through a
series of transactions effected in fiscal 1995, 1994 and 1993.

(6) 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.

(7) Includes Zapata's investment in Envirodyne.

The net amounts of interest income (expense), other income (expense) and
income tax expense (benefit) from continuing operations are set forth below.

<TABLE>
<CAPTION>
INCOME
INTEREST OTHER TAX
INCOME INCOME EXPENSE
YEAR ENDED SEPTEMBER 30, (EXPENSE) (EXPENSE) (BENEFIT)
------------------------------------------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
1996....................................... $ 678 $(5,363)(1) $ (1,012)
1995....................................... (1,789) 1,986(2) (3,179)
1994....................................... (2,983) 40,595(2) 2,030
</TABLE>

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(1) Includes equity loss from unconsolidated affiliates of $4.5 million in
fiscal 1996.

(2) Includes pretax gains of $4.8 million and $37.5 million in fiscal 1995 and
1994, respectively, from sales of Tidewater Inc. common stock.

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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 50 fishing vessels and 27 spotter
aircraft for use in its fishing operations and also leases aircraft where
necessary to facilitate operations. During the 1996 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 four processing plants -- two 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.

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 February 1996, the Company closed operations 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, were 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,

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hog and dairy industries. In March 1996, the Company acquired the remaining 40%
of Venture's equity. Venture leases and operates a feed mill in Seaford,
Delaware. The Company consolidates the financial results of Venture. The
Company's results of operations for the 1996, 1995 and 1994 fiscal years were
not materially impacted by activity related to Venture.

The Company owns a 50% equity interest in a joint venture involved in the
manufacturing and marketing of animal feed ingredients outside of the United
States. While the Company's investment was made in 1995, initial operations
commenced in late 1996 with no material impact on the Company's financial
results. The investment is accounted for in the Company's financial statements
using the equity method of accounting.

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 $26,522,000 as of September 30, 1996
compared to $22,947,000 on September 30, 1995. 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 fiscal 1996 and 1994. 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.

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

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<PAGE> 8

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 revenue sharing agreement. In fiscal 1996,
Zapata recorded a $5.5 million write-down of the production payment receivable
due to a reduction of the estimated gas reserves associated with the receivable
as prepared by the purchaser's reserve engineers. The Company conducts oil and
gas operations through its wholly owned subsidiary, Zapata Exploration Company
("Zapex").

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. The Company is considering the sale of its
Bolivian operations.

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 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.

Since 1993, the Company committed to participate in the drilling of five
exploratory wells in its Bolivian operation, two of which were drilled in 1994,
one during 1995 and two 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, 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.

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 govern-

6
<PAGE> 9

ment 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.

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, 1996, 1995 and 1994:

<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, 1996............................... -- -- 30,615 743.5
September 30, 1995............................... -- -- 29,552 683.5
September 30, 1994............................... 34,736 366.8 27,317 744.4
TOTAL PROVED DEVELOPED RESERVES AS OF:
September 30, 1996............................... -- -- 30,615 743.5
September 30, 1995............................... -- -- 29,552 683.5
September 30, 1994............................... 27,386 221.3 27,317 744.4
</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, 1996, 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, 1995.

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 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, 1996, 1995 and
1994. Natural gas production refers only to marketable production of gas on an
"as sold" basis.

7
<PAGE> 10

<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, 1996........................... -- -- 1,743 49.5
September 30, 1995........................... 2,996 44.7 1,724 53.3
September 30, 1994........................... 3,456 73.0 1,967 68.9
</TABLE>

The following table shows the average sales prices received by the Company
for its production for the three years ended September 30, 1996, 1995 and 1994:

<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, 1996............................ $ -- $ -- $1.25 $ 18.15
September 30, 1995............................ 1.54 15.21 1.28 18.98
September 30, 1994............................ 2.08 14.67 1.34 12.64
</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, 1996, 1995 and 1994:

<TABLE>
<CAPTION>
UNITED STATES BOLIVIA
------------- -------
<S> <C> <C>
AVERAGE PRODUCTION COSTS FOR THE YEAR ENDED:
September 30, 1996............................................ $ -- $ .53
September 30, 1995............................................ .96 .54
September 30, 1994............................................ 1.42 .22
</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, 1996, the Company's Bolivian
oil and gas properties consisted of working interests in 15 gross gas wells
(3.90 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, 1996:

<TABLE>
<CAPTION>
BOLIVIA
GAS
-------
<S> <C>
PRODUCTIVE OIL AND GAS WELLS:
Gross...................................................................... 15
Net........................................................................ 3.90
</TABLE>

One or more completions in the same bore hole are counted as one well.
Twelve gross (2.822 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, 1996:

<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......................... 7,760 1,988 872,178 236,892 879,938 238,880
</TABLE>

8
<PAGE> 11

- ---------------

(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 five exploratory wells in its Bolivian operation that achieved total
depth. The first and third wells, the Los Suris #2 and the Palo Marcado #3, were
successful in discovering gas reserves. The second well, the San Antonio #1, has
been temporarily abandoned. The fourth and fifth wells, the Palo Marcado #4 and
Ibibobo #2 were successful in discovering gas reserves.

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.
Currently, 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.

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 September 30, 1996, the Company and its subsidiaries employed
approximately 1,100 persons. Approximately 118 employees of the Company 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 17 of Notes to Consolidated Financial Statements.

EXECUTIVE OFFICERS OF THE REGISTRANT

The names, ages and current offices of the executive officers of the
Company, who are to serve until their successors are elected and qualified, 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
- ---------------------------------- -------------------------------------------- -----------------
<S> <C> <C>
Robert A. Gardiner (48)........... Vice President and Chief Financial Officer January 1996
Avram A. Glazer (36).............. President and Chief Executive Officer March 1995
Malcolm I. Glazer (68)............ Chairman of the Board of Directors July 1994
Ronald C. Lassiter (64)........... Chairman and Chief Executive Officer of
Zapata Protein, Inc. January 1983
Joseph L. von Rosenberg III Executive Vice President, General Counsel
(38)............................ and Corporate Secretary August 1994
</TABLE>

9
<PAGE> 12

A description of the business experience during the past five years for
each of the executive officers of Zapata is set forth below. Unless otherwise
noted, positions are with the Company.

Robert A. Gardiner has served as Chief Financial Officer since January 1996
and Vice President since January 1995. He served as Controller from November
1991 to January 1996. Mr. Gardiner has held various positions with Zapata and
Zapata Protein, Inc. since 1979.

Avram A. Glazer, a director since July 1993, has served as President and
Chief Executive Officer 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 Houlihan's Restaurant Group, Inc., Specialty Equipment Companies, Inc. and
Envirodyne Industries, Inc. Avram A. Glazer is a son of Malcolm I. Glazer.

Malcolm I. Glazer, a director since July 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 ownership
of the Tampa Bay Buccaneers National Football League franchise and investments
in television broadcasting, restaurants, restaurant equipment, food services
equipment, health care, banking, real estate, stocks, government securities and
corporate bonds. He is a director and Chairman of the Board of Houlihan's
Restaurant Group, Inc. and also is a director of Specialty Equipment Companies,
Inc. and Envirodyne Industries, Inc. 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 from December 1985 to July 1994,
and was 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., a subsidiary of the Company. 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." He has served
in various positions with Zapata since 1970. Mr. Lassiter also serves as a
director and Chairman of Daniel Industries, Inc.

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. 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 derivative and class action 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 derivative action was
filed by Crandon Capital Partners against Zapata and its directors in the same
court. On May 7, 1996, a third derivative action was filed by Elly Harwin and
Crandon Capital Partners against Zapata and its directors in the same court. On
October 4, 1996, a motion for leave to file an amended complaint for a
consolidated derivative and class action (the "Harwin/Crandon Case") was filed
by these same parties in the same court; Zapata does not oppose the motion. The
consolidated complaint alleges that Zapata's directors engaged in conduct
constituting breach of fiduciary duty and waste of Zapata's assets in

10
<PAGE> 13

connection with Zapata's investment in Envirodyne, in connection with the
decision to shift Zapata's business focus from energy to food services, and in
connection with the proposed (but subsequently abandoned) Houlihan's Merger. The
complaint alleges, among other things, that the purchase of 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 complaint also alleges that Zapata's
Board of Directors is controlled by Malcolm I. Glazer and that Mr. Loar lacked
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 seeks relief including, among other things, rescission of
Zapata's purchase of the shares of Envirodyne common stock from the Malcolm
Glazer Trust; injunctive relief 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 consummation of the Houlihan's Merger and any transaction in which
Malcolm I. Glazer has an interest; and an award of unspecified compensatory
damages and expenses, including attorneys' fees. Zapata believes that the
complaint and the allegations contained therein are without merit and intends to
defend the Harwin/Crandon Case vigorously.

On May 31, 1996, a fourth 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
alleged that Zapata's directors engaged in conduct constituting breach of
fiduciary duty and waste of Zapata's assets in connection with the Houlihan's
Merger. The complaint further alleged that the Houlihan's Merger consideration
was unfair and excessive and that the Houlihan's Merger would result in voting
power dilution, unfairly benefiting Malcolm I. Glazer. On July 11, 1996, the
plaintiff filed an amended complaint. The amended complaint alleged that the
Houlihan's Merger Agreement was 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 Houlihan's Merger based on the contention that under Article
SEVENTH the Houlihan's Merger would require the approval of holders of 80% of
Zapata's outstanding voting stock. Zapata does not believe that a supermajority
vote was required under the circumstances of the Houlihan's Merger, and its
position is supported by an opinion of special Delaware counsel. A hearing
concerning whether Article SEVENTH applies to the Houlihan's Merger Agreement
and the Houlihan's Merger was held before the Court of Chancery on September 6,
1996 and, on September 24, 1996, the Court of Chancery decided that Article
SEVENTH did apply to the Houlihan's Merger Agreement and the Houlihan's Merger.
On October 3, 1996, Zapata filed a notice of appeal with the Supreme Court of
the State of Delaware regarding the decision of the Court of Chancery. The
plaintiff moved to dismiss Zapata's appeal as moot, in light of the termination
of the Houlihan's Merger Agreement. On November 7, 1996, the Supreme Court of
the State of Delaware denied the plaintiff's motion to dismiss Zapata's appeal.
As of December 29, 1996, the Company's appeal had not yet been set for oral
argument in the Supreme Court.

On November 19, 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 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 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 to which the Company 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) the Company's repurchase of the
approximately 2.7 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 common stock in March and April 1996); (ii)
the disgorgement to the Holt Affiliates of Zapata's profit on the sale of Energy
Industries; or

11
<PAGE> 14

(iii) the money damages based on the alleged lower value of the Common Stock had
the alleged misrepresentations not been made. The case has been set for trial
beginning April 28, 1997. 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 Company held its 1996 Annual Meeting of Stockholders on December 5,
1996 (the "1996 Annual Meeting"). An aggregate of 29,551,334 shares of the
Company's voting stock were outstanding and entitled to vote at the 1996 Annual
Meeting as follows: 29,548,707 shares of Common Stock and 2,627 shares of $2
Noncumulative Convertible Preference Stock (which vote together as a single
class). At this meeting the stockholders voted on the following matters:

ELECTION OF CLASS I DIRECTORS

<TABLE>
<CAPTION>
WITHHOLD
FOR AUTHORITY
----------- ----------
<S> <C> <C>
Malcolm I. Glazer...................................... 24,631,160 2,524,354
Ronald C. Lassiter..................................... 24,832,041 2,323,473
</TABLE>

In addition to the two Class I Directors elected at the 1996 Annual
Meeting, Avram A. Glazer continues to serve as a Class II Director for a term
ending at the 1997 Annual Meeting of Stockholders, and Robert V. Leffler, Jr.
continues to serve as a Class III Director for a term ending at the 1998 Annual
Meeting of Stockholders.

1996 LONG-TERM INCENTIVE PLAN

<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTAINED NON-VOTE
- ----------- ---------- --------- ---------
<S> <C> <C> <C>
20,405,891 3,277,426 55,076 3,416,862
</TABLE>

The 1996 Long-Term Incentive Plan covers 5,000,000 shares of the Company's
Common Stock.

STOCKHOLDER PROPOSAL ON CUMULATIVE VOTING

<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTAINED NON-VOTE
- ---------- ----------- --------- ---------
<S> <C> <C> <C>
3,939,019 19,357,882 441,492 3,416,862
</TABLE>

Mr. Martin Glotzer and Mr. John J. Gilbert, stockholders of the Company,
presented a stockholder proposal to request the Board of Directors of the
Company to take the steps necessary to provide for cumulative voting on the
election of directors of the Company.

12
<PAGE> 15

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, for each quarterly
period for the last fiscal years are shown in the following table.

<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
1996 1996 1996 1995 1995 1995 1995 1994
------------- -------- --------- ------------ ------------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High sales price... $3.88 $ 3.88 $3.75 $ 4.50 $4.63 $ 4.38 $4.13 $ 4.50
Low sales price.... 3.38 3.13 3.00 3.00 2.88 2.50 3.25 3.25
</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"). No
dividends were declared during the 1995 or 1996 fiscal years.

On December 30, 1996, the Company announced a tender offer to purchase for
cash up to 15 million shares of Common Stock for a price of $4.50 per share. The
offer is conditioned upon a minimum of 10 million shares of Common Stock being
tendered and will be subject to the satisfaction of other customary conditions.
Malcolm Glazer, Chairman of the Board of the Company and, through his beneficial
ownership of a trust, the owner of 10,395,384 shares of Common Stock will
participate in the tender offer by tendering 3 million shares of Common Stock.
The tender offer will be paid for with the Company's available cash.

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 2,627 shares of Preference Stock
outstanding.

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 26, 1996, there were 9,227 holders of record of Common Stock.

13
<PAGE> 16

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 Company's financial statements were
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,
---------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues....................... $ 95,678 $103,068 $109,163 $ 78,754 $106,413
Operating income (loss)........ 1,152(1) (9,220)(2) (31,607)(3) 3,559 10,901
Income (loss) from continuing
operations.................. (2,521) (5,844) 3,975(4) 14,634(5) 2,431
Per share income (loss) from
continuing operations....... (0.08) (0.19) 0.11 0.52 0.08
Cash dividend paid............... -- 1,153 1,566 2,933 --
Common Stock, dividends
declared, per share......... -- -- 0.07 -- --
CASH FLOW DATA:
Capital expenditures........... 6,590 7,341 15,530 2,812 11,595
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................. $ 99,327 $113,536 $139,526 $136,493(6) $ 30,281
Property and equipment, net...... 42,155 39,238 48,642 86,372 97,768
Assets of discontinued
operations.................... -- 101,894 103,117 17,827 --
Total assets..................... 233,143 239,391 254,788 322,073 304,339
Current maturities of long-term
debt.......................... 16,108 16,148 531 330 19,652
Long-term debt................... 18,159 37,468 52,581 135,659 120,298
Stockholders' equity............. 152,313 145,290 154,542 146,264 124,880
</TABLE>

- ---------------

(1) Includes a $5.5 million write-down of a production payment receivable
related to the sale of the Company's domestic oil and gas properties and
$2.1 million of merger costs that were expensed when the proposed merger
with Houlihan's Restaurant Group, Inc. was terminated.

(2) Includes a $12.3 million provision for asset impairment of the Company's
marine protein assets.

(3) Includes a $29.2 million oil and gas valuation provision.

(4) Includes a $37.5 million pretax gain from the sale of 4.1 million shares of
Tidewater common stock.

(5) Includes a $32.9 million pretax gain from the sale of 3.5 million shares of
Tidewater common stock and a $5.7 million pretax loss resulting from the
disposition of Zapata's investment in Arethusa (Offshore) Limited.

(6) 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.

14
<PAGE> 17

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.

Forward-looking statements in this Form 10-K, 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.

BACKGROUND

Zapata Corporation has undergone a significant transformation during the
last several years. The Company previously was engaged in the operation of
offshore drilling rigs, marine service and supply vessels, natural gas services
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 redirect its operations into the
natural gas services market. The Company acquired the common stock of Cimarron
Gas Holding Company and its subsidiaries (collectively, "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.

In November 1993, Zapata purchased the natural gas compression businesses
of Energy Industries, Inc. and certain other affiliated companies (collectively,
"Energy Industries"). Total consideration paid for the purchase of Energy
Industries (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. Energy Industries was purchased to serve as
the vehicle for Zapata's expansion into the compression segment of the natural
gas services markets.

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.

Zapata completed the sale of its six natural gas producing properties in
the Gulf of Mexico, representing the Company's domestic oil and gas producing
operations, 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. In fiscal 1996, Zapata recorded a
$5.5 million write-down of the production payment receivable due to a reduction
of the estimated gas reserves associated with the receivable as prepared by the
purchaser's reserve engineers. The Company is considering the disposition of its
Bolivian oil and gas operations.

15
<PAGE> 18

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 and assumed certain liabilities of Energy Industries
for approximately $131 million in cash. 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 $12.6 million. A portion of
the proceeds from the Energy Industries Sale was used to repay approximately $26
million of Energy Industries indebtedness and to pay expenses of approximately
$1.4 million.

During fiscal 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.
Subsequently, the Company sold Cimarron's remaining assets for an additional
$700,000 (collectively, with the sales to Conoco and Enogex, the "Cimarron
Sales"). A portion of the proceeds from the Cimarron Sales was used to repay
$1.0 million of Cimarron's indebtedness and to pay approximately $1.8 million in
expenses associated with such sales. The Cimarron 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.

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. As
a result, the marine protein net assets, results of operations and cash flows
were reclassified from discontinued operations to continuing operations, and the
$8.9 million after-tax book loss on disposition was reversed in fiscal 1995.

The completion of the Cimarron Sales substantially completes Zapata's exit
from the energy business. The Company intends to use the net proceeds from these
sales for general corporate purposes, including the purchase of Common Stock
pursuant to the tender offer described below in "Liquidity and Capital
Resources," further repayment of debt, and possible expansion into the food
services industry. The Company currently is reviewing its business strategy and
evaluating various options to determine those which are in the best interests of
its stockholders.

Zapata acquired 4,189,298 shares or 31% of the then-outstanding shares of
common stock of Envirodyne Industries, Inc. ("Envirodyne") for $18.8 million in
August 1995 from a trust controlled by Malcolm I. Glazer, Chairman of the Board
of Zapata and a director of Envirodyne (the "Envirodyne Stock Purchase"). 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 the entire
principal amount of the promissory note. In June and July 1996, Zapata purchased
1,688,006 additional shares of Envirodyne common stock in brokerage and
privately negotiated transactions for aggregate consideration of approximately
$7.0 million. As a result of these purchases, Zapata currently owns
approximately 40.6% of the outstanding shares of Envirodyne common stock.
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.

16
<PAGE> 19

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. On October 8, 1996, Zapata terminated the Houlihan's
Merger Agreement pursuant to a provision of such agreement that gave either
party the right to terminate the merger agreement if the Houlihan's Merger was
not consummated before October 1, 1996. The termination followed a decision of
the Court of the Chancery of Delaware that the proposed transaction would
require the approval of holders of 80% of Zapata's outstanding voting stock.
Zapata does not believe that a supermajority vote was required under the
circumstances of the Houlihan's Merger, and its position is supported by an
opinion of special Delaware counsel. A hearing concerning whether Article
SEVENTH applies to the Houlihan's Merger Agreement and the Houlihan's Merger was
held before the Court of Chancery on September 6, 1996 and, on September 24,
1996, the Court of Chancery decided that Article SEVENTH did apply to the
Houlihan's Merger Agreement and the Houlihan's Merger. On October 3, 1996,
Zapata filed a notice of appeal with the Supreme Court of the State of Delaware
regarding the decision of the Court of Chancery. The plaintiff moved to dismiss
Zapata's appeal as moot, in light of the termination of the Houlihan's Merger
Agreement. On November 7, 1996, the Supreme Court of the State of Delaware
denied the plaintiff's motion to dismiss Zapata's appeal. As of December 29,
1996, the Company's appeal had not yet been set for oral argument in the Supreme
Court.

LIQUIDITY AND CAPITAL RESOURCES

As a result of the Energy Industries Sale and the Cimarron Sales, Zapata's
cash balance increased $97.1 million during fiscal 1996 and totaled $99.6
million at September 30, 1996. The Company's working capital decreased to $99.3
million at September 30, 1996 from $113.5 million at September 30, 1995 and
long-term debt was reduced to $18.2 million at September 30, 1996 from $37.5
million at September 30, 1995.

Operating activities provided cash of $1.5 million in fiscal 1996 as
compared to $11.4 million in fiscal 1995. This decrease was primarily
attributable to a lower contribution from the Company's discontinued operating
activities in fiscal 1996 that offset an increased contribution from the
Company's marine protein operations. Likewise, cash flow from operating
activities decreased to $11.4 million in fiscal 1995 from $14.0 million in
fiscal 1994.

Net cash provided by investing activities increased substantially in fiscal
1996 to $115.0 from $12.8 million in fiscal 1995. The increase in fiscal 1996
was attributable to proceeds from the Energy Industries Sale and the Cimarron
Sales that totaled $128.6 million. In fiscal 1995, Zapata generated proceeds
totaling $24.0 million that includes $12.7 million from the disposition of its
remaining 673,077 shares of Tidewater common stock, $4.0 million from the
disposition of the Company's domestic oil and gas operations and $5.5 million
from a note receivable. Investment expenditures in fiscal 1996 include the
acquisition of approximately 1.7 million shares of Envirodyne common stock for
approximately $7.0 million while investments in fiscal 1995 include a $3.5
million investment in subordinated debt of an unaffiliated company. Capital
expenditures totaled $6.6 million in fiscal 1996 as compared to $7.3 million in
fiscal 1995. The Company's capital expenditures for fiscal 1997 are currently
estimated to be approximately $6.6 million.

Net cash provided by investing activities declined to $12.8 million in
fiscal 1995 from $74.9 million in fiscal 1994 due primarily to proceeds of $85.8
million generated in fiscal 1994 from the disposition of 4.1 million shares of
the Company's Tidewater common stock. Capital expenditures decreased to $7.3
million in fiscal 1995 from $15.5 million in fiscal 1994 reflecting workover
projects in certain U.S. oil and gas operations.

Financing activities consumed $19.3 million in fiscal 1996 as compared to
$31.4 million in fiscal 1995. The higher use of cash in fiscal 1995 was
primarily attributable to repurchases of the Company's preferred and common
stock. Zapata redeemed the remaining balance of its outstanding $6 Cumulative
Preferred Stock at $100 per share for $2.3 million in 1995 and repurchased 2.25
million shares of Common Stock from Norex for $4.00 per share. Debt payments in
fiscal 1996 include a $3.2 million prepayment of the remaining indebtedness
incurred in connection with the Envirodyne Stock Purchase, a $4.8 million
repayment of the Company's remaining indebtedness owed to Norex and a $10.0
million net repayment of a revolving credit facility. Fiscal 1995 debt payments
include a $15.6 million prepayment of indebtedness associated with the
Envirodyne Stock Purchase and a $12.7 million reduction of the Company's
indebtedness to Norex.

17
<PAGE> 20

Net cash used by financing activities in fiscal 1995 of $31.4 million was
significantly lower than the $92.1 million used in fiscal 1994. The higher use
of cash in fiscal 1994 was attributable to prepayments of Zapata's indebtedness
to Norex that included payments of $68.5 million in December 1993 and $17.0
million in September 1994.

The Company has one working capital facility, a $15.0 million working
capital agreement (the "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"). The ING
Loan Agreement provides a revolving credit facility for use in the marine
protein operations that is due June 30, 1997 and 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, 1996 was approximately $57.0 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, 1996, Zapata Protein had transferred to
Zapata Corporation the maximum amount of $10.0 million. As of September 30,
1996, the Company was in compliance with all provisions governing its
outstanding indebtedness.

RESULTS OF OPERATIONS

Fiscal 1996-1995

Zapata's fiscal 1996 net income of $7.0 million improved from the fiscal
1995 net income of $4.2 million. The Company's net income includes income from
discontinued operations of $9.1 million and $10.0 million in fiscal 1996 and
1995, respectively. In fiscal 1996, income from discontinued operations includes
an after-tax gain of $12.6 million from the Energy Industries Sale and a $3.0
million after-tax loss from the Cimarron Sales, as well as a $500,000 net loss
from Cimarron's fiscal 1996 operations. Net income from discontinued operations
in fiscal 1995 includes net income of $1.1 million from the Company's
discontinued Energy Industries and Cimarron operations. The results from
discontinued operations include pretax allocations of interest on general
corporate debt of $260,000 and $2.1 million in fiscal 1996 and 1995,
respectively. The results from discontinued operations in fiscal 1995 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.

Revenues of $95.7 million and a net loss from continuing operations of $2.5
million in fiscal 1996 compared to revenues of $103.1 million and a net loss
from continuing operations of $5.8 million in fiscal 1995. In fiscal 1996, the
Company's operating income of $1.2 million improved significantly from the
fiscal 1995 operating loss of $9.2 million due partially to improved operating
results from the Company's marine protein operations. Zapata's fiscal 1996
operating income includes a $5.5 million pretax write-down of a production
payment receivable related to the sale of the Company's domestic oil and gas
properties. The write-down was a result of a reduction in the estimated reserves
associated with the production payment as prepared by the purchaser's reserve
engineers. Additionally, the Company's fiscal 1996 operating results included
$2.1 million of merger costs that were expensed when Zapata terminated the
Houlihan's Merger Agreement. The fiscal 1995 operating loss includes a $12.3
million pretax provision for asset impairment of the Company's marine protein
assets recorded as a result of adopting Statement of Financial Accounting
Standards No. 121 ("SFAS 121").

18
<PAGE> 21

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 operations
contributed net income of $1.1 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. Additionally,
the fiscal 1994 net loss includes an extraordinary aftertax expense of $4.8
million related to the Company's prepayment of Norex indebtedness.

Revenues of $103.1 million and a net loss from continuing operation of $5.8
million in fiscal 1995 compared to revenues of $109.2 million and net income
from continuing operations of $4.0 million in fiscal 1994. Zapata's fiscal 1995
and 1994 results include pretax gains of $4.8 million and $37.5 million
respectively, from sales of Tidewater common stock. The Company recorded an
operating loss of $9.2 million in fiscal 1995 as compared to an operating loss
of $31.6 million in 1994. The fiscal 1995 operating loss includes the $12.3
million pretax provision for asset impairment of the Company's marine protein
assets, while the fiscal 1994 loss includes a pretax valuation provision of
$29.2 million associated with Company's oil and gas operations in the Gulf of
Mexico. The 1994 operating loss also includes a $2.4 million expense related to
a reduction in staff at the Company's headquarters.

Marine Protein

Reflecting the Company's decision in fiscal 1995 to retain the marine
protein operations, the net assets and results of marine protein's operations
were reclassified from discontinued operations to continuing operations and the
related $8.9 million after-tax loss on disposition recorded in fiscal 1994 was
reversed. 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.

Fiscal 1996 revenues of $93.6 million and operating income of $10.5 million
compared to fiscal 1995 revenues of $95.0 million and an operating loss of $6.4
million. The improvement in the fiscal 1996 operating results was attributable
to higher prices for the Company's fish meal and fish oil products that more
than offset the effects of a lower fish catch and to the $12.3 million provision
for asset impairment recorded in fiscal 1995. Prices for the Company's fish meal
and fish oil improved 22% in fiscal 1996 as compared to prices in fiscal 1995;
in 1996 the average per-ton price of fish meal increased to $427 and the average
per-ton price of fish oil increased to $390. However, sales volumes of fish meal
and fish oil in fiscal 1996 were 28% and 34% lower, respectively, than the
fiscal 1995 levels, reflecting the effects of a 14% drop in the fiscal 1996 fish
catch as compared to the 1995 fish catch and to lower levels of inventories that
were carried over to fiscal 1996 from the fiscal 1995 fishing season.

Fiscal 1995 revenues of $95.0 million and operating loss of $6.4 million
compared unfavorably to fiscal 1994 revenues of $96.6 million and operating
income of $5.4 million 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.

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.

19
<PAGE> 22

The Company's fish catch dropped in fiscal 1996 and fiscal 1995 after
improving in fiscal 1994. The Company attributes the drop in fish catch during
the fiscal 1996 and 1995 periods to adverse weather conditions that hampered the
Company's fishing activities. 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 a production payment entitling Zapata to a share of revenues from
certain properties and other contract consideration. In fiscal 1996, Zapata
recorded a $5.5 million pretax write-down of the production payment receivable
due to a reduction of the estimated gas reserves associated with the receivable.
Zapata's Bolivian oil and gas operation is the Company's only significant
remaining oil and gas activity.

Revenues of $2.1 million and an operating loss of $4.8 million in fiscal
1996 compared to revenues of $8.1 million and operating income of $658,000 in
fiscal 1995. Revenues declined in fiscal 1996 due primarily to the disposition
of the Company's domestic oil and gas operations in fiscal 1995. The fiscal 1996
operating loss was due to the $5.5 million write-down. The fiscal 1995 results
include revenues of $2.7 million and operating income of $1.4 million from the
Company's Bolivian operations.

Revenues of $8.1 million and operating income of $658,000 for fiscal 1995
compared to revenues of $12.5 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. 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 1994. The fiscal 1994 operating
loss includes the $29.2 million property valuation provision. 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.

OTHER INCOME (EXPENSE)

Envirodyne

Effective October 1, 1995, Zapata changed its method of accounting for its
equity interest in Envirodyne. 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 basis that would
permit concurrent reporting. The Company's equity loss for fiscal 1996 includes
Zapata's equity interest in Envirodyne for Envirodyne's twelve-month period
ending June 27, 1996 prorated to Zapata's August 1995 acquisition that is offset
by the cumulative effect of change in accounting principle which includes the
reversal of the Company's equity loss as reported in the fourth quarter of
fiscal 1995. Therefore, for fiscal 1996, Zapata's other expense includes an
equity loss of $4.5 million based on Zapata's ownership interest in Envirodyne's
results and the cumulative effect of change in accounting principle includes an
offsetting $719,000 (before taxes). 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 for the period from Zapata's August 1995
acquisition.

Tidewater

In fiscal 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. In fiscal 1994, sales of the Company's Tidewater
common stock generated pretax gains totaling $37.5 million. In November 1993,
Zapata completed the sale of 3.75 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

20
<PAGE> 23

net price of $21.34 per share or $8.0 million. All gains from the sales of
Tidewater common stock are reflected on the statement of operations as other
income.

Other

Reflecting the reduction of Zapata's indebtedness and a higher cash balance
in fiscal 1996, the Company recorded net interest income of $678,000 in fiscal
1996 as compared to net interest expense of $1.8 million in fiscal 1995. Other
expense of $892,000 in fiscal 1996 includes a $499,000 loss related to an
investment in subordinated debentures of Wherehouse Entertainment, Inc.
("Wherehouse Debentures"). The write-down is based on proceeds received by the
Company upon the disposition of the investment in December 1996.

In fiscal 1995, net interest expense decreased to $1.8 million from $3.0
million in fiscal 1994 reflecting the Company's lower level of indebtedness.
Other expense of $2.1 million in fiscal 1995 includes a $2.8 million loss
related to the investment in Wherehouse Debentures. 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 income of $3.1 million in fiscal 1994 includes a $2.8 million gain
related to the settlement of a coal note receivable that had previously been
written off, $719,000 dividend income from Zapata's Tidewater common stock and a
$1.4 million expense related to a terminated pension plan.

TAXES

The Company's consolidated provisions for U.S. income tax for 1996 and 1995
reflect expenses resulting from pretax income from consolidated operations. The
consolidated provision for 1994 reflects a benefit resulting from a pretax loss
from consolidated operations.

EXTRAORDINARY ITEM

In connection with the Company's prepayments of Norex indebtedness in
fiscal 1994, the Company incurred $7.4 million of pretax expenses that have been
reflected on the statement of operations as an extraordinary item.

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". The Company does not intend to adopt the recognition provisions
of the statement but will adopt the disclosure requirements in fiscal year 1997.

21
<PAGE> 24

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors,
Zapata Corporation:

We have audited the accompanying consolidated balance sheet of Zapata
Corporation as of September 30, 1996 and 1995 and the related consolidated
statements of operations, cash flows and stockholders' equity for each of the
three years in the period ended September 30, 1996. 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 as of September 30, 1996 and 1995 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles.

As discussed in Notes 1 and 2, during 1996, the Company changed its method
of accounting for its equity interest in an unconsolidated affiliate,
reclassified the purchase of certain investments in the 1995 statement of cash
flows and reclassified an expense in the 1994 statement of operations and
statement of cash flows and, during 1995, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of".

COOPERS & LYBRAND L.L.P.

Houston, Texas
December 23, 1996

22
<PAGE> 25

ZAPATA CORPORATION

CONSOLIDATED BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 99,601 $ 2,488
Restricted cash................................................. 337 --
Receivables..................................................... 11,839 17,550
Inventories:
Fish products................................................ 26,522 22,947
Materials, parts and supplies................................ 3,397 3,358
Prepaid expenses and other current assets....................... 2,852 2,400
Net assets of discontinued operations........................... -- 101,894
-------- --------
Total current assets.................................... 144,548 150,637
-------- --------
Investments and other assets:
Investments in unconsolidated affiliates........................ 22,061 18,685
Production payment and other receivable......................... 3,237 8,864
Deferred income taxes........................................... 5,641 6,247
Other assets.................................................... 15,501 15,720
-------- --------
Total investments and other assets...................... 46,440 49,516
-------- --------
Property and equipment:
Marine protein.................................................. 69,299 67,553
Oil and gas, full cost method................................... 5,938 3,359
Corporate....................................................... 3,349 3,363
-------- --------
78,586 74,275
Accumulated depreciation, depletion and amortization............ (36,431) (35,037)
-------- --------
42,155 39,238
-------- --------
Total assets............................................ $ 233,143 $ 239,391
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............................ $ 16,108 $ 16,148
Accounts payable................................................ 5,697 2,356
Accrued liabilities:
Compensation and employee benefits........................... 7,614 9,102
Insurance.................................................... 4,964 2,851
Other........................................................ 10,838 6,644
----------- ----------
Total current liabilities............................... 45,221 37,101
----------- ----------
Long-term debt.................................................... 18,159 37,468
----------- ----------
Other liabilities................................................. 17,450 19,532
----------- ----------
Commitments and contingencies (Note 12)
Stockholders' equity:
$2.00 noncumulative convertible preference stock ($1.00 par),
outstanding: 2,627 shares (1996 and 1995).................... 3 3
Common Stock ($0.25 par), outstanding: 29,548,707 shares (1996)
and 29,548,407 shares (1995)................................. 7,387 7,387
Capital in excess of par value.................................. 131,963 131,962
Reinvested earnings, from October 1, 1990 (deficit balance prior
to quasi-reorganization at September 30, 1990: $296,850,000). 12,960 5,938
----------- ----------
Total stockholders' equity.............................. 152,313 145,290
----------- ----------
Total liabilities and stockholders' equity.............. $ 233,143 $ 239,391
========== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

23
<PAGE> 26

ZAPATA CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------
1996 1995 1994
------- -------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues....................................................... $95,678 $103,068 $109,163
------- -------- --------
Expenses:
Operating.................................................... 76,328 86,739 88,148
Provision for asset write-downs.............................. 5,477 12,341 29,152
Depreciation, depletion and amortization..................... 3,492 5,607 11,474
Merger expenses.............................................. 2,066 -- --
Selling, general and administrative.......................... 7,163 7,601 11,996
------- -------- --------
94,526 112,288 140,770
------- -------- --------
Operating income (loss)........................................ 1,152 (9,220) (31,607)
------- -------- --------
Other income (expense):
Interest income.............................................. 4,427 905 1,653
Interest expense............................................. (3,749) (2,694) (4,636)
Gain on sale of Tidewater common stock....................... -- 4,811 37,457
Equity in loss of unconsolidated affiliates.................. (4,471) (719) --
Other........................................................ (892) (2,106) 3,138
------- -------- --------
(4,685) 197 37,612
------- -------- --------
Income (loss) from continuing operations before income taxes... (3,533) (9,023) 6,005
Provision (benefit) for income taxes........................... (1,012) (3,179) 2,030
------- -------- --------
Income (loss) from continuing operations....................... (2,521) (5,844) 3,975
------- -------- --------
Discontinued operations (Notes 3, 5 and 6):
Income (loss) from discontinued operations, net of income
taxes..................................................... (42) 1,151 1,435
Gain on disposition of discontinued operations, net of income
taxes..................................................... 9,118 -- --
Reversal (recognition) of loss on disposition, net of income
taxes..................................................... -- 8,897 (8,897)
------- -------- --------
9,076 10,048 (7,462)
------- -------- --------
Income (loss) before extraordinary item and cumulative effect
of change in accounting principle............................ 6,555 4,204 (3,487)
Extraordinary item, net of income tax (Note 8)................. -- -- (4,832)
Cumulative effect of change in accounting principle, net of
income taxes................................................. 467 -- --
------- -------- --------
Net income (loss).............................................. 7,022 4,204 (8,319)
Preferred and preference stock dividends....................... -- 51 356
------- -------- --------
Net income (loss) to Common Stockholders....................... $ 7,022 $ 4,153 $ (8,675)
======= ======== ========
Per share data:
Income (loss) from continuing operations..................... $ (0.08) $ (0.19) $ 0.11
Income (loss) from discontinued operations................... 0.30 0.33 (0.24)
Extraordinary item........................................... -- -- (0.15)
Cumulative effect of change in accounting principle.......... 0.02 -- --
------- -------- --------
Net income (loss) per share.................................. $ 0.24 $ 0.14 $ (0.28)
======= ======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

24
<PAGE> 27

ZAPATA CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flow provided (used) by operating activities:
Net income (loss).......................................... $ 7,022 $ 4,204 $ (8,319)
-------- -------- --------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, amortization and asset write-downs........ 8,969 17,948 40,848
Write-down of investment in subordinated debentures..... 499 2,788 --
Extraordinary item, net of income taxes................. -- -- 4,832
Cumulative effect of change in accounting principle, net
of income taxes....................................... (467) -- --
Recognition (reversal) of loss on disposition........... -- (8,897) 8,897
Discontinued operations net gain on sales of assets..... (9,118) -- --
Gain on sale of other assets, net....................... -- (5,268) (37,457)
Equity in loss of unconsolidated affiliates............. 4,471 719 --
Changes in assets and liabilities:
Receivables........................................... 5,711 (446) (7,008)
Inventories........................................... (3,614) 11,439 (1,236)
Accounts payable and accrued liabilities.............. (2,402) (9,347) 10,616
Deferred income taxes................................. (1,917) (2,828) (1,006)
Other assets and liabilities.......................... (2,978) (177) 242
Decrease (increase) in net assets of discontinued
operations......................................... (4,724) 1,223 3,592
-------- -------- --------
Total adjustments.................................. (5,570) 7,154 22,320
-------- -------- --------
Net cash provided by operating activities............. 1,452 11,358 14,001
-------- -------- --------
Cash flow provided (used) by investing activities:
Proceeds from disposition of assets........................ 128,969 18,546 88,533
Restricted cash investments................................ (337) -- 74,083
Proceeds from notes receivable............................. -- 5,505 1,061
Investment in unconsolidated affiliates.................... (7,032) (450) --
Investment in subordinated debentures...................... -- (3,481) --
Discontinued business acquisitions, net of cash acquired... -- -- (73,222)
Capital expenditures....................................... (6,590) (7,341) (15,530)
-------- -------- --------
Net cash provided by investing activities............. 115,010 12,779 74,925
-------- -------- --------
Cash flow provided (used) by financing activities:
Borrowings................................................. 11,000 11,439 1,873
Principal payments of short- and long-term obligations..... (30,349) (29,889) (86,040)
Debt prepayment premium.................................... -- -- (4,148)
Preferred stock redemption................................. -- (2,255) (2,245)
Common Stock repurchase and buyback........................ -- (9,508) --
Dividend payments.......................................... -- (1,153) (1,566)
-------- -------- --------
Net cash used by financing activities................. (19,349) (31,366) (92,126)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents......... 97,113 (7,229) (3,200)
Cash and cash equivalents at beginning of year............... 2,488 9,717 12,917
-------- -------- --------
Cash and cash equivalents at end of year..................... $ 99,601 $ 2,488 $ 9,717
======== ======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

25
<PAGE> 28

ZAPATA CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
CAPITAL IN INVESTMENTS
PREFERRED PREFERENCE COMMON EXCESS OF REINVESTED IN EQUITY
STOCK STOCK STOCK PAR VALUE EARNINGS SECURITIES
--------- ---------- -------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
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 --
Net income................................... 7,022
Other........................................ 1
--
------ ------- -------- ------- -------
Balance at September 30, 1996................ $ -- $3 $ 7,387 $131,963 $ 12,960 $ --
====== == ======= ======== ======= =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

26
<PAGE> 29

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. During
1996, the Company reclassified the purchase of certain investments of
approximately $3.9 million previously presented in the 1995 statement of cash
flows as cash used by operating activities to cash used by investing activities.
In addition, during 1996, the Company reclassified expenses related to the early
extinguishment of debt (see Note 8) of approximately $4.8 million (net of income
taxes of $2.6 million) from other income (expense) to extraordinary item in the
1994 statement of operations. Other reclassifications of prior year information
have been made to conform with the current year presentation. These
reclassifications had no effect on net income (loss), total assets or
stockholders' equity.

Inventories

Materials, parts and supplies are stated at average cost. Fish product
inventories are stated at the lower of cost or market.

The marine protein operation 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 $2.5 million and $2.2 million at September 30, 1996 and 1995,
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. In June and July 1996, Zapata purchased 1,688,006
additional shares of Envirodyne and as a result of these transactions, Zapata
currently owns approximately 40.6% of the outstanding shares of Envirodyne
common stock. Zapata's investment in Envirodyne is accounted for using the
equity method of accounting.

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. As of September 30, 1995, Zapata's investment
in the Wherehouse Debentures had been written down to its estimated fair market
value of $910,000. The write-down was based on quoted prices of the Wherehouse

27
<PAGE> 30

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Debentures and the financial condition of Wherehouse Entertainment, Inc. which
was operating as a debtor in possession under Chapter 11 of the U.S. Bankruptcy
Code. As of September 30, 1996, Zapata's remaining investment had been written
down to $411,000 based on proceeds received by the Company upon the disposition
of the investment in December 1996.

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

28
<PAGE> 31

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

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.

Revenue recognition

The Company's marine protein operation recognizes revenue when its products
are shipped to the customer. The Company's oil and gas operation 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.

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. The Bolivian oil and gas properties contributed
revenues and operating income as follows (in millions):

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues..................................................... $2.1 $2.7 $4.1
Operating income............................................. 0.7 1.4 3.5
</TABLE>

Income taxes

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 when and if declared.

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. Accrued
preferred stock dividends are included because their effect is to increase the
loss per share.

The average shares used in the per share calculations were 29,564,786 in
fiscal 1996, 30,706,256 in fiscal 1995 and 31,377,498 in fiscal 1994.

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 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.

29
<PAGE> 32

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

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.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires managements 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.

Recently Issued Accounting Standards

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.

Other Income and Expense

Other expense of $892,000 in fiscal 1996 includes a $499,000 loss related
to an investment in Wherehouse Debentures.

Other expense of $2.1 million in fiscal 1995 includes a $2.8 million loss
related to the investment in Wherehouse Debentures. 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.

NOTE 2. CHANGE IN ACCOUNTING PRINCIPLE

Effective October 1, 1995, the Company changed its method of accounting for
its equity interest in Envirodyne. Since Envirodyne's financial statements are
not available to the Company on a basis that would permit concurrent reporting,
the Company began reporting its equity in Envirodyne's results of operations on
a three-month delayed basis. The Company's financial statements for the quarter
ended December 31, 1995 did not include the Company's equity interest in
Envirodyne for the corresponding period. The change reduced previously reported
income from continuing operations by $467,000 ($719,000 before tax), or $.02 per
share, with a corresponding cumulative effect for the change in accounting
principle of $467,000 in the quarter ended December 31, 1995.

30
<PAGE> 33

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2. CHANGE IN ACCOUNTING PRINCIPLE -- (CONTINUED)

The following table reflects on a pro forma basis the effect of
retroactively applying the new accounting principle (amounts in thousands,
except per share amounts):

<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
-----------------
1996 1995
------ ------
<S> <C> <C>
Net income......................................................... $6,555 $4,671
Net income per share............................................... $ 0.22 $ 0.15
</TABLE>

Envirodyne's net loss reported in their Form 10-Q for the quarter ended
September 26, 1996 but not yet recorded in Zapata's financial statements is
$3,924,000, of which Zapata's interest is approximately $1,593,000. This loss,
net of amortization of $310,000, will be recorded by the Company in its results
of operations for the quarter ending December 31, 1996.

NOTE 3. 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 restatement of the 1993 and 1992 consolidated financial
statements 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 and as a result, the marine protein net assets and results
of operations and cash flows for all periods were 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.

NOTE 4. 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.
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 in fiscal 1995. During fiscal 1996, the
Company recorded a $5.5 million write-down of the production payment receivable
as a result of a reduction in the estimated oil and gas reserves associated with
the production payment as prepared by the purchaser's reserve engineers.

The production payment and other receivable balance at September 30, 1996
consists of a $637,000 production payment receivable and a $2.6 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 $2.6 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 began in November 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

31
<PAGE> 34

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4. DISPOSITION OF DOMESTIC OIL & GAS ASSETS -- (CONTINUED)

party for usage of the platform and related facilities. The receivable's
estimated fair market value of $3.2 million is based on discounted expected cash
flows and approximates book value at September 30, 1996.

NOTE 5. 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.

In September 1995, Zapata entered into an agreement (the "Purchase
Agreement") to sell the assets of 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 Energy Industries for
approximately $131 million in cash, and assumed certain liabilities of Energy
Industries. 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 in December 1995 after receiving stockholder approval and resulted
in an after-tax gain of approximately $12.6 million.

32
<PAGE> 35
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5. DISCONTINUED NATURAL GAS COMPRESSION OPERATIONS -- (CONTINUED)

The consolidated financial statements were restated in fiscal 1995 to
report the net assets and operating results of the Energy Industries operations
as a discontinued operation. Summarized results of the Energy Industries
discontinued operations are shown below (amounts in millions):

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
FINANCIAL RESULTS
Revenues.................................................. $13.1 $66.6 $72.5
Expenses.................................................. 13.0 63.2 67.7
----- ----- -----
Income (loss) before taxes................................ 0.1 3.4 4.8
Income tax provision...................................... 0.1 1.4 1.9
----- ----- -----
Net income*............................................ $ -- $ 2.0 $ 2.9
===== ===== =====
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30,
1995
-------------
<S> <C>
FINANCIAL POSITION
Current assets........................................................ $ 32.1
Other assets.......................................................... 20.3
Property and equipment, net........................................... 61.5
------
113.9
------
Debt.................................................................. 27.8
Other liabilities..................................................... 5.6
------
33.4
------
Net book value........................................................ $ 80.5
======
</TABLE>

- ---------------

* Net income includes allocations of interest expense on general corporate debt
of $260,000 in 1996, $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 6. DISPOSITION OF 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. Subsequently, the Company sold Cimarron's remaining
assets for an additional $700,000. 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 expenses associated with such 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.

33
<PAGE> 36

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6. DISPOSITION OF DISCONTINUED NATURAL GAS GATHERING, PROCESSING AND
MARKETING OPERATIONS -- (CONTINUED)

The consolidated financial statements were restated in fiscal 1995 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,
--------------------------
1996 1995 1994
----- ----- ------
<S> <C> <C> <C>
FINANCIAL RESULTS
Revenues................................................. $23.9 $67.8 $156.1
Expenses................................................. 24.7 69.1 158.4
----- ----- ------
Loss before taxes........................................ (0.8) (1.3) (2.3)
Income tax benefit....................................... (0.3) (0.5) (0.8)
----- ----- ------
Net loss*............................................. $(0.5) $(0.8) $ (1.5)
===== ===== ======
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30,
1995
-------------
<S> <C>
FINANCIAL POSITION
Current assets........................................................ $ 9.6
Other assets.......................................................... 6.7
Property and equipment, net........................................... 16.9
-----
33.2
-----
Debt.................................................................. 2.2
Other liabilities and deferred income taxes........................... 9.6
-----
11.8
-----
Net book value..................................................... $21.4
=====
</TABLE>

- ---------------

* Net loss includes allocations of interest expense on general corporate debt of
$452,000 in 1995 and $932,000 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 7. UNCONSOLIDATED AFFILIATES

In August 1995, Zapata acquired 4,189,298 shares of Envirodyne common
stock, representing 31% of the then 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 prepaid approximately $15.6 million on the promissory note in fiscal
1995 and the remaining $3.2 million in fiscal 1996. In June and July 1996,
Zapata purchased 1,688,006 additional shares of Envirodyne common stock in
brokerage and privately negotiated transactions for aggregate consideration of
approximately $7.0 million. As a result of these transactions, Zapata currently
owns approximately 40.6% of the outstanding shares of Envirodyne common stock.

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, 1996, the unamortized balance of this difference was $22.7 million. The
aggregate market value of Zapata's shares of Envirodyne's common stock as of
September 30, 1996 was $23.5 million based on the closing price of $4.00 per
publicly traded share on that date.

34
<PAGE> 37

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7. UNCONSOLIDATED AFFILIATES -- (CONTINUED)

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 December 28, 1995 annual report and interim report for the quarter ended
June 27, 1996 (unaudited, in millions, except per share amounts):

ENVIRODYNE INDUSTRIES, INC.

<TABLE>
<CAPTION>
JUNE 27, 1996
-------------
<S> <C>
BALANCE SHEET
Current assets........................................................ $ 239.3
Other................................................................. 179.6
Property and equipment, net........................................... 461.0
------
Total assets.................................................. $ 879.9
======
Current liabilities................................................... $ 125.7
Long-term debt........................................................ 522.7
Deferred income taxes and other....................................... 126.3
Stockholders' equity.................................................. 105.2
------
Total liabilities and stockholders' equity.................... $ 879.9
======
</TABLE>

<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
JUNE 27, 1996
-------------
<S> <C>
INCOME STATEMENT
Revenues.............................................................. $ 654.7
=======
Loss before income taxes.............................................. $ (26.3)
=======
Net loss.............................................................. $ (20.2)
=======
Net loss per share.................................................... $ (1.47)
=======
</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. Initially, 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. Zapata included Tidewater's dividends of approximately $135,000
and $719,000 in other income in fiscal 1995 and 1994, respectively.

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, resulting 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.

35
<PAGE> 38

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7. UNCONSOLIDATED AFFILIATES -- (CONTINUED)

In fiscal 1995, the Company's marine protein division invested $450,000 to
obtain a 50% share in a joint venture to manufacture and market animal feed
ingredients overseas. The joint venture began operations in late 1996. This
investment is accounted for using the equity 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 AS OF
NET LOSS SEPTEMBER 30
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
1996
Envirodyne................................................. $ (4,456) $ 21,530
Marine protein joint venture............................... (15) 531
------- -------
$ (4,471) $ 22,061
======= =======
1995
Envirodyne................................................. $ (719) $ 18,235
Marine protein joint venture............................... -- 450
------- -------
$ (719) $ 18,685
======= =======
1994
Tidewater.................................................. $ -- $ 14,471
======= =======
</TABLE>

36
<PAGE> 39

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8. DEBT

At September 30, 1996 and 1995, Zapata's consolidated debt consisted of the
following:

<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Senior Debt:
Norex unsecured notes due in 1996 at 8.5%...................... $ -- $ 4,796
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%............................................ 7,267 7,626
Amounts due in installments through 2014, interest at
Eurodollar rates plus .45%, 6.08% and 6.33% at September
30, 1996 and 1995, respectively........................... 1,429 1,528
Other debt at 5.6% and 8.1% at September 30, 1996 and 1995,
respectively................................................ 78 992
------- --------
8,774 24,942
------- --------
Subordinated debt:
10 1/4% debentures due 1997.................................... 15,621 15,621
10 7/8% debentures due 2001.................................... 9,872 9,872
Malcolm Glazer unsecured subordinated promissory note at prime,
8.75% at September 30, 1995................................. -- 3,181
------- --------
25,493 28,674
------- --------
Total debt....................................................... 34,267 53,616
------- --------
Less current maturities.......................................... 16,108 16,148
------- --------
Long-term debt................................................... $18,159 $37,468
======= ========
</TABLE>

The fair value of the Company's debt obligations are estimated based upon
quoted market prices for the same or similar issues or on current rates offered
to the Company for debt of the same remaining maturities. The fair value of
total debt at September 30, 1996 and 1995 approximated 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 (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. 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 indebtedness to 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 an additional $14.1 million of its 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"). The $4.8
million (net of income tax benefit of $2.6 million) of prepayment and deferred
expenses associated with the prepayments of Norex indebtedness in fiscal 1994 is
reflected on the statement of operations as an extraordinary item. In April
1995,

37
<PAGE> 40
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8. DEBT -- (CONTINUED)

Zapata used proceeds of $12.7 million from the sale of its remaining 673,077
shares of Tidewater common stock to further reduce the Company's indebtedness
due to Norex. In March 1996, Zapata repaid the remaining $4.8 million due to
Norex.

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, 1996 was approximately $57.0 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, 1996, Zapata Protein had
transferred the maximum amount of $10.0 million to Zapata Corporation. Effective
September 30, 1996, the Company was in compliance with all provisions governing
its outstanding indebtedness.

In August 1995, Zapata acquired 4,189,298 shares of Environdyne common
stock 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 prepaid approximately $15.6 million of the promissory note
in fiscal 1995 and prepaid the remaining $3.2 million balance in fiscal 1996.

Annual maturities

The annual maturities of long-term debt for the five years ending September
30, 2001 are as follows (in thousands):

NOTE 9. 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 by operating activities reflects cash payments of
interest and income taxes.

<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid during the fiscal year for:
Interest................................................ $3,888 $6,609 $7,142
Income tax payments..................................... 6,276 544 4,507
</TABLE>

In fiscal 1994, interest expense of $1.3 million associated with certain
notes related to the Norex indebtedness was deferred to the maturity date of
such notes.

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

38
<PAGE> 41

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9. CASH FLOW INFORMATION -- (CONTINUED)

other assets to property and equipment. These transactions resulted in the
reclassification of approximately $2.0 million from other assets to property and
equipment.

In connection with the sale of Energy Industries' and Cimarron's assets
during fiscal 1996, Zapata has retained certain assets and liabilities related
to those operations. As a result, the Company reclassified liabilities totaling
approximately $2.6 million from net assets of discontinued operations to
continuing operations. Additionally, a portion of the Energy Industries' asset
sale proceeds was paid directly to certain lenders to repay indebtedness
totaling approximately $26 million; the Company received net proceeds of $105
million from the sale.

NOTE 10. 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
29,548,707 were issued and outstanding at September 30, 1996. Zapata had
authorized 165 million shares of Common Stock, of which 29,548,407 were issued
and outstanding at September 30, 1995.

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 million and par value of the Common Stock was unchanged.

39
<PAGE> 42

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10. PREFERRED, PREFERENCE AND COMMON STOCK -- (CONTINUED)
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 1996, no options to purchase shares under the 1981
Plan were exercised. At September 30, 1996, options to purchase 12,000 shares
under the 1981 Plan at $3.13 were outstanding and exercisable.

Zapata's Amended and Restated 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, 1996, a total of 264,434 stock
options had been exercised and a total of 223,666 shares of Common Stock were
reserved for the future granting of stock options or the awarding of restricted
stock under the 1987 Plan. During 1996, options to purchase 100 shares under the
1987 Plan at $3.13 were exercised and options to purchase 20,000 shares at $7.19
were cancelled. At September 30, 1996, 111,900 options were outstanding and
exercisable under the 1987 Plan at prices ranging from $3.13 to $7.19.

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 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, 1996, a total of 925,534 stock options had been
exercised and a total of 32,666 shares of Common Stock were reserved for the
future granting of stock options under the 1990 Plan. During 1996, options to
purchase 200 shares under the 1990 Plan at $3.13 were exercised. At September
30, 1996, a total of 41,800 options at a price of $3.13 were outstanding and
exercisable under the 1990 Plan. No options were granted in 1996 under the 1990
Plan.

40
<PAGE> 43

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11. INCOME TAXES

The Company utilizes the liability method to account for income taxes. This
method 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) from
continuing operations consisted of the following:

<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
State............................................... $ 348 $ 268 $ 507
U.S................................................. 542 -- 8,005
Deferred
State............................................... -- (300) 150
U.S................................................. (1,902) (3,147) (6,632)
------- ------- -------
$(1,012) $(3,179) $ 2,030
======= ======= =======
</TABLE>

Income tax expense (benefit) was allocated to operations as follows:

<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Continuing operations
Domestic operations................................. $(1,249) $(3,676) $ 790
Foreign operations.................................. 237 497 1,240
------- ------- -------
Total continuing operations................. (1,012) (3,179) 2,030
Discontinued operations............................... 10,197 4,579 (2,564)
Extraordinary item.................................... -- -- (2,602)
Cumulative effect of a change in accounting
principle........................................... 252 -- --
------- ------- -------
Total....................................... $ 9,437 $ 1,400 $(3,136)
======= ======= =======
</TABLE>

41
<PAGE> 44

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11. 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>
1996 1995 1994
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax depreciation over (under) book depreciation...... $ 420 $(4,292) $ (1,145)
Tax deduction related to oil and gas exploration and
production over (under) book expenses.............. (1,298) 2,825 (6,277)
Tax gain in excess of book gain on stock sale........ -- (1,650) (10,116)
Equity loss in unconsolidated affiliates............. (1,560) (252) --
Changes to tax carryforwards and other............... 536 (78) 8,266
Charge off uncollectible note........................ -- -- 2,790
------- ------- --------
$(1,902) $(3,447) $ (6,482)
======= ======= ========
</TABLE>

For federal income tax purposes, Zapata has $12.6 million of investment tax
credit carryforwards expiring in fiscal 1999 through 2001, and $6.3 million of
alternative minimum tax credit carryforwards. The use of the investment tax
credits will be limited to a maximum of $7.1 million 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 1996,
1995 and 1994 computed using the U.S. statutory rate of 35% to the provisions
from continuing operations as reflected in the financial statements.

<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Taxes at statutory rate................................. $(1,237) $(3,158) $2,102
Amortization of intangibles not deductible for tax...... 11 11 10
Other................................................... (134) 33 (563)
Dividend income not recognized for tax purposes......... -- (33) (176)
State taxes............................................. 348 (32) 657
------- ------- ------
$(1,012) $(3,179) $2,030
======= ======= ======
</TABLE>

42
<PAGE> 45

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11. 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,
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Assets:
Asset write-downs not yet deductible.......................... $ 5,006 $ 4,956
Net operating loss carryforwards.............................. -- 4,246
Investment tax credit carryforwards........................... 12,557 17,490
Alternative minimum tax credit carryforwards.................. 6,331 10,927
Equity in loss of unconsolidated affiliates................... 1,560 252
Other......................................................... 2,934 2,152
-------- --------
Total deferred tax assets............................. 28,388 40,023
Valuation allowance........................................... (16,857) (16,857)
-------- --------
Net deferred tax assets............................... 11,531 23,166
-------- --------
Deferred Tax Liabilities:
Property and equipment........................................ (483) (9,628)
Pension....................................................... (4,001) (3,554)
Other......................................................... (1,406) (3,737)
-------- --------
Total deferred tax liabilities........................ (5,890) (16,919)
-------- --------
Net deferred tax asset................................ $ 5,641 $ 6,247
======== ========
</TABLE>

The valuation allowance results from managements estimates of tax
carryforwards that may not be ultimately utilized given current facts and
circumstances.

NOTE 12. COMMITMENTS AND CONTINGENCIES

Operating leases payable

Future minimum payments under non-cancelable operating lease obligations
aggregate $5.0 million. The total future minimum rental payments have not been
reduced by $3.6 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, 2001 are:

<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Lease obligations.............................. $371 $363 $249 $192 $72
</TABLE>

Rental expenses for operating leases were $602,000, $1.8 million and $2.3
million in fiscal 1996, 1995 and 1994, respectively.

Litigation

43
<PAGE> 46

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 12. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
same parties in the same court; Zapata does not oppose the motion. The
consolidated 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 investment in Envirodyne, in connection with the decision to shift
Zapata's business focus from energy to food services, and in connection with a
proposed (but subsequently abandoned) merger of Houlihan's Restaurant Group,
Inc. ("Houlihan's") with a wholly owned subsidiary of Zapata (the "Houlihan's
Merger"). The complaint alleges, among other things, that the purchase of
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 complaint
also alleges that Zapata's Board of Directors is controlled by Malcolm I. Glazer
and that Mr. Loar lacked 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 seeks relief
including, among other things, rescission of Zapata's purchase of the shares of
Envirodyne common stock from the Malcolm Glazer Trust; injunctive relief 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 consummation of the
Houlihan's Merger and any transaction in which Malcolm I. Glazer has an
interest; and an award of unspecified compensatory damages and expenses,
including attorneys' fees. Zapata believes that the complaint and the
allegations contained therein are without merit and intends to defend the
Harwin/Crandon Case vigorously.

On May 31, 1996, a fourth 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
alleged that Zapata's directors engaged in conduct constituting breach of
fiduciary duty and waste of Zapata's assets in connection with the Houlihan's
Merger. The complaint further alleged that the Houlihan's Merger consideration
was unfair and excessive and that the Houlihan's Merger would result in voting
power dilution, unfairly benefiting Malcolm I. Glazer. On July 11, 1996, the
plaintiff filed an amended complaint. The amended complaint alleged that the
Agreement and Plan of Merger dated as of June 4, 1996 relating to the Houlihan's
Merger (the "Houlihan's Merger Agreement") was 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 Houlihan's Merger based on the contention that under
Article SEVENTH the Houlihan's Merger would require the approval of holders of
80% of Zapata's outstanding voting stock. Zapata does not believe that a
supermajority vote was required under the circumstances of the Houlihan's
Merger, and its position is supported by an opinion of special Delaware counsel.
A hearing concerning whether Article SEVENTH applies to the Houlihan's Merger
Agreement and the Houlihan's Merger was held before the Court of Chancery on
September 6, 1996 and, on September 24, 1996, the Court of Chancery decided that
Article SEVENTH did apply to the Houlihan's Merger Agreement and the Houlihan's
Merger. On October 3, 1996, Zapata filed a notice of appeal with the Supreme
Court of the State of Delaware regarding the decision of the Court of Chancery.
The plaintiff moved to dismiss Zapata's appeal as moot, in light of the
termination of the Houlihan's Merger Agreement. On November 7, 1996, the Supreme
Court of the State of Delaware denied the plaintiff's motion to dismiss Zapata's
appeal. As of December 29, 1996, the Company's appeal had not yet been set for
oral argument in the Supreme Court.

44
<PAGE> 47

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 12. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
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 to which the Company
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) the
Company's repurchase of the approximately 2.7 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 common stock in March
and April 1996); (ii) the disgorgement to the Holt Affiliates of Zapata's profit
to be made on the sale of Energy Industries; or (iii) the money damages based on
the alleged lower value of the Common Stock had the alleged misrepresentations
not been made. The case has been set for trial beginning April 28, 1997. The
Company believes that the petition and the allegations made therein are without
merit and intends to defend the case vigorously.

NOTE 13. FINANCIAL INSTRUMENTS

Concentrations of Credit Risk

As indicated in the industry segment information which appears in Note 17,
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.

At September 30, 1996 and 1995 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 14. 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.

45
<PAGE> 48

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 14. BENEFIT PLANS -- (CONTINUED)
Net pension credits for fiscal 1996, 1995 and 1994 included the following
components:

<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year....... $ 610 $ 567 $ 692
Interest cost on projected benefit obligations........ 2,430 2,354 2,278
Actual gain on plan assets............................ (3,854) (6,452) (2,730)
Amortization of transition assets and other
deferrals........................................... (462) 2,864 (546)
------- ------- -------
Net pension credit.................................. $(1,276) $ (667) $ (306)
======= ======= =======
</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, 1996 and 1995 are presented below:

<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Fair value of plan assets........................................ $43,695 $43,242
------- -------
Actuarial present value of benefit obligations:
Vested benefits................................................ 33,635 33,664
Nonvested benefits............................................. 440 348
------- -------
Accumulated benefit obligation................................. 34,075 34,012
Additional benefits based on projected salary increases........ 1,994 1,741
------- -------
Projected benefit obligations.................................. 36,069 35,753
------- -------
Excess of plan assets over projected benefit obligations......... 7,626 7,489
Unrecognized transition asset.................................... (5,024) (5,861)
Unrecognized prior service cost.................................. 1,034 123
Unrecognized net loss............................................ 7,795 8,404
------- -------
Prepaid pension cost............................................. $11,431 $10,155
======= =======
</TABLE>

The unrecognized transition asset at October 1, 1987, was $10.6 million,
which is being amortized over 15 years. For 1996 and 1995 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 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 fiscal 1996 and 1995. The unrecognized net loss of $7.8 million at
September 30, 1996 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 negotiated a settlement
with the U.S. Department of Labor whereby the Zapata Corporation Pension Plan
would assume the liability associated with the reduction in benefits of the
Dredging Plan participants. The accumulated benefit obligation that was assumed
by the plan was approximately $2.3 million, of which $1.4 million was expensed
in the fiscal 1994 statement of operations 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 equals the difference

46
<PAGE> 49

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 14. BENEFIT PLANS -- (CONTINUED)
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, the actuarial present value of the projected benefit obligation
was based on weighted-average annual increase in salary levels of 2.1%. For
fiscal 1996, 1995 and 1994 the discount rate was 7.5%.

Net pension expense for fiscal 1996, 1995 and 1994 included the following
components:

<TABLE>
<CAPTION>
1996 1995 1994
--- --- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year................. $-- $-- $ 68
Interest cost on projected benefit obligations.................. 67 67 72
Amortization of prior service cost.............................. -- -- 487
--- --- ----
Net pension expense........................................... $67 $67 $627
=== === ====
</TABLE>

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, 1996 and 1995 are presented below:

<TABLE>
<CAPTION>
1996 1995
----- -----
(IN THOUSANDS)
<S> <C> <C>
Fair value of plan assets........................................... $ -- $ --
----- -----
Actuarial present value of benefit obligations:
Vested benefits................................................... 943 950
Nonvested benefits................................................ -- --
----- -----
Accumulated benefit obligation.................................... 943 950
Additional benefits based on projected salary increases........... -- --
----- -----
Projected benefit obligation...................................... 943 950
----- -----
Excess of projected benefit obligations over plan assets............ (943) (950)
Unrecognized net loss............................................... -- --
Unrecognized prior service costs.................................... -- --
Additional minimum liability........................................ -- --
----- -----
Unfunded accrued liability.......................................... $(943) $(950)
===== =====
</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 contributions are calculated based
on employee contributions and compensation. The Company's combined contributions
to these plans totaled $494,347, $673,298 and $577,903 in fiscal 1996, 1995 and
1994, respectively.

NOTE 15. RELATED PARTY TRANSACTIONS

In August 1995, Zapata acquired 4,189,298 shares 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 the promissory note.

47
<PAGE> 50

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 15. RELATED PARTY TRANSACTIONS -- (CONTINUED)
During fiscal 1996, Zapata and Houlihan's entered into the Houlihan's
Merger Agreement. 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 board of directors of
both Zapata and Houlihan's. On October 8, 1996, Zapata terminated the Houlihan's
Merger Agreement pursuant to a provision of such agreement that gave either
party the right to terminate the merger agreement if the Houlihan's Merger was
not consummated before October 1, 1996. The termination followed a decision of
the Court of the Chancery of Delaware that an 80% supermajority vote of Zapata's
stockholders was required for approval of the proposed transaction. Zapata
recorded $2.1 million of merger expenses in connection with the proposed
transaction.

During fiscal 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.

Zapata received $7,000 and $317,000 in fiscal 1995 and 1994, 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 fiscal 1995 and 1994, Zapata received $24,000 and $104,000,
respectively, from Norex in accordance with an administrative services
arrangement pursuant to which Zapata provided office space and certain
administrative services to Norex. See Note 8 and Note 10 for discussions of
additional transactions with Norex.

NOTE 16. 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.

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 17 due
to the exclusion of certain nonoperating expenses from the information shown as
required by SFAS No. 69.

48
<PAGE> 51

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16. 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>
1996
Capitalized costs
Evaluated properties................................. $ -- $ 5,938 $ 5,938
Accumulated depreciation, depletion and amortization... -- (485) (485)
-------- ------ --------
Net capitalized costs.................................. $ -- $ 5,453 $ 5,453
======== ====== ========
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>
1996
Expenditures:
Development.......................................... $ -- $ 2,580 $ 2,580
======== ====== ========
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
======== ====== ========
</TABLE>

49
<PAGE> 52

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16. 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>
1996
Revenues............................................... $ 42 $ 2,027 $ 2,069
Production costs....................................... -- 1,080 1,080
Depreciation, depletion and amortization............... -- 240 240
-------- ------ --------
Income before income taxes*............................ 42 707 749
Income taxes........................................... 14 241 255
-------- ------ --------
Net income (loss)*..................................... $ 28 $ 466 $ 494
======== ====== ========
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)
======== ====== ========
</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.

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
experience and additional development of existing reservoirs may significantly
alter previous estimates of proved reserves.

50
<PAGE> 53

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16. OIL AND GAS OPERATIONS (UNAUDITED) -- (CONTINUED)
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, 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
Extensions and discoveries.................... -- -- -- 2.1 -- 2.1
Revisions of previous estimates............... -- -- -- .7 -- .7
Production.................................... -- -- -- (1.7) -- (1.7)
--- ----- --- ---- --- -----
Proved reserves as of September 30, 1996........ -- -- .7 30.6 .7 30.6
=== ===== === ==== === =====
Proved developed reserves as of
September 30, 1994............................ .2 27.4 .7 27.3 .9 54.7
September 30, 1995............................ -- -- .7 29.5 .7 29.5
September 30, 1996............................ -- -- .7 30.6 .7 30.6
</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.

51
<PAGE> 54

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16. 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. Zapata participated in drilling two exploratory wells
in its Bolivian operation in 1996, one exploratory well in 1995 and two
exploratory wells in 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.

52
<PAGE> 55

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16. 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>
1996
Estimated future cash flows
Revenues from hydrocarbon sales............................. $ -- $49,960 $49,960
Production costs............................................ -- 22,317 22,317
Development costs........................................... -- 1,425 1,425
------- ------- -------
Future net cash flows before income taxes...................... -- 26,218 26,218
Estimated income tax payments.................................. -- 7,408 7,408
------- ------- -------
Future net cash flows.......................................... -- 18,810 18,810
10% discount................................................... -- 8,593 8,593
------- ------- -------
Standardized measure of discounted future net cash flows....... $ -- $10,217 $10,217
======= ======= =======
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
======= ======= =======
</TABLE>

53
<PAGE> 56

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16. OIL AND GAS OPERATIONS (UNAUDITED) -- (CONTINUED)
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED
FUTURE NET CASH FLOWS RELATING TO PROVED RESERVES

<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure, beginning of year -- U.S................. $ -- $13,914 $37,902
Standardized measure, beginning of year -- Bolivia............. 10,401 11,331 10,312
Change in sales prices, net of production costs.............. (1,058) (4,267) (24,990)
Costs incurred or transferred into the amortization pool
during the period that reduced estimated future
development costs......................................... 775 825 4,975
Changes in estimated future development and abandonment
costs..................................................... (759) 9,493 (4,638)
Sales, net of production costs............................... (947) (3,856) (6,281)
Net change due to extensions, discoveries and improved
recovery.................................................. 1,067 -- --
Revisions of quantity estimates.............................. 387 2,020 3,243
Sales of reserves in-place................................... -- (29,399) --
Accretion of discount........................................ 1,445 3,032 4,283
Net change in income taxes................................... 1,068 1,023 (149)
Changes in production rates and other........................ (2,162) 6,285 588
------- ------- -------
Standardized measure, end of year.............................. $10,217 $10,401 $25,245
======= ======= =======
</TABLE>

NOTE 17. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION

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 fiscal 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 $20.9 million, $26.7 million
and $25.8 million in fiscal 1996, 1995 and 1994, respectively. Such sales were
made primarily to European markets. In fiscal 1995, net sales to one customer by
the marine protein segment were approximately $12.3 million; in 1996 and 1994 no
sales to any one customer exceeded 10% of consolidated sales. Based on
Envirodyne's December 28, 1995 annual report, Envirodyne's operations are
primarily in North/South America and Europe. Envirodyne is a supplier of food
packaging products and food service supplies.

54
<PAGE> 57

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 17. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION -- (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>
1996
Marine protein............. $ 93,609 $ 10,504 $ 86,969 $ 3,167 $ 4,009
Oil and gas................ 2,069 (4,799)(1) 9,887 240 2,580
Corporate.................. -- (4,553)(2) 136,287(7) 85 1
-------- --------- ------------ ------------- ------------
$ 95,678 $ 1,152 $233,143 $ 3,492 $ 6,590
======== ======== ======== ========== =========
1995
Marine protein............. $ 94,959 $ (6,437)(3) $ 85,012 $14,977(3) $ 5,573
Oil and gas................ 8,109 658 13,571 2,856 1,767
Corporate.................. -- (3,441) 38,914(7) 115 1
-------- --------- ------------ ------------- ------------
$103,068 $ (9,220) $137,497(4) $17,948 $ 7,341
======== ======== ======== ========== =========
1994
Marine protein............. $ 96,614 $ 5,445 $ 87,565 $ 4,535 $ 3,671
Oil and gas................ 12,549 (28,285)(6) 20,062 33,770(6) 11,792
Corporate.................. -- (8,767) 44,044(5) 2,321 67
-------- --------- ------------ ------------- ------------
$109,163 $ (31,607) $151,671(4) 40,626 $ 15,530
======== ======== ======== ========== =========
</TABLE>

- ---------------

(1) Includes a $5.5 million write-down of a production payment receivable
related to the sale of the Company's domestic oil and gas properties.

(2) Includes $2.1 million of merger costs that were expensed when the proposed
merger with Houlihan's was terminated.

(3) 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.

(4) Excludes net assets of discontinued operations of $101.9 million and $103.1
million in fiscal 1995 and 1994, respectively.

(5) Includes Zapata's investment in Tidewater. See Note 7.

(6) 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.

(7) Includes Zapata's investment in Envirodyne. See Note 7.

55
<PAGE> 58

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 18. 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 1996
Revenues........................................... $23,942 $14,800 $ 21,531 $35,405
======= ======= ======== =======
Operating income (loss)............................ $ 2,367 $ 1,425 $ 3,471 $(6,111)(2)
Other expense net.................................. (1,324)(1) (1,147) (1,564) (650)
Provision (benefit) for income taxes............... 421 155 726 (2,314)
------- ------- -------- -------
Income (loss) from continuing operations........... 622 123 1,181 (4,447)
Income (loss) from discontinued operations......... 13,186 (4,110) -- --
Cumulative effect of change in accounting
principle, net................................... 467(1) -- -- --
------- ------- -------- -------
Net income (loss).................................. $14,275 $(3,987) $ 1,181 $(4,447)
======= ======= ======== =======
Per share:
Income (loss) from continuing operations........... $ 0.03 $ -- $ 0.04 $ (0.15)
Income (loss) from discontinued operations......... 0.43 (0.13) -- --
Cumulative effect of change in accounting
principle........................................ 0.02 -- -- --
------- ------- -------- -------
Net income (loss).................................. $ 0.48 $ (0.13) $ 0.04 $ (0.15)
======= ======= ======== =======
FISCAL 1995
Revenues........................................... $22,357 $22,237 $ 24,199 $34,275
======= ======= ======== =======
Operating income (loss)............................ $ 311 $ (202) $(11,129)(4) $ 1,800
Other income (expense), net........................ 145 4,434(3) (382) (4,000)(6)
Provision (benefit) for income taxes............... 181 1,518 (3,964) (914)
------- ------- -------- -------
Income (loss) from continuing operations........... 275 2,714 (7,547) (1,286)
Income from discontinued operations................ 473 217 405 56
Reversal of reserve for loss on disposition, net of
income taxes..................................... -- -- 8,897(5) --
------- ------- -------- -------
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)
======= ======= ======== =======
</TABLE>

- ---------------

(1) Effective October 1, 1995, Zapata changed its method of accounting for its
investment in Envirodyne to a three-month lag basis. See note 2.

(2) Includes a $5.5 million pretax write-down of a receivable associated with
the disposition of the Company's domestic oil and gas assets and $2.1
million of merger costs that were expensed when the proposed merger with
Houlihan's was terminated.

(3) Includes a pretax gain of $4.8 million from the sale of 673,077 shares of
Tidewater common stock.

(4) 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.

(5) Includes the reversal of an $8.9 million after-tax loss due to the decision
to retain Zapata Protein.

(6) Includes a $2.8 million pretax write-down of an investment in Wherehouse
Entertainment, Inc. debentures.

56
<PAGE> 59

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 19. SUBSEQUENT EVENT (UNAUDITED)

The following pro forma information for Zapata gives effect to the tender
offer assuming (i) 10 million shares and (ii) 15 million shares of Common Stock
are tendered for $4.50 per share. The pro forma information for the twelve
months ended September 30, 1996 includes the historical results of Zapata
adjusted for the tender offer assuming the tender offer had been consummated on
October 1, 1995. The Company's income statement is not significantly effected by
the tender offer; the Company's pro forma revenues, income from continuing
operations and net income do not change. The pro forma balance sheet information
includes the historical results of Zapata adjusted for the tender offer assuming
the tender offer had been consummated on September 30, 1996.

The supplemental pro forma amounts presented below may not be indicative of
the results that would have actually resulted if the transaction had occurred on
the date indicated or that may be obtained in the future (amounts in thousands,
except per share amounts).

<TABLE>
<CAPTION>
10 15
MILLION MILLION
SHARES SHARES
PURCHASED PURCHASED
-------- -------
<S> <C> <C>
TWELVE MONTHS ENDED SEPTEMBER 30, 1996
Loss per share from continuing operations............... $ (0.13) $ (0.17)
AS OF SEPTEMBER 30, 1996
Cash.................................................... $ 54,601 $32,101
Stockholders' equity.................................... 107,313 84,813
</TABLE>

57
<PAGE> 60

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Not applicable.

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 16, 1996.

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 Houlihan's Restaurant Group, Inc. and also is a director of Specialty
Equipment Companies, Inc. and Envirodyne Industries, Inc. He is 68 years of age.
His current term of office as a director expires in 1999.

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., Houlihan's Restaurant Group, Inc. and
Specialty Equipment Companies, Inc. He is 36 years of age and his current term
of office as a director expires in 1997. Avram A. Glazer is a 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 and Chairman of Daniel Industries, Inc. He is 64
years of age. His current term of office as a director expires in 1999.

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. Among the clients of the Leffler
Agency are the Tampa Bay Buccaneers, owned by Malcolm I. Glazer. Mr. Leffler is
51 years of age and serves on the Audit Committee of the Company's Board of
Directors. His current term of office as a director expires in 1998.

Section 16(a) Beneficial Ownership Reporting Compliance

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, 1996
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 1996 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.

58
<PAGE> 61

ITEM 11. EXECUTIVE COMPENSATION.

The following table sets forth information regarding compensation with
respect to the fiscal years ended September 30, 1996, 1995 and 1994 for services
in all capacities rendered to the Company and its subsidiaries by the Company's
chief executive officer and the other most highly compensated executive officers
of the Company with annual salary and bonus compensation in excess of $100,000
who were serving as executive officers on September 30, 1996 (the "Named
Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- ------------------------------------------------ ---- -------- ------- ---------------
<S> <C> <C> <C> <C>
Avram A. Glazer 1996 $300,000 -- --
President and Chief Executive Officer(2) 1995 183,240 --
Ronald C. Lassiter 1996 215,900 $73,600 --
Chairman and Chief Executive Officer 1995 197,000 -- --
of Zapata Protein, Inc.(3) 1994 344,859 -- --
Joseph L. von Rosenberg III 1996 129,687 50,000(4) $ 9,281
Executive Vice President, General 1995 117,750 25,000 --
Counsel and Corporate Secretary 1994 91,000 -- --
Robert A. Gardiner 1996 100,695 25,000 6,722
Vice President and Chief Financial Officer 1995 85,785 15,000 5,464
1994 77,953 5,000 1,738
</TABLE>

- ---------------

(1) The amounts indicated represent Zapata's contributions to its profit-sharing
plan.

(2) 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 1995 fiscal year during which Mr. A. Glazer was not an executive
officer.

(3) Amounts in the "Salary" column include amounts paid to Mr. Lassiter under
the consulting agreement between Zapata and Mr. Lassiter described below
under "--Employment Agreements." Amounts in the "Salary" column also include
director and board committee fees of $40,900 and $20,000 for fiscal years
1996 and 1995, respectively.

(4) Mr. von Rosenberg's employment agreement provides that he will receive a
bonus of at least $50,000 for the 1996 calendar year. See "--Employment
Agreements."

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 lesser of $50,000 or 10% of such officer's salary and bonus for any of
the fiscal years shown in the Summary Compensation Table.

FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
--------------------------------------- ------------------------- -------------------------
<S> <C> <C>
Avram A. Glazer........................ 20,000/0 0/0
Ronald C. Lassiter..................... 0/0 0/0
Joseph L. von Rosenberg III............ 20,000/0 0/0
Robert A. Gardiner..................... 6,000/0 $ 3,375/0
</TABLE>

On September 30, 1996, the closing price per share of Common Stock on the
NYSE was $3.625. No options were exercised by or granted to any of the Named
Officers in fiscal 1996.

59
<PAGE> 62

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. Named Officers who are participants in the Pension
Plan include Messrs. Lassiter, von Rosenberg and Gardiner. 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. Upon retirement, the estimated annual benefits payable under the
Pension Plan to Mr. von Rosenberg and Mr. Gardiner are $2,410 and $18,400,
respectively (assuming payments commence at age 65 on a single life annuity
basis).

EMPLOYMENT AGREEMENTS

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 "Lassiter 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 Lassiter
Consulting Agreement. The payments to Mr. Lassiter under the provisions of the
Lassiter Consulting Agreement are included in the "Salary" column of the Summary
Compensation Table.

Effective as of June 1, 1996, Zapata entered into an employment agreement
with Mr. von Rosenberg. The agreement provides for a base salary of $165,000 per
year. The base salary is subject to review at least annually, provided that it
may not be decreased without Mr. von Rosenberg's consent. Under the agreement,
Mr. von Rosenberg is entitled to receive a bonus of at least $50,000 for the
1996 calendar year. Prior to any change in control of Zapata, the agreement
provides for a payment to Mr. von Rosenberg of 150% of his base salary in the
event of termination of his employment with Zapata (i) by Mr. von Rosenberg for
Good Reason (as defined in the employment agreement) or (ii) by Zapata without
Cause (as defined in the employment agreement). Following any change in control
of Zapata, Mr. von Rosenberg generally would be entitled to an amount equal to
2.99 times his average annual compensation for the five-calendar-year period
immediately preceding the change in control in the event of termination of his
employment with Zapata (i) by Mr. von Rosenberg for Good Reason within one year
after the change in control or (ii) by Zapata without Cause. The agreement
terminates on November 30, 1997 but will be renewed automatically for each
subsequent 18-month period, except as the parties may otherwise agree.

COMPENSATION OF DIRECTORS

During the fiscal year ended September 30, 1996, those members of the Board
of Directors who were not employees of the Company were paid an annual retainer
of $20,000 (paid on a quarterly basis, plus $1,000 for each committee of the
Board of Directors on which a member of the Board of Directors served. Those
directors who also are employees of the Company 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 Board of Directors, a grant of options to
purchase 20,000 shares of 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 Special Committee, Mr. Lassiter, Chairman of the Special
Committee, was paid $20,000 and Messrs. Leffler and W. George Loar (a director
until his death in September 1996) were paid

60
<PAGE> 63

$15,000 each for their work in connection with a proposed merger of Houlihan's
with a wholly owned subsidiary of Zapata. That transaction was terminated by
Zapata in October 1996. Zapata also entered into indemnification agreements with
the members of the Special Committee containing provisions for comprehensive
indemnification and advancement of expenses to the fullest extent permitted by
applicable law.

Peter M. Holt served as a director of Zapata until his resignation in
November 1995. In November 1993, Mr. Holt and Zapata entered into a three-year
consulting agreement (the "Holt 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
Holt 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 the Company engaged in the natural gas compression
business. The Holt Consulting Agreement provided that, commencing in May 1995
and for the remaining 18 months of the term of the Holt 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. The
Company's remaining obligations under the Holt Consulting Agreement terminated
in November 1995 upon Mr. Holt's resignation from the Board of Directors of the
Company and from all of his management and board positions with affiliates of
the Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

For the fiscal year ended September 30, 1996, the Compensation Committee
was initially comprised of Avram A. Glazer, Ronald C. Lassiter, Robert V.
Leffler, Jr. and Peter M. Holt (Mr. Holt resigned as a director in November
1995). Mr. A. Glazer served on the Compensation Committee until his resignation
from the committee in January 1996. Messrs. Lassiter and Leffler served on the
Compensation Committee until the Board of Directors assumed the responsibilities
of the Compensation Committee effective May 1996. Messrs. A. Glazer and Lassiter
were officers of Zapata (or one or more of its subsidiaries) during the fiscal
year ended September 30, 1996.

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 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 November 13, 1996,
such claims remained unresolved. In connection with the acquisition of Energy
Industries, Zapata entered into a three-year noncompetition agreement and the
Holt Consulting Agreement. 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 Holt Consulting Agreement were terminated.

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. Ronald C.
Lassiter held an ownership interest in ZP, which committed to buy all of the
issued and outstanding shares of Zapata Protein, Inc. 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. Zapata
has considered from time to time other 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 those operations. Ronald C. Lassiter, a director of Zapata
and Chairman of the 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.

61
<PAGE> 64

In August 1995, Zapata purchased 4,189,298 shares of the common stock of
Envirodyne for $18.8 million from the Malcolm Glazer Trust established U/A dated
as of March 23, 1990. 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
last quarter of fiscal 1995 and first quarter of fiscal 1996.

In September 1995, the Board of Directors established the 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
Specialty. 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 A. Glazer and other
members of their family serve as directors of both of those companies.
Subsequently, the Special Committee's authority was expanded to include taking
action to approve the issuance of Common Stock and related matters in connection
with the Houlihan's Merger. Prior to formation of the 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 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. In connection with the Houlihan's Merger, the
members of the Special Committee were granted a proxy to vote the approximately
35.2% of the outstanding shares of Common Stock beneficially owned by Malcolm I.
Glazer on the Houlihan's Merger in the same manner as the votes cast on the
matter by holders of a majority of the shares of Common Stock not beneficially
owned by Malcolm I. Glazer present and voting on the matter. On October 8, 1996,
Zapata announced that it terminated the Houlihan's Merger Agreement due in part
to a court ruling in the Pasternak Case that consummation of the Houlihan's
Merger would require the approval of holders of 80% of the outstanding voting
stock of Zapata.

On May 6, 1996, Darcie Glazer became employed by Zapata as an investment
analyst. She is the daughter of Malcolm I. Glazer. Ms. Glazer's office is in New
York City in space which Zapata does not bear any costs of providing. She
receives an annual salary of $95,000 and other standard employee benefits.

Following the death of W. George Loar in September 1996, the composition of
the Board of Directors may be deemed not to meet the requirements of the NYSE.
Zapata's Board of Directors is in the process of attempting to identify suitable
independent candidates for membership on the Board of Directors and expects that
additional independent directors will be included as nominees by the Board of
Directors for Zapata's 1997 Annual Meeting.

62
<PAGE> 65

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table indicates the number of shares of Common Stock or $2
Preference Stock owned beneficially as of December 10, 1996, by (i) each person
known to Zapata to beneficially own more than 5% of the outstanding shares of
either Common Stock or $2 Preference Stock, (ii) each director, (iii) the Named
Officers and (iv) all directors and executive officers 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
TITLE OF CLASS BENEFICIAL OWNER SHARES OF CLASS
- ------------------------ ------------------------------------- ---------- --------
<S> <C> <C> <C>
Common Stock............ Avram A. Glazer(1) 20,000 *
Malcolm I. Glazer(1) 10,415,384 35.25%
1482 South Ocean Boulevard
Palm Beach, Florida 33480
Ronald C. Lassiter 78,477 *
Robert V. Leffler, Jr.(1) 6,666 *
Joseph L. von Rosenberg III(1) 20,000 *
Robert A. Gardiner(1) 6,000 *
Ryback Management Corporation(2) 4,635,000 15.69%
7711 Carondelet Avenue,
Box 16900
St. Louis, Missouri 63105
Pioneering Management Corporation(3) 2,083,100 7.05%
60 State Street
Boston, Massachusetts 02109-1820
Directors and executive officers as a
group
(6 persons) 10,546,527 35.69%
$2 Preference Stock..... Larry A. Reiten 150 5.70%
Route 1, Box 297
Bayfield, Wisconsin 54814-9701
</TABLE>

- ---------------

* Represents ownership of less than 1.0%.

(1) Includes 20,000, 20,000, 6,666, 20,000, and 6,000 shares issuable under
options, exercisable within 60 days of December 16, 1996, held by Messrs.
A. Glazer, M. Glazer, Leffler, von Rosenberg and Gardiner, respectively.

(2) As reported on Form 13G dated September 25, 1996 and filed with the
Commission. Consists of 2,336,400 and 2,298,600 shares beneficially owned
by Linder Growth Fund and Linder Dividend Fund, respectively.

(3) As reported on Form 13G dated January 26, 1996 and filed with the
Commission.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

For 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.

63
<PAGE> 66

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(A) LIST OF DOCUMENTS FILED.

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(1) Consolidated financial statements, Zapata Corporation and subsidiary
companies --
Report of Coopers & Lybrand L.L.P., independent accountants.............. 22
Consolidated balance sheet -- September 30, 1996 and 1995................ 23
Consolidated statement of operations for the years ended September 30,
1996, 1995 and 1994.................................................... 24
Consolidated statement of cash flows for the years ended September 30,
1996, 1995 and 1994.................................................... 25
Consolidated statement of stockholders' equity for the years ended
September 30, 1996, 1995 and 1994...................................... 26
Notes to consolidated financial statements............................... 27
(2) Supplemental Schedule:
Report of Coopers & Lybrand L.L.P., independent accountants.............. 67
I -- Zapata Corporation (parent company financial statements) as of
September 30, 1996 and 1995 and for each of the three years in the
period ended September 30, 1996........................................ 68
</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 NO. DESCRIPTION OF EXHIBITS
- ---------------------------------------------------------------------------------------------
<S> <C>
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 11, 1996.
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.
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)).
</TABLE>

64
<PAGE> 67

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ---------------------------------------------------------------------------------------------
<S> <C>
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)).
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 (Exhibit 10(o) to Zapata's Annual
Report on Form 10-K for the fiscal year ended September 30, 1995
(File No. 1-4219)).
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.
10(q)* -- 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(r)* -- 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)).
</TABLE>

65
<PAGE> 68

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ---------------------------------------------------------------------------------------------
<S> <C>
10(s)* -- 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(t)* -- 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(u)* -- 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(v)* -- 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(w)*+ -- 1996 Long-Term Incentive Plan of Zapata (Exhibit 10.21 to Zapata's
Registration Statement on Form S-4 (Reg. No. 333-06729)).
10(x)+ -- Employment Agreement between Joseph L. von Rosenberg III and Zapata
effective as of June 1, 1996.
21 -- Subsidiaries of the Registrant.
23(a) -- Consent of Huddleston & Co., Inc.
23(b) -- Consent of Coopers & Lybrand L.L.P.
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 8, 1996 reporting (Item 5) (1)
that W. George Loar, a director of the Company, died on September 8, 1996; and
(2) that on September 24, 1996, the Delaware Court of Chancery issued an
opinion, in connection with a lawsuit brought by a stockholder, holding that
Zapata's proposed acquisition of Houlihan's Restaurant Group, Inc. was subject
to a supermajority voting requirement in Zapata's certificate of incorporation.

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 Accountants' Report with respect thereto.

66
<PAGE> 69

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors,
Zapata Corporation

Our report on the consolidated financial statements of Zapata Corporation
is included on page 22 of this Form 10-K. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule 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.

As discussed in Notes 1 and 2, during 1996, the Company changed its method
of accounting for its equity interest in an unconsolidated affiliate,
reclassified the purchase of certain investments and revised a mathematical
error in the 1995 statement of cash flows, and reclassified an expense in the
1994 statement of operations and statement of cash flows and, during 1995, the
Company adopted Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of".

COOPERS & LYBRAND L.L.P.

Houston, Texas
December 23, 1996

67
<PAGE> 70

SCHEDULE I

ZAPATA CORPORATION
(PARENT COMPANY ONLY)

CONDENSED BALANCE SHEET

<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 95,220 $ 1,418
Restricted cash...................................................... 260 --
Receivables.......................................................... 240 1,361
Prepaid expenses and other current assets............................ 1,753 1,961
-------- --------
Total current assets......................................... 97,473 4,740
-------- --------
Investments and other assets:
Investments in and advances to subsidiaries*......................... 58,444 155,135
Investments in unconsolidated affiliates............................. 21,530 18,235
Other assets......................................................... 14,954 14,881
-------- --------
Total investments and other assets........................... 94,928 188,251
-------- --------
Property and equipment:
Cost................................................................. 3,349 3,363
Accumulated depreciation, depletion and amortization................. (3,158) (3,080)
-------- --------
191 283
-------- --------
Total assets................................................. $192,592 $193,274
======== ========
Current liabilities:
Notes payable........................................................ $ -- $ 792
Current maturities of long-term debt................................. 15,621 4,795
Accrued liabilities.................................................. 2,159 1,597
Accrued interest..................................................... 512 513
Income taxes payable................................................. 552 16
-------- --------
Total current liabilities.................................... 18,844 7,713
-------- --------
Long-term debt....................................................... 9,872 28,674
-------- --------
Other liabilities.................................................... 11,563 11,597
-------- --------
Stockholders' equity................................................. 152,313 145,290
-------- --------
Total liabilities and stockholders' equity................... $192,592 $193,274
======== ========
</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.

68
<PAGE> 71

SCHEDULE I
(CONTINUED)

ZAPATA CORPORATION
(PARENT COMPANY ONLY)

CONDENSED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------
1996 1995 1994
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Expenses:
Depreciation............................................... $ 85 $ 115 $ 2,321
Merger expenses............................................ 2,066 -- --
General and administrative................................. 1,459 1,693 4,127
------- ------- --------
3,610 1,808 6,448
------- ------- --------
Operating loss............................................... (3,610) (1,808) (6,448)
------- ------- --------
Other income (expense):
Interest income............................................ 4,165 468 841
Interest expense........................................... (2,700) (1,586) (3,949)
Gain on sale of Tidewater common stock..................... -- 4,811 37,457
Equity in income (loss) of consolidated subsidiaries....... 11,168 1,967 (23,897)
Equity in loss of unconsolidated affiliates................ (4,456) (719) --
Other...................................................... (505) 2,303 3,005
------- ------- --------
7,672 7,244 13,457
------- ------- --------
Income (loss) before income taxes............................ 4,062 5,436 7,009
Provision (benefit) for income taxes......................... (2,493) 1,232 10,496
------- ------- --------
Net income (loss) before extraordinary item and cumulative
effect of change in accounting principle................... 6,555 4,204 (3,487)
Extraordinary item, net of income taxes...................... -- -- (4,832)
Cumulative effect of change in accounting principle, net of
income taxes............................................... 467 -- --
------- ------- --------
Net income (loss)............................................ $ 7,022 $ 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.

69
<PAGE> 72

SCHEDULE I
(CONTINUED)

ZAPATA CORPORATION
(PARENT COMPANY ONLY)

CONDENSED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flow provided (used) by operating activities:
Net income............................................... $ 7,022 $ 4,204 $ (8,319)
-------- -------- --------
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation.......................................... 85 115 2,321
Write-down of investment in subordinated debentures... 499 2,788 --
Extraordinary item, net of income taxes............... -- -- 4,832
Cumulative effect of change in accounting principle,
net of income taxes................................. (467) -- --
Gain on sale of other assets, net..................... -- (5,268) (37,457)
Equity in (income) loss of subsidiaries............... (11,168) (1,967) 23,897
Equity in loss of unconsolidated affiliates........... 4,456 719 --
Changes in assets and liabilities:
Receivables......................................... 1,121 (661) (700)
Accounts payable and accrued liabilities............ 1,097 (444) (991)
Deferred income taxes............................... 354 1,443 (1,535)
Other assets and liabilities........................ (995) (4,868) 2,558
-------- -------- --------
Total adjustments................................ (5,018) (8,143) (7,075)
-------- -------- --------
Net cash provided (used) by operating
activities..................................... 2,004 (3,939) (15,394)
-------- -------- --------
Cash flow provided (used) by investing activities:
Proceeds from disposition of assets...................... -- 14,481 85,853
Restricted cash investments.............................. (260) -- 74,083
Advances from subsidiaries............................... 107,859 24,061 23,137
Investment in unconsolidated affiliates.................. (7,032) -- --
Investment in subordinated debentures.................... -- (3,481) --
Capital expenditures..................................... (1) (1) (67)
Discontinued business acquisitions, net of cash
acquired.............................................. -- -- (73,222)
-------- -------- --------
Net cash provided by investing activities............. 100,566 35,060 109,784
-------- -------- --------
Cash flow provided (used) by financing activities:
Borrowings............................................... -- 1,592 --
Principal payments of long-term obligations.............. (8,768) (29,475) (85,524)
Debt prepayment premium.................................. -- -- (4,148)
Common Stock repurchase and buyback...................... -- (9,508) --
Preferred stock redemption............................... -- (2,255) (2,245)
Dividend payments........................................ -- (1,153) (1,566)
-------- -------- --------
Net cash used by financing activities................. (8,768) (40,799) (93,483)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 93,802 (9,678) 907
Cash and cash equivalents at beginning of year............. 1,418 11,096 10,189
-------- -------- --------
Cash and cash equivalents at end of year................... $ 95,220 $ 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.

70
<PAGE> 73

SCHEDULE I
(CONTINUED)

ZAPATA CORPORATION
(PARENT COMPANY ONLY)

These notes to condensed financial statements should be read in conjunction with
the Consolidated Financial Statements and Notes thereto which are included in
Item 8 hereto.

NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE 1. CHANGE IN ACCOUNTING PRINCIPLE

Effective October 1, 1995, the Company changed its method of accounting for
its equity interest in Envirodyne Industries, Inc. ("Envirodyne"). Since
Envirodyne's financial statements are not available to the Company on a basis
that would permit concurrent reporting, the Company began reporting its equity
in Envirodyne's results of operations on a three-month delayed basis. The
Company's financial statements for the quarter ended December 31, 1995 did not
include the Company's equity interest in Envirodyne for the corresponding
period. The change reduced previously reported income from continuing operations
by $467,000 ($719,000 before tax), or $.02 per share, with a corresponding
cumulative effect for the change in accounting principle of $467,000 in the
quarter ended December 31, 1995.

The following table reflects on a pro forma basis the effect of
retroactively applying the new accounting principle (amounts in thousands).

<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
-----------------
1996 1995
------ ------
<S> <C> <C>
Net income......................................................... $6,555 $4,671
</TABLE>

Envirodyne's net loss for the quarter ended September 26, 1996 reported in
their Form 10-Q but not yet recorded in Zapata's financial statements is
$3,924,000, of which Zapata's interest is $1,593,000. This loss, net of
amortization of $310,000, will be recorded by the Company in its results of
operations for the quarter ending December 31, 1996.

NOTE 2. RECLASSIFICATIONS AND REVISION

During 1996, the Company reclassified the purchase of investments of
approximately $3.5 million previously presented as cash used by operating
activities to cash used by investing activities and made a revision for a
mathematical error to increase cash used by operating activities and cash
provided by investing activities by approximately $3.9 million in the 1995
statement of cash flows. In addition, during 1996, the Company reclassified
expenses related to the early extinguishment of debt of approximately $4.8
million net of income taxes of $2.6 million from other income (expense) to
extraordinary item in the 1994 statement of operations. Other 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.

NOTE 3. 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.

71
<PAGE> 74

SCHEDULE I
(CONCLUDED)

NOTE 4. ANNUAL MATURITIES OF LONG-TERM DEBT

The annual maturities of long-term debt for the five years ending September
30, 2001 are as follows (in thousands):

NOTE 5. ADOPTION OF NEW ACCOUNTING PRINCIPLE

72
<PAGE> 75

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: /s/ Joseph L. Von Rosenberg
III

----------------------------------
(Joseph L. von Rosenberg III
Executive Vice President, General
Counsel and
Corporate Secretary)

December 30, 1996

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
- --------------------------------------------- ---------------------------- ------------------
<C> <S> <C>
Avram A. Glazer* President and Chief December 30, 1996
- --------------------------------------------- Executive Officer
(Avram A. Glazer) (Principal Executive
Officer) and Director
/s/ Robert A. Gardiner Vice President and Chief December 30, 1996
- --------------------------------------------- Financial Officer
(Robert A. Gardiner) (Principal Financial and
Accounting Officer)
Malcolm I. Glazer*
- ---------------------------------------------
(Malcolm I. Glazer)
Ronald C. Lassiter*
- --------------------------------------------- Directors of the Registrant December 30, 1996
(Ronald C. Lassiter)
Robert V. Leffler, Jr.*
- ---------------------------------------------
(Robert V. Leffler, Jr.)
*By: /s/ Joseph L. von Rosenberg
III
- ---------------------------------------------
(Joseph L. von Rosenberg III
Attorney-in-Fact)
</TABLE>

73
<PAGE> 76

The exhibits indicated by an asterisk (*) are incorporated by reference.

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
----------- -----------------------
<S> <C>
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 11, 1996.
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.
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>
<PAGE> 77

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
----------- -----------------------
<S> <C>
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 (Exhibit 10(o) to Zapata's Annual
Report on Form 10-K for the fiscal year ended September 30, 1995
(File No. 1-4219)).
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.
10(q)* -- 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(r)* -- 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(s)* -- 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(t)* -- 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(u)* -- 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(v)* -- 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(w)*+ -- 1996 Long-Term Incentive Plan of Zapata (Exhibit 10.21 to Zapata's
Registration Statement on Form S-4 (Reg. No. 333-06729)).
10(x)+ -- Employment Agreement between Joseph L. von Rosenberg III and Zapata
effective as of June 1, 1996.
21 -- Subsidiaries of the Registrant.
23(a) -- Consent of Huddleston & Co., Inc.
23(b) -- Consent of Coopers & Lybrand L.L.P.
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.

<PAGE> 1
EXHIBIT 3(d)

AMENDED AND RESTATED

BY-LAWS

ZAPATA CORPORATION

(a Delaware corporation)

__________

SECTION 1. Registered Office. The registered
office of ZAPATA CORPORATION (hereinafter called the Corporation) shall be in
the City of Wilmington, County of New Castle, State of Delaware, and the
resident agent in charge thereof shall be The Corporation Trust Company.

SECTION 2. Other Offices. The Corporation may have
an office or offices at such other place or places, either within or without
the State of Delaware, as the Board of Directors may from time to time
determine or as shall be necessary or appropriate for the conduct of the
business of the Corporation.

ARTICLE II

Meetings of Stockholders

SECTION 1. Place of Meeting. All meetings of the
stockholders of the Corporation shall be held at such place or places, within
or without the State of Delaware, as may from time to time be fixed by the
Board of Directors, or as shall be specified or fixed in the respective notices
or waivers of notice thereof.

SECTION 2. Annual Meetings. The annual meeting of
the stockholders of the Corporation for the election of directors and for the
transaction of such other business as may come before the meeting shall be held
on such date in each year and at such time as shall be designated by the Board
of Directors and stated in the notice of the meeting.

SECTION 3. Special Meetings. A special meeting of
the stockholders, or of any class thereof entitled to vote, for any purpose or
purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called at any time by the Chairman of the Board of
Directors or by order of the Board of Directors and shall be called by the
Chairman of the Board of Directors or the Board of Directors upon the written
request of stockholders holding of record at least 80% of the outstanding
shares of stock of the Corporation entitled to vote at such meeting as of the
date of such request. Such written request shall state the purpose or purposes
for which such meeting is to be called. Business transacted at any such
special meeting shall be limited to the purposes stated in the notice.

SECTION 4. Notice of Meetings. Except as otherwise
expressly required by law, notice of each meeting of stockholders,
<PAGE> 2
whether annual or special, shall be given at least ten (10) days before the
date on which the meeting is to be held, to each stockholder of record entitled
to vote thereat by delivering a typewritten or printed notice thereof to him
personally, or by mailing such notice in a postage prepaid envelope directed to
him at his address as it appears on the stock book of the Corporation. Every
notice of a special meeting of the stockholders, besides stating the time and
place of the meeting, shall state briefly the objects or purposes thereof.
Notice of any adjourned meeting of the stockholders shall not be required to be
given, except where expressly required by law.

SECTION 5. Record Date. The Board of Directors may
fix, in advance, a date as the record date for the purpose of determining
stockholders entitled to notice of, or to vote at, any meeting of stockholders,
or stockholders entitled to receive payment of any dividend or the allotment of
any rights, or in order to make a determination of stockholders for any other
proper purpose. Such date, in any case, shall be not more than sixty days, and
in case of a meeting of stockholders not less than ten days, prior to the date
on which the particular action requiring such determination of stockholders is
to be taken. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.

SECTION 6. List of Stockholders. It shall be the
duty of the Secretary or other officer of the Corporation who shall have charge
of the stock ledger, either directly or through a transfer agent appointed by
the Board, to prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at such
meeting, arranged in alphabetical order. Such list shall be open to the
examination of any stockholder at the place where said meeting is to be held
for said ten (10) days, and shall be produced and kept at the time and place of
the meeting during the whole time thereof, and subject to the inspection of any
stockholder who may be present. The original or a duplicate stock ledger shall
be the only evidence as to who are the stockholders entitled to examine such
list or the books of the Corporation or to vote in person or by proxy at such
meeting.

SECTION 7. Quorum. At each meeting of the
stockholders, the holders of record of a majority of the issued and outstanding
stock of the Corporation entitled to vote at such meeting, present in person or
by proxy, shall constitute a quorum for the transaction of business, except
where otherwise provided by these By-laws, by the Certificate of Incorporation
or by law. In the absence of a quorum, any officer entitled to preside at, or
act as Secretary of such meeting, shall have the power to adjourn the meeting
from time to time until a quorum shall be constituted. At any such adjourned
meeting at which a quorum shall be present, any business may be transacted
which might have been transacted at the meeting as originally called.

SECTION 8. Voting at Meetings. Any holder of
shares of capital stock of the Corporation entitled to vote shall be entitled
to one vote for each such share, either in person or by proxy executed in
<PAGE> 3
writing by him or by his duly authorized attorney in fact. No proxy shall be
valid after eleven months from the date of its execution unless otherwise
provided in the proxy. Each proxy shall be revocable unless expressly provided
therein to be irrevocable and unless it is coupled with an interest sufficient
in law to support an irrevocable power. Stockholders of the Corporation shall
not have cumulative voting rights in the election of directors.

ARTICLE III

Board of Directors

SECTION 1. General Powers. The property, business
and affairs of the Corporation shall be managed by the Board of Directors which
may exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-laws directed or required to be exercised or done by the stockholders.

SECTION 2. Number and Term of Office. The number of
directors that shall constitute the whole Board of Directors shall be fixed by,
and may be increased or decreased from time to time by, the affirmative vote of
a majority of the numbers at any time constituting the Board of Directors of
the Corporation. In the absence of such a designation, the number of directors
constituting the whole Board of Directors shall be five (5). Directors need
not be stockholders. Each director shall hold office for the full term of
office to which he shall have been elected and until his successor shall have
been duly elected and shall qualify, or until his earlier death, resignation or
removal.

SECTION 3. Place of Meetings. The Board of
Directors may hold its meetings, have one or more offices, and keep the books
and records of the Corporation, at such place or places within or without the
State of Delaware, as the Board may from time to time determine.

SECTION 4. First Meeting. After each annual
election of Directors and on the same day or as soon thereafter as convenient,
the Board of Directors shall meet for the purpose of organization, the election
of officers and the transaction of other business at the place where such
annual election is held. Notice of such meeting need not be given. Such
meeting may be held at any other time or place as shall be specified in a
notice given as hereinafter provided for special meetings of the Board of
Directors or in a consent and waiver of notice thereof signed by all the
directors.

SECTION 5. Regular Meetings. Regular meetings of
the Board of Directors may be held without notice at such time and place as
shall from time to time be determined by the Board.

SECTION 6. Special Meetings. Special meetings of
the 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
the Corporation. Notice shall be given, either

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<PAGE> 4
personally or by mail or telegram at least twenty-four hours before the
meeting. Notice of the time, place and purpose of such meeting may be waived
in writing before or after such meeting, and shall be equivalent to the giving
of notice. Attendance of a director at such meeting shall also constitute a
waiver of notice thereof, except where he attends for the announced purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.

SECTION 7. Quorum. A majority of the directors at
the time in office present at any regular or special meeting of the Board of
Directors shall constitute a quorum for the transaction of business; except
that in no case shall a quorum be less than one-third of the total number of
directors authorized; and, except as otherwise required by statute, by the
Certificate of Incorporation or by these By-laws, the act of a majority of the
directors present at any such meeting at which a quorum is present shall be the
act of the Board. In the absence of a quorum, a majority of the directors
present may adjourn the meeting from time to time until a quorum shall be
present. Notice of any adjourned meeting need not be given.

SECTION 8. Vacancies and Newly Created
Directorships. Any vacancy that shall occur in the Board of Directors by
reason of death, resignation, disqualification or removal or any other cause
whatever, and newly created directorships resulting from any increase in the
authorized number of directors, may be filled by a majority of the remaining
directors (though less than a quorum) or by the stockholders of the Corporation
at the next annual meeting or any special meeting called for the purpose, and,
except as otherwise provided by the Certificate of Incorporation with respect
to newly created directorships filled by the Board of Directors, each director
so chosen shall hold office until the annual meeting at which the term of the
class to which he shall have been elected expires and until his successor shall
be duly elected and shall qualify, or until his earlier death, resignation or
removal.

SECTION 9. Committees. The Board of Directors may,
by resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of two or more of the directors of the
Corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. Any such committee, to the extent provided by
the Board, shall have and may exercise the powers of the Board of Directors in
the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; provided, however, that in the absence or disqualification of any
member of such committee or committees, the member or members thereof present
at any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Such committee or committee shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and report the same
to the Board of Directors when required.

-4-
<PAGE> 5
SECTION 10. Action Without a Meeting. Unless
otherwise restricted by the Certificate of Incorporation or these By-laws, any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting, if prior
to such action a written consent thereto is signed by all members of the Board
or of such committee as the case may be, and such written consent is filed with
the minutes of proceedings of the Board or of such committee.

SECTION 11. Compensation of Directors. Directors,
as such, shall not receive any stated salary for their services, but may be
paid for their services such amounts as may be fixed from time to time by
resolution of the Board. Expenses of attendance, if any, may be paid for
attendance at each regular or special meeting of the Board. No such payments
shall preclude any director from serving the Corporation in any other capacity
and receiving compensation therefor. Members of special or standing committees
may be allowed like compensation for attending committee meetings.

SECTION 12. Vote of Directors. Notwithstanding
anything to the contrary in these By-laws, the following actions shall require
the vote of six (6) Directors: (a) any alteration, amendment or repeal of
these By-laws; (b) the issuance of, or the adoption of any agreement or plan
for the issuance of, any stock, rights, or other securities (including, without
limitation, securities convertible into or exchangeable or exercisable for
stock of the Company) to the stockholders or any class thereof generally, any
term of which is contingent upon or effective upon the acquisition by any
person of any of or all of the Company's stock or upon any other action by any
person with respect to such stock; (c) the creation of any committee of the
Board of Directors; (d) the filling of vacancies on the Board of Directors or
any committee thereof created by the death, resignation or removal of Malcolm
I. Glazer or Avram A. Glazer; or (e) any action to remove Malcolm I. Glazer or
Avram A. Glazer from any committee of the Board of Directors. Notwithstanding
anything to the contrary in these By-laws, effective with the Corporation's
1995 annual meeting of stockholders, the action in this Section 12 shall
require the vote of five (5) Directors.

ARTICLE IV

Officers

SECTION 1. Title, Number and Salaries. The
officers of the Corporation shall be elected by the Board of Directors, and
shall consist of a Chairman of the Board and Chief Executive Officer, Vice
Presidents, a Secretary, a Treasurer, and such Assistant Secretaries and
Assistant Treasurers as the Board of Directors may from time to time designate,
all of whom shall hold office until their successors are elected and qualified.
Two or more offices, except the office of Chairman of the Board and Chief
Executive Officer and the office of the Secretary, may be held by the same
person, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity. The salaries of the officers shall be determined by
the Board of Directors or committee duly designated thereby, and may be

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<PAGE> 6
altered from time to time except as otherwise provided by contract. All
officers shall be entitled to be paid or reimbursed for all cost and
expenditures incurred in the Corporation's business.

SECTION 2. Vacancies. Whenever any vacancies shall
occur in any office by death, resignation, increase in the number of officers
of the Corporation, or otherwise, the same shall be filled by the Board of
Directors, and the officer so elected shall hold office until his successor is
chosen and qualified.

SECTION 3. Removal. Any officer or agent elected
or appointed by the Board of Directors may be removed by the Board of Directors
whenever in its judgment the best interests of the Corporation will be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed. Election or appointment of an officer or agent
shall not of itself create contract rights.

SECTION 4. Chairman of the Board. The Chairman
of the Board shall preside at all meeting of the stockholders and directors,
shall be ex officio a member of all standing committees to which he is not
otherwise appointed, shall see that all orders and resolutions of the Board are
carried into effect, and, subject to the directions of the Board, shall have
general and active management of the business of the Corporation and shall
perform such other duties as may from time to time be assigned to him by the
Board.

SECTION 5. Chief Executive Officer and President.
The Chief Executive Officer and President shall be the chief administrative
officer of the Corporation, and subject to the provisions of SECTION 4 of this
ARTICLE IV, shall perform all the duties incident to the office of Chief
Executive Officer and President of a corporation and, subject to the direction
of the Board, shall have general and active management of the business of the
Corporation and shall perform all duties incident to the office of Chief
Executive Officer and President of a corporation and such other duties as may
from time to time be assigned to him by the Board. At the request of the
Chairman of the Board or of the Board, or in the absence or disability of the
Chairman of the Board, the Chief Executive Officer and President shall have all
the powers and perform all the duties of the Chairman of the Board.

SECTION 6. Vice Presidents. In the absence or
disability of the Chairman of the Board and Chief Executive Officer, the Vice
Presidents, in the order of their seniority, shall perform the duties and
exercise the powers of the Chairman of the Board and Chief Executive Officer,
other than as otherwise provided in the first sentence of SECTION 4 of this
ARTICLE IV.

SECTION 7. Secretary. It shall be the duty of the
Secretary to attend all meetings of the stockholders and Board of Directors, to
record correctly the proceedings had at such meetings in a book suitable for
that purpose and to perform like duties for standing committees when required.
It shall also be the duty of the Secretary to attest with his signature and the
seal of the Corporation all stock certificates issued by the Corporation and to
keep a stock ledger in which shall be correctly recorded all transactions
pertaining to the capital stock of the Corporation. He shall also attest with
his

-6-
<PAGE> 7
signature and the seal of the Corporation all deeds, conveyances or other
instruments requiring the seal of the Corporation. The person holding the
office of Secretary shall also perform, under the direction and subject to the
control of the Board of Directors, such other duties as may be assigned to him.
The duties of the Secretary may also be performed by any Assistant Secretary.

SECTION 8. Treasurer. The Treasurer shall keep
such funds of the Corporation as may be entrusted to his keeping and account
for the same. He shall be prepared at all times to give information as to the
condition of the Corporation and shall make a detailed annual report of the
entire business and financial condition of the Corporation. The person holding
the office of Treasurer shall also perform, under the direction and subject to
the control of the Board of Directors, such other duties as may be assigned to
him. The duties of the Treasurer may also be performed by any Assistant
Treasurer.

SECTION 9. Delegation of Authority. In the case of
any absence of any officer of the Corporation or for any other reason that the
Board may deem sufficient, the Board of Directors may delegate some or all of
the powers or duties of such officer to any other officer or to any director,
employee, stockholder or agent for whatever period of time seems desirable,
providing that a majority of the entire Board concurs therein.

ARTICLE V

Indemnification and Insurance

SECTION 1. General Indemnification. Subject to the
provisions of SECTION 3 of this ARTICLE V, the Corporation 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, 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 or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, 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 2. Indemnification in Actions by or in the
Right of the Corporation. Subject to the provisions of SECTION 3 of this
ARTICLE V, the Corporation shall indemnify any person who was or is a

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<PAGE> 8
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 or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer 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 to any
claim, issue or matter as to which such person shall have been adjudged to be
liable (i) for any breach of his duty of loyalty to the Corporation 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 Delaware General Corporation Law, or (iv) for any transaction from which
he derived an improper personal benefit unless and only to the extent that the
Delaware 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 of the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the
Delaware Court of Chancery or such other court shall deem proper.

SECTION 3. Determination of Standard of Conduct.
Any indemnification under SECTIONS 1 and 2 of this ARTICLE V (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 or officer is
proper in the circumstances because he had met the applicable standard of
conduct set forth in said SECTIONS 1 and 2. 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, suitor proceeding, or (2) if
such quorum is not obtainable or, even if obtainable and a quorum of
disinterested directors so directs, by independent legal counsel (who may be
counsel to the Corporation) in a written opinion, or (3) by the stockholders.

SECTION 4. Successful Defense. If a director or
officer of the Corporation has been successful on the merits or otherwise as a
party to any action, suit or proceeding referred to in SECTIONS 1 and 2 of this
ARTICLE V, or with respect to any claim, issue or matter therein (to the extent
that a portion of his expenses can be reasonably allocated thereto), he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.

SECTION 5. Expenses During Proceeding. Expenses
incurred in defending a civil, criminal, administrative or investigative
action, suit or proceeding, or threat thereof, may be paid by the Corporation
in advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors in the specific case upon receipt of an
undertaking by or on behalf of the director or officer to whom or on whose
behalf any such amount is paid to repay such amount unless it shall ultimately
be determined that he is entitled to be indemnified by the Corporation as
authorized in this ARTICLE V.

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<PAGE> 9
SECTION 6. Exclusivity. The indemnification
provided by this ARTICLE V shall not be deemed exclusive of any other rights to
which any person indemnified may be entitled under any other By-Law, 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 and shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.

SECTION 7. Insurance. The Corporation may 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 this
ARTICLE V or of Section 145 of the General Corporation Law of the State of
Delaware.

SECTION 8. Definitions. For the purposes of this
ARTICLE V, references to "the Corporation" include all constituent corporations
absorbed in a consolidation or merger as well as the resulting or surviving
corporation so that any person who is or was a director or officer of such a
constituent corporation or is or was serving at the request of such constituent
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise shall stand in the same position under the
provisions of this ARTICLE V with respect to the resulting or surviving
corporation as he would if he had served the resulting or surviving corporation
in the same capacity. For purposes of this ARTICLE V, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the corporation"
shall include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this ARTICLE V.

ARTICLE VI

Shares of Capital Stock and Their Transfer

SECTION 1. Certificates for Stock. Every owner of
stock of the Corporation shall be entitled to a certificate or certificates, to
be in such form as the Board shall prescribe, certifying the number and class
of shares of the capital stock of the Corporation owned by him. The
certificates for the respective classes of such stock shall be numbered in the
order in which they shall be issued and shall be signed in the name of the
Corporation by the Chairman of the Board and

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<PAGE> 10
Chief Executive Officer or any Vice President and the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the Corporation and
its seal be affixed thereto; provided, however, that, where such certificate is
signed by a transfer agent or an assistant transfer agent or by a transfer
clerk acting on behalf of the Corporation and a registrar, if the Board shall
by Resolution so authorize, the signature of such Chairman of the Board and
Chief Executive Officer, Vice President, Treasurer, Secretary, Assistant
Treasurer or Assistant Secretary and the seal of the Corporation may be
facsimile. In case any officer or officers of the Corporation who shall have
signed, or whose facsimile signature or signatures shall have been used on, any
such certificate or certificates shall cease to be such officer or officers,
whether by reason of death, resignation or otherwise, before such certificate
or certificates shall have been delivered by the Corporation, such certificate
or certificates may nevertheless be adopted by the Corporation and be issue and
delivered as though the person or persons who signed such certificate or
certificates, or whose facsimile signature or signatures shall have been
affixed thereto, had not ceased to be such officer or officers. A record shall
be kept by the Secretary, transfer agent or by any other officer, employee or
agent designated by the Board of the name of the person, firm or corporation
owning the stock represented by such certificates, the number and class of
shares represented by such certificates, respectively, and the respective dates
thereof, and in case of cancellation, the respective dates of cancellation.
Every certificate surrendered to the Corporation for exchange or transfer shall
be cancelled, and no new certificate or certificates shall be issued in
exchange for any existing certificate until such existing certificate shall
have been so cancelled, except in cases provided for in SECTION 5 of this
ARTICLE VI.

SECTION 2. Classes and Series of Classes of Stock.
If the Corporation shall be authorized to issue more than one class of stock or
more than one series of any class, the designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock; provided that, in lieu of the foregoing requirements,
there may be set forth on the face or back of the Certificate which the
Corporation shall issue to represent such class or series of stock, a statement
that the Corporation will furnish without charge to each stockholder who so
requests the designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.

SECTION 3. Transfer of Stock. Transfers of shares
of the capital stock of the Corporation shall be made only on the books of the
Corporation by the registered holder thereof, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the Corporation, or with a transfer agent appointed as in SECTION 4 of this
ARTICLE VI provided, and on surrender of the certificate or certificates for
such shares properly endorsed and the payment of all taxes thereon. The person
in whose name shares of stock stand on the books of the Corporation shall be
deemed the owner thereof

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<PAGE> 11
for all purposes as regards the Corporation; provided, however, that whenever
any transfer of shares shall be made for collateral security, and not
absolutely, such fact, if known to the Secretary of the Corporation, shall be
so expressed in the entry of transfer.

SECTION 4. Regulations. The Board may make such
rules and regulations as it may deem expedient, not inconsistent with the
Certificate of Incorporation or these By-laws, concerning the issue, transfer
and registration of certificates for shares of the stock of the Corporation.
It may appoint, or authorize any principal officer or officers to appoint, one
or more Transfer Agents and one or more Registrars, and may require all
certificates of stock to bear the signature or signatures of any of them.

SECTION 5. Lost, Destroyed or Mutilated
Certificates. In case of loss, destruction or mutilation of any certificates
of stock, another certificate or certificates may be issued in place thereof
upon proof of such loss, destruction, or mutilation and upon the giving of a
bond of indemnity to the Corporation in such form and in such sum as the Board
may direct; provided, however, that a new certificate may be issued without
requiring any bond when, in the judgment of the Board, it is proper so to do.

SECTION 6. Dividends. Dividends upon the capital
stock of the Corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors at any regular
or special meeting, pursuant to law. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest
of the Corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.

ARTICLE VII

Miscellaneous Provisions

SECTION 1. Corporate Seal. The seal of the
Corporation shall be circular in form with the words "Corporate SEAL Delaware"
in the center and the name of the Corporation around the margin thereof.

SECTION 2. Fiscal Year. The fiscal year of the
Corporation shall end at the close of business on the 30th day of September in
each year.

SECTION 3. Annual Reports. The Board of Directors
shall present at each annual meeting of the stockholders a full report of the
business and condition of the Corporation.

SECTION 4. Execution of Contracts. The Board may
authorize any officer or officers, agent or agents, or attorney or

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<PAGE> 12
attorneys, to enter into any contract or execute and deliver any instrument in
the name and on behalf of the Corporation, and such authority may be general or
confined to specific instances; and, unless so authorized by the Board or
expressly authorized by these By-laws, no officer, agent or employee shall have
any power or authority to bind the Corporation by any contract or other
engagement or to pledge its credit or to render it liable pecuniarily for any
purpose or in any amount.

SECTION 5. Loans. No loan shall be contracted on
behalf of the Corporation, and no negotiable paper shall be issued in its name,
unless authorized by the Board or by a committee of the Board to whom the Board
has delegated such power.

SECTION 6. Checks, Drafts, Etc. All checks,
drafts, bills, notes and other negotiable instruments and orders for the
payment of money issued in the name of the Corporation, shall be signed by such
officer or officers, employee or employees, agent or agents, of the Corporation
and in such manner as shall from time to time be determined by resolution of
the Board.

SECTION 7. Deposits. All funds of the Corporation
not otherwise employed shall be deposited from time to time to the credit of
the Corporation in such banks, trust companies or other depositaries as the
Board may designate, or as may be designated by any officer or officers, agent
or agents, or attorney or attorneys, of the Corporation to whom power in that
respect shall have been delegated by the Board. For the purpose of deposit and
for the purpose of collection for the account of the Corporation, the Chairman
of the Board and Chief Executive Officer, or any Vice President, or the
Treasurer (or any other officer or agent or employee or attorney of the
Corporation to whom such power shall be delegated by the Board) may endorse,
assign and deliver checks, drafts and other orders for the payment of money
which are payable to the order of the Corporation.

SECTION 8. General and Special Bank Accounts. The
Board may from time to time authorize the opening and keeping of general and
special bank accounts with such banks, trust companies or other depositaries as
it may designate or as may be designated by any officer or officers, agent or
agents, or attorney or attorneys, of the Corporation to whom power in that
respect shall have been delegated by the Board. The Board may make such
special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these By-laws, as it may deem expedient.

ARTICLE VIII

Amendments

All By-laws of the Corporation shall be subject to alteration
or repeal, and new By-laws shall be adopted, either by the affirmative votes of
the holders of record of 80% or more of the issued and outstanding stock of the
Corporation entitled to vote in respect thereof, given at any annual or special
meeting, or by the vote provided for in SECTION 12 of ARTICLE III hereof given
at any regular or special meeting of the Board of Directors, provided that
notice of

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<PAGE> 13
the proposal so to alter or repeal or to make such By-laws be included in the
notice of such meeting of the stockholders or the Board, as the case may be.
By-laws, whether made or altered by the stockholders or by the Board of
Directors, shall be subject to alteration or repeal by the stockholders by the
vote hereinabove specified.

-13-

<PAGE> 1
EXHIBIT 10(x)

[ZAPATA CORPORATION LETTERHEAD]

June 1, 1996

Mr. Joseph L. von Rosenberg III
14855 Memorial Drive, Apt. 2113
Houston, Texas 77079

Dear Joe:

Zapata Corporation (the "Company") has determined that it is in the best
interests of the Company and its shareholders to assure that the Company will
have your continued dedication, and to provide you (the "Executive") with
compensation and benefits arrangements which are competitive with those of
other corporations and which ensure that your compensation and benefits
expectations will be satisfied. The Company also believes it is imperative to
diminish your inevitable distraction by virtue of the personal uncertainties
and risks created by a pending or threatened Change of Control (as defined
herein) and to encourage your full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to insure the continuation of favorable compensation and benefits upon a Change
of Control. Therefore, in order to accomplish these objectives, the Company
does hereby enter into this agreement (this "Agreement"), which shall supersede
any other employment agreements between you and the Company.

In order to induce you to remain in the employ of the Company, it is agreed as
follows:

1. Employment. The Company hereby employs the Executive, and the Executive
hereby accepts such employment, all upon the terms and conditions set
forth herein.

2. Term. Subject to the terms and conditions set forth herein, the Executive
shall be employed for a primary term commencing on the date hereof and
ending on November 30, 1997 (the "Primary Term"). Upon the expiration of
the Primary Term, the term of employment of the Executive shall be
automatically renewed for each subsequent period of 18 months (each, a
"Renewal Term"), except as may be otherwise agreed upon in writing by the
Company and the Executive.

3. Duties and Responsibilities.

A. Capacity. The Executive shall serve in the capacity of Executive
Vice President, General Counsel and Corporate Secretary of the
Company. The Executive's duties under this Agreement shall consist of
such general management activities as are consistent with the
responsibilities of said office and such other activities as may
hereafter be assigned to him by the Chief Executive Officer, Avram A.
Glazer ("Glazer"). All such duties shall be performed in accordance
with any written or oral
<PAGE> 2
Mr. Joseph L. von Rosenberg III
June 1, 1996
Page 2

direction from time to time furnished to the Executive by Glazer, and
the Executive shall report solely to Glazer.

B. Full-Time Duties. The Executive shall devote his full business time,
attention and energies to the business of the Company and shall
not be engaged in any other business activity, whether or not
pursued for gain, profit or other pecuniary advantage, which would
impair his ability to fulfill his duties to the Company under this
Agreement, without the prior written consent of the Company. The
Executive shall be allowed, to the extent such activities do not
substantially interfere with the performance by the Executive of his
duties and responsibilities hereunder, to (a) manage the Executive's
personal affairs, and (b)(i) serve on boards or committees of civic
or charitable organizations or trade associations, and (ii) serve on
the board of directors of any corporation; provided, however, that
the Executive shall advise the Company in writing of any such
corporate directorship under clause (b)(ii) and, if requested by the
Company, the Executive shall first demonstrate, to the reasonable
satisfaction of the Company, that any such directorship does not
detract from the Executive's performance of his duties and
responsibilities under this Agreement. Nothing contained in this
paragraph B shall prevent the Executive from passively investing his
assets in such a form or manner as will not conflict with the terms
of this Agreement and will not require services on the part of the
Executive in the operation of the business of the companies or other
enterprises in which such investments are made.

C. Standard of Performance. The Executive will perform his duties under
this Agreement with fidelity and loyalty, to the best of his ability,
experience and talent and in a manner consistent with his fiduciary
responsibilities.

D. Location. The Executive's primary place of employment shall be in
Houston, Texas and the Executive shall not be required to relocate
more than 30 miles from 1717 St. James Place, Suite 550, Houston,
Texas 77056, without his consent.

4. Compensation.

A. Base Salary. During the Primary Term and any Renewal Term, the
Company shall pay the Executive a salary (the "Base Salary") of
$165,000 per annum, prorated for partial years of employment. The
Base Salary shall be payable in accordance with the general payroll
practices of the Company in effect from time to time. The Company
shall review the Base Salary then being paid to the Executive at such
times as the Company regularly reviews the compensation paid to
employees generally (but no less frequently than once each fiscal
year). Upon completion of such review, the Company in its sole
discretion may increase, decrease or maintain the Executive's
<PAGE> 3
Mr. Joseph L. von Rosenberg III
June 1, 1996
Page 3

then current Base Salary, provided, however, that the Company may
decrease the Executive's then current Base Salary only with the prior
written consent of the Executive.

B. Benefits.

(1) Generally. The Executive shall be entitled to participate, in
accordance with the Company's regular practices with respect to
its similarly situated executives, in the Company's pension,
profit-sharing, bonus, disability, accident, medical, life
insurance, hospitalization plans and any other employee benefit
program maintained by the Company for its similarly situated
executives. The Company will have the right to amend or
terminate any such benefit plans it may choose to establish.

(2) Initial Bonus. The Executive shall be entitled to a cash bonus
of not less than $50,000 with respect to calendar year 1996,
which bonus shall be payable on or before December 25, 1996
(the "1996 Bonus"). The 1996 Bonus may be paid pursuant to any
bonus plan or program maintained by the Company. Regardless of
whether the 1996 Bonus is paid pursuant to such a bonus plan or
program, payment of the 1996 Bonus shall be deemed to fully
satisfy Executive's right (as described in paragraph 4.B.(1)
above) to participate in any such bonus plan or program with
respect to calendar year 1996.

(3) Reimbursements. The Executive shall be entitled to
reimbursement from the Company for reasonable out-of-pocket
expenses incurred by him in the course of the performance of
his duties hereunder, upon the submission of appropriate
documentation.

(4) Vacations and Other Absences. The Executive shall be entitled
to such vacation, holidays and, subject to the provisions of
Section 5, other paid or unpaid leaves of absence as are
consistent with the Company's normal policies or as are
otherwise approved by the Company.

C. Payments. All payments to the Executive provided for under this
Agreement shall be paid in cash from the general funds of the
Company, and no special or separate funds shall be established and
no other segregation of assets shall be made to assure payment. The
Executive shall have no right, title or interest whatsoever in or to
any investments which the Company may make to aid it in meeting its
obligations hereunder. Nothing contained in this Agreement, and no
action taken pursuant to the provisions hereof, shall create, or be
construed to create, a trust of any kind or any fiduciary
responsibility of the Company to the Executive or any other person.
To the

<PAGE> 4
Mr. Joseph L. von Rosenberg III
June 1, 1996
Page 4

extent that any person acquires a right to receive payments from the
Company hereunder, such right shall be no greater than the right of
an unsecured creditor of the Company.

5. Termination.

A. Termination by the Company Prior to Change of Control. At the
Company's election, this Agreement may be terminated by the Company
prior to a "Change of Control" (as hereinafter defined) in any of
the following circumstances.

(1) If the Company shall have "Cause" (as hereinafter defined);

(2) If the Executive shall die; or

(3) If the Executive shall be unable, with reasonable
accommodation, to perform his duties hereunder owing to illness
or incapacity for a total of 120 days during any 360-day
period;

The termination of the Executive's employment pursuant to this
Section 5.A. shall be effective (i) in the case of a termination
pursuant to paragraph (1) above, as of the date specified in Section
5.B., (ii) in the case of a termination pursuant to paragraph (2)
above, at death, or (iii) in the case of a termination pursuant to
paragraph (3) above, upon 30 days' written notice from the Company to
the Executive. Upon any termination of the Executive's employment
pursuant to paragraph (1), (2) or (3) above, the Company shall have
no further liability or obligation under or in connection with this
Agreement, except to pay the portion of the Executive's Base Salary
earned or accrued at the date of termination. If the Executive is
otherwise eligible for benefits under any long-term disability plan
sponsored by the Company, then a termination solely pursuant to
paragraph (3) above shall not affect, the Executive's entitlement to
such benefits. In the event that the Executive's employment with the
Company is terminated by the Company for any reason other than for
"Cause," death or disability (as defined in paragraph (3) above), the
Company shall have no further liability or obligation under or in
connection with this Agreement, except to pay the Executive an amount
equal to 150% of his annual Base Salary in effect at the date of
termination in eighteen (18) equal monthly installments each equal to
8-1/3% of such annual Base Salary, the first such installment payable
within 10 days after the date of termination and the remaining
installments payable monthly thereafter. The termination of the
Executive's employment by the Company other than for "Cause" shall be
effective as of the date specified in this Section 5.A.

<PAGE> 5
Mr. Joseph L. von Rosenberg III
June 1, 1996
Page 5

B. Cause. "Cause" means (a) the Executive is convicted of a felony
involving moral turpitude, (b) the Executive commits a willful
serious act intending to enrich himself at the expense of the Company
or any affiliated entity, or (c) the Executive, in carrying out his
duties and responsibilities under this Agreement, (i) is guilty of
willful gross neglect, or (ii) voluntarily engages in conduct that
results in material harm to the Company or any affiliated entity,
unless such conduct was reasonably believed by the Executive in
good faith to be in the best interests of the Company. In each case,
the existence of Cause must be confirmed by a majority of the Board
of Directors of the Company (the "Board") prior to any termination
therefor. In the event of such a confirmation, the Company shall
notify the Executive that the Company intends to terminate the
Executive's employment for Cause (the "Confirmation Notice"). The
Confirmation Notice shall specify the act, or acts, upon the basis of
which the majority of the Board has so confirmed the existence of
Cause. If the Executives notifies the Company in writing (the
"Opportunity Notice") within five days after the Executive has
received the Confirmation Notice, the Executive shall be provided one
opportunity to meet with the Board (or a sufficient quorum thereof)
to discuss such act or acts. Such opportunity to meet shall be fixed
and shall occur on a date selected by the Board (such date being not
less than 10 nor more than 45 days) after the Company receives the
Opportunity Notice from the Executive. Such meeting shall take place
at the principal offices of the Company. During the period
commencing on the date the Company receives the Opportunity Notice
and ending on the date next succeeding the date on which such meeting
between the Board (or a sufficient quorum thereof) and the Executive
is scheduled to occur, the Executive shall be suspended with pay from
his employment with the Company and the Executive's access to the
principal offices of the Company or any of its assets shall be
restricted to access specifically permitted by the Board. If the
Board properly sets the date of such meeting and if the Board (or a
sufficient quorum thereof) attends such meeting and does not rescind
its confirmation at such meeting or if the Executive fails to attend
such meeting for any reason, the Executive's employment by the
Company shall, immediately upon the closing of such meeting, be
terminated for Cause. If the Executive does not respond in writing
to the Confirmation Notice in the manner and within the time deadline
specified in this Section 5.B., the Executive's employment with the
Company shall, on the sixth day after the receipt by the Executive of
the Confirmation Notice, be terminated for Cause.

C. Termination by the Executive Prior to Change of Control. In the
event that the Executive terminates employment hereunder prior to a
"Change of Control" for "Good Reason" (as defined in Section 5.D),
the Company shall have no further liability or obligation under or in
connection with this Agreement, except to pay the Executive an amount
equal to 150% of his Base Salary in effect at the date of

<PAGE> 6
Mr. Joseph L. von Rosenberg III
June 1, 1996
Page 6

termination in eighteen (18) equal monthly installments each equal to
8-1/3% of such annual Base Salary, the first such installment payable
within 10 days after the date of termination and the remaining
installments payable monthly thereafter. The termination of the
Executive's employment for "Good Reason" shall be effective as of the
date specified in Section 5.D. In the event that the Executive
voluntarily terminates employment hereunder for other than "Good
Reason" (as defined in Section 5.D) prior to a "Change of Control,"
the Company shall have no further liability or obligation under or in
connection with this Agreement.

D. Good Reason Prior to Change of Control. Prior to "Change of
Control," "Good Reason" shall mean (i) the Executive is required to
relocate more than 30 miles from 1717 St. James Place, Suite 550,
Houston, Texas 77056, without his consent, or (ii) the Company fails
to comply with any material provision of this Agreement. Termination
of employment for Good Reason shall be deemed to be effective upon 10
days' written notice of termination from the Executive or the
Company, as the case may be.

E. Termination by the Company After Change of Control. In the event
that the Executive's employment hereunder is terminated by the
Company other than for (i) Cause, (ii) death, or (iii) for disability
(as defined in Section 5.A.3), after a "Change of Control," the
Company shall have no further liability or obligation under this
Agreement, except to pay the Executive a severance payment (the
"Severance Payment")(as hereinafter defined) in eighteen (18) equal
monthly installments, the first such installment payable within ten
(10) days after the date of termination and the remaining
installments payable monthly thereafter. The termination of the
Executive's employment by the Company shall be effective as of the
date(s) specified in Sections 5.A and 5.B. For purposes of this
Agreement, "Severance Payment" shall mean an amount equal to 2.99
times the Executive's "base amount within the meaning of Sections
280G(b)(3) and 280G(d) of the Internal Revenue Code of 1986, as
amended (the "Code"), and any applicable temporary or final
regulations promulgated thereunder, or its equivalent as provided in
any successor statute or regulation. In the event that any payment
or benefit to be provided to the Executive by the Company would be
otherwise nondeductible by the company in whole or in part on account
of Code Section 280G, the amount of such payment or benefit shall be
reduced in order to limit or eliminate the portion of such amount
that would otherwise be non-deductible under Section 280G. For
purposes of applying this limitation, the Executive may waive, in
writing, any portion of the payment or benefit prior to the date it
is paid or made available and the waived amount shall not be taken
into account. If Code Section 280G (and any successor provisions
thereto) shall be repealed or otherwise be inapplicable, then the
Severance Payment shall be equal to 2.99 times the average of the
Executive's annual compensation for both
<PAGE> 7
Mr. Joseph L. von Rosenberg III
June 1, 1996
Page 7

complete and partial calendar years during so much of the five
calendar year period preceding the calendar year in which the Change
of Control occurred during which the Executive was so employed,
determined by annualizing any compensation (other than non-recurring
items) includible in the Executive's gross income for any partial
calendar year and then adding such non-recurring items to such
annualized compensation. Compensation for this purpose shall include
every type and form of compensation includible in the Executive's
gross income in respect to the Executive's employment by the Company.
In the event that the Executive's employment hereunder is terminated
by the Company for (i) Cause, (ii) death, or (iii) for disability (as
defined in Section 5.A.3), after a "Change of Control," the Company
shall have no further liability or obligation under this Agreement.

F. Termination by the Executive After Change of Control. In the event
that the Executive terminates employment hereunder after a "Change of
Control" for "Good Reason" (as defined in Section 5.G), the Company
shall have no further liability or obligation under or in connection
with this Agreement, except to pay the Executive the Severance
Payment in eighteen (18) equal monthly installments, the first such
installment payable within ten (1) days after the date of termination
and the remaining installments payable monthly thereafter. The
termination of the Executive's employment for "Good Reason" shall be
effective as of the date specified in Section 5.G. In the event that
the Executive voluntarily terminates employment hereunder for other
than "Good Reason" (as defined in Section 5.G) after a "Change of
Control," the Company shall have no further liability or obligation
under or in connection with this Agreement.

G. Good Reason After Change of Control. The Executive's employment
hereunder shall be deemed to have been terminated for "Good Reason"
if such termination of employment occurs within one year after the
date of a "Change of Control" (as hereinafter defined) and following
either (i) a diminution in the compensation (without the consent of
the Executive), duties or responsibilities of the Executive
immediately prior to the date of the Change of Control, (ii) the
Company or any subsidiary of the Company merges with or into or
consolidates with another corporation and as a result thereof less
than 70% of the outstanding voting securities of the Company (or if
the outstanding voting securities of the Company are converted into
or exchanged for voting securities of some other corporation, less
than 70% of the outstanding voting securities of such other
corporation) shall then be owned in the aggregate by the stockholders
of the Company immediately prior to such merger or consolidation;
provided, however, that this clause shall not apply to any merger or
consolidation with Houlihan's Restaurant Group,Inc. or Specialty
Equipment Companies, Inc; (iii) the Executive is required to relocate
more than 30 miles from 1717 St. James Place, Suite 550, Houston,
Texas 77056, without his consent, or
<PAGE> 8
W. Joseph L. von Rosenberg III
June 1, 1996
Page 8

(iv) the Company fails to comply with any material provision of this
Agreement. Termination of employment for Good Reason shall be deemed
to be effective upon 10 days' written notice of termination from the
Executive or the Company, as the case may be; provided, however, that
no termination by the Executive based on a diminution in duties and
responsibilities shall occur until the Executive has first notified
the Company in writing as to the specific nature of the diminution in
duties or responsibilities and afforded the Company 15 days in which
to modify such duties or responsibilities. "Change of Control" means,
and shall be deemed to have occurred if, at any time during the
Primary Term or any Renewal Term (i) any "person", within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), other than any employee or Subsidiary of the
Company, any employee benefit plan (or related trust) applicable to
the Company or any of its Subsidiaries or Malcolm I. Glazer or any
corporation, person, partnership, trust or other entity controlled,
directly or indirectly, by him becomes the beneficial owner (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of
securities of the Company representing 30% or more of the combined
voting power of the Company's then outstanding voting securities; (ii)
the Company is merged or consolidated with another corporation and as
a result of such merger or consolidation less than 70% of the
outstanding voting securities of the surviving or resulting
corporation shall then be owned in the aggregate by the stockholders
of the Company immediately prior to such merger or consolidation;
(iii) at any time after June 1, 1996, individuals who constituted the
Board on such date (including, for this purpose, any new director
whose election or nomination for election by the Company's
stockholders was approved by a vote of at least three-fourths of the
directors in office on such date) cease for any reason to constitute
at least a majority of the Board; (iv) the consummation of a sale of
substantially all of the assets of the Company; or (v) the Company's
adoption of a plan of liquidation. A Change in Control shall also
include any series of transactions occurring during the term of this
Agreement which result in any of the changes described above.

H. Termination by the Executive. Upon any termination or expiration of
the Executive's employment hereunder, the Executive shall have no
further liability or obligation under or in connection with this
Agreement; provided, however, that the Executive shall continue to be
subject to the provisions of Section 6 hereof (it being understood and
agreed that such provisions shall survive any termination or
expiration of the Executive's employment hereunder). Upon any
voluntary termination by the Executive, for any reason other than Good
Reason, or expiration of Executive's employment hereunder, the Company
shall have no further liability under or in connection with this
Agreement, except to pay the portion of the Executive's Base Salary
earned or accrued at the date of termination.
<PAGE> 9
W. Joseph L. von Rosenberg III
June 1, 1996
Page 9

6. Confidential Information.

A. Nondisclosure. The Executive hereby acknowledges that it will
be necessary in connection with the performance of services
hereunder to provide or make available to the Executive
certain confidential and proprietary information, including,
but not limited to, business and financial information,
technological information, customer lists and financial
information on customers, intellectual property, trade secrets
and other information relating to the businesses, products,
technology, services, or proprietary information being
hereinafter referred to as "Confidential Information"). The
Executive further acknowledges that the Confidential
Information includes certain protected trade secrets and
agrees that any such trade secrets shall remain the property
of the Company or its affiliates at all times during the term
of this Agreement and following the expiration or termination
hereof. The Executive shall not publish, disseminate,
distribute, disclose, sell, assign, transfer, copy, remove
from the Company's premises, commercially exploit, or
otherwise make use of any Confidential Information to or for
the use or benefit of the Executive or any other person, firm,
corporation or entity, except as specifically authorized in
writing by the Company or as required for the due and proper
performance of his duties and obligations under this Agreement.
In addition, the Executive shall employ all necessary
safeguards and precautions in order to ensure that
unauthorized access to the Confidential Information is not
afforded to any person, firm, corporation or entity. Upon any
expiration or termination of this Agreement, or if the Company
so requests at any time, the Executive shall promptly return
to the Company all Confidential Information in the Executive's
possession, whether in writing, on computer disks or other
media, without retaining any copies, extracts or other
reproductions thereof. Notwithstanding the foregoing, nothing
contained in paragraph A shall prevent the publishing,
dissemination, distribution, disclosure, sale, assignment,
transfer, copying, removal, commercial exploitation or other
use by the Executive of any information which (i) is generally
available to the public (other that through a breach on the
part of the Executive of any of the terms or provisions
hereof), (ii) is lawfully obtained by the Executive from a
source other that the Company or its affiliates, directors,
officers, employees, agents or other representatives
(provided, however, that such source is not bound by a
confidentiality agreement with the Company or any of its
affiliates and is not otherwise under an obligation of secrecy
or confidentiality to either of them), or (iii) is required to
be disclosed by judicial or administrative process or, in the
opinion of counsel, by the that the Executive complies fully
customers, methods or tactics of the Company or its affiliates
(any such confidential requirements of applicable law with the
provisions of paragraph B below).
<PAGE> 10
Mr. Joseph L. von Rosenberg III
June 1, 1996
Page 10

B. Requests for Disclosure. If the Executive is requested
(whether by oral questions, interrogatory, request for
documents, subpoena, civil investigative demand or other legal
process) to disclose any part of the Confidential Information,
the Executive shall (i) give prompt written notice to the
Board of the existence of, and the circumstances attendant to,
such request, (ii) consult with the Board as to the
advisability of taking legally available steps to resist or
narrow any such request or otherwise to eliminate the need for
such disclosure, and (iii) if disclosure is required,
cooperate with the Board in obtaining a protective order or
other reliable assurance in form and substance satisfactory to
the Board that confidential treatment will be accorded to such
portion of the Confidential Information as is required to be
disclosed.

7. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by final and binding
arbitration in Houston, Texas, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association ("AAA"). The
arbitrator shall be selected by mutual agreement of the parties, if
possible. If the parties fail to reach agreement upon appointment of
an arbitrator within 30 days following receipt by one party of the
other party's notice of desire to arbitrate, the arbitrator shall be
selected from a panel or panels of persons submitted by the AAA. The
selection process shall be that which is set forth in the AAA
Commercial Arbitration Rules then prevailing, except that if the
parties fail to select an arbitrator from one or more panels, AAA
shall not have the power to make an appointment but shall continue to
submit additional panels until an arbitrator has been selected. This
agreement to arbitrate shall not preclude the parties from engaging in
voluntary, non-binding settlement efforts including mediation.

8. Notices. All notices and other communications hereunder shall be in
writing and shall be given (and shall be deemed to have been duly
given upon receipt) by delivery in person, by registered or certified
mail (return receipt requested and with postage prepaid thereon) or by
facsimile transmission to the respective parties at the following
addresses (or at such other address as either party shall have
previously furnished to the other in accordance with the terms of this
Section 8):

If to the Company:

c/o Mr. Avram A. Glazer
Zapata Corporation
18 Stoney Clover Lane
Pittsford, New York 14534
<PAGE> 11
Mr. Joseph L. von Rosenberg III
June 1, 1996
Page 11

If to the Executive:

Joseph L. von Rosenberg III
14855 Memorial Drive, Apt. 2113
Houston, Texas 77079

9. Amendment, Waiver. The terms and provisions of this Agreement may be
modified or amended only by a written instrument executed by each of
the parties hereto, and compliance with the terms and provisions
hereof may be waived only by a written instrument executed by each
party entitled to the benefits thereof. No failure or delay on the
part of any party in exercising any right, power or privilege
granted hereunder shall constitute a waiver thereof, nor shall any
single or partial exercise of any such right, power or privilege
preclude any other or further exercise thereof or the exercise of any
other right, power or privilege granted hereunder.

10. Entire Agreement. This constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all
prior written or oral agreements or understandings between the parties
relating thereto.

11. Severability. In the event that any term or provision herein is found
to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining terms and provisions hereof shall not
be in any way affected or impaired thereby, and shall be construed as
if such invalid, illegal or unenforceable provision had never been
contained therein.

12. Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors
and assigns (it being understood and agreed that, except as expressly
provided herein, nothing contained herein is intended to confer upon
any other person or entity any rights, benefits or remedies of any
kind or character whatsoever). Neither party may assign this Agreement
without the prior written consent of the other party; provided,
however, that the Company may assign this Agreement to any of its
affiliates or to any successor (whether by operation of law or
otherwise) to all or substantially all of its business and assets
without the consent of the Executive.

13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas (except that no effect
shall be given to any conflicts of law principles thereof that would
require the application of the laws of another jurisdiction).

14. Headings. The headings of the sections contained herein are for
convenience only and shall not be deemed to control or affect the
meaning or construction of any provision hereof.
<PAGE> 12
Mr. Joseph L. von Rosenberg III
June 1, 1996
Page 12

15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

If this letter sets forth our agreement on the subject matter hereof, kindly
sign and return to the Company the enclosed copy of this letter which will then
constitute our agreement on the subject.

ZAPATA CORPORATION

By: /s/ AVRAM A. GLAZER
---------------------------------------
Avram A. Glazer
President and Chief Executive Officer

ACKNOWLEDGED AND AGREED TO:

/s/ JOSEPH L. VON ROSENBERG III
- ------------------------------------------
Joseph L. von Rosenberg III

<PAGE> 1
EXHIBIT 21

ZAPATA CORPORATION SUBSIDIARIES

<TABLE>
<CAPTION>
Name Place of Incorporation Ownership
- ---- ---------------------- ---------
<S> <C> <C>
Cimarron Gas Holding Company Delaware 100%
Cimarron Gas Companies, Inc. Oklahoma 100%
Tyler Gas Co. Texas 100%
Kodiak Compression, Inc. Oklahoma 100%
Stellar Energy Corporation Texas 100%
Stellar Pipeline Company Texas 100%
Stellar Transmission Company Texas 100%
Energy Industries, Inc. Delaware 100%
Tanker Leasing Corporation Delaware 100%
Zapata Compression Investments, Inc. Delaware 100%
Zapata Energy Industries, L. P. Delaware 100%
Zapata Exploration Company Delaware 100%
Zapata Offshore Gathering Company, Inc. Delaware 100%
Zapata Off-Shore Company Delaware 100%
Zapata Drilling, Inc. Delaware 100%
Zapata North Sea, Inc. Panama 100%
Zapata Overseas Capital Corporation Delaware 100%
Zapata Canada Inc. British Columbia 100%
Zapata Protein, Inc. Delaware 100%
Amigo Feeds, Ltd. Bermuda 50%
Moss Point Marine, Inc. Delaware 100%
Protein Finance Company Delaware 100%
Protein (USA) Company Delaware 100%
Tullco Inc. Delaware 100%
Venture Milling Company Delaware 100%
Zapata Protein International Limited Cayman Islands 100%
Zapata Protein (USA), Inc. Virginia 100%
Protein Securities Company Delaware 100%
Zarpe Trading, Ltd. Barbados 100%
Zapata Services Corporation Delaware 100%
</TABLE>

<PAGE> 1
EXHIBIT 23(a)

HUDDLESTON & CO., INC.
PETROLEUM AND GEOLOGICAL ENGINEERS

1111 FANNIN -- SUITE 1700
HOUSTON, TEXAS 77002

---------------------

(713) 656-0248

December 30, 1996

Zapata Exploration Company
1717 St. James, Suite 550
Houston, Texas 77056

Gentlemen:

Huddleston & Co., Inc., has prepared oil and gas reserve estimates for
Zapata Exploration Company, a subsidiary of Zapata Corporation (the "Company"),
for the Company's fiscal years ended September 30, 1986, 1987, 1988, 1989, 1990,
1991, 1992, 1993, 1994, 1995, and 1996. Such estimates are included in the notes
to the Financial Statements of the Company which appear in the Company's annual
report on Form 10-K for the fiscal year ended September 30, 1996.

Huddleston & Co., Inc., hereby consents to the identification in such Form
10-K of Huddleston & Co., Inc., as the expert which has prepared such estimates,
and the identification of Huddleston & Co., Inc., with respect to such matters
in the post-effective amendments to the Company's registration statements on
Form S-3 covering certain of the shares of the Company's common stock subject to
stock options granted to employees of the Company. Huddleston & Co., Inc., also
hereby consents to the inclusion of this letter as an exhibit to such Form 10-K
and registration statements.

Very truly yours,

HUDDLESTON & CO., INC.

By: /s/ PETER D. HUDDLESTON
------------------------------------
Peter D. Huddleston, P.E.
President

<PAGE> 1
EXHIBIT 23(b)

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration statements
of Zapata Corporation on Form S-3 (File No. 33-68034) and on Form S-8's (File
Nos. 33-19085 and 33-45251) of our reports which both included an explanatory
paragraph that states during 1996, Zapata Corporation changed its accounting for
its equity investment in an unconsolidated affiliate, reclassified the purchase
of certain investments in the 1995 statement of cash flows, revised a
mathematical error in the Schedule I 1995 statement of cash flows and
reclassified an expense in the 1994 statement of operation and, during 1995,
Zapata Corporation adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and For Long-Lived Assets to
be Disposed Of" dated December 23, 1996, on our audits of the consolidated
financial statements and financial statements schedule of Zapata Corporation as
of September 30, 1996 and 1995 and for each of the three years in the period
ended September 30, 1996, which reports are included in this Annual Report on
Form 10-K.

Coopers & Lybrand L.L.P.

Houston, Texas
December 23, 1996

<PAGE> 1
EXHIBIT 24

POWER OF ATTORNEY

WHEREAS, Zapata Corporation, a Delaware corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the
"Act"), an annual report on form 10-K for the fiscal year ended September 30,
1996 (the "Form 10-K") pursuant to the Act and the rules and regulations of the
Commission promulgated thereunder;

NOW, THEREFORE, the undersigned in the capacity of a director,
officer or both a director and officer of the Company, as the case may be, does
hereby appoint Joseph L. von Rosenberg III and Robert A Gardiner, and each of
them, severally, as his true and lawful attorney or attorneys-in-fact with full
power of substitution and resubstitution, to execute in his name, place and
stead, in his capacity as director, officer or both, as the case may be, the
Form 10-K and any and all documents necessary or incidental in connection
therewith, including without limitation any amendments to the Form 10-K, and to
file the same with the Commission. Each of said attorneys-in-fact shall have
full power and authority to do and perform in the name and on behalf of the
undersigned in any and all capacities, every act whatsoever necessary or
desirable to be done in the premises as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned hereby
ratifying and confirming the acts that said attorneys-in-fact and each of them,
or their or his substitutes or substitute, may lawfully do or cause to be done
by virtue hereof.

IN WITNESS WHEREOF, the undersigned has executed this power of
attorney as of the 17th day of December, 1996.

/s/ AVRAM A. GLAZER
-------------------------------------
Avram A. Glazer

<PAGE> 2
EXHIBIT 24

POWER OF ATTORNEY

NOW, THEREFORE, the undersigned in the capacity of a
director, officer or both a director and officer of the Company, as the case
may be, does hereby appoint Joseph L. von Rosenberg III and Robert A Gardiner,
and each of them, severally, as his true and lawful attorney or
attorneys-in-fact with full power of substitution and resubstitution, to
execute in his name, place and stead, in his capacity as director, officer or
both, as the case may be, the Form 10-K and any and all documents necessary or
incidental in connection therewith, including without limitation any amendments
to the Form 10-K, and to file the same with the Commission. Each of said
attorneys-in-fact shall have full power and authority to do and perform in the
name and on behalf of the undersigned in any and all capacities, every act
whatsoever necessary or desirable to be done in the premises as fully and to
all intents and purposes as the undersigned might or could do in person, the
undersigned hereby ratifying and confirming the acts that said
attorneys-in-fact and each of them, or their or his substitutes or substitute,
may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has executed this power
of attorney as of the 13th day of December, 1996.

/s/ MALCOLM I. GLAZER
-------------------------------------
Malcolm I. Glazer

<PAGE> 3
EXHIBIT 24

POWER OF ATTORNEY

NOW, THEREFORE, the undersigned in the capacity of a
director, officer or both a director and officer of the Company, as the case
may be, does hereby appoint Joseph L. von Rosenberg III and Robert A Gardiner,
and each of them, severally, as his true and lawful attorney or
attorneys-in-fact with full power of substitution and resubstitution, to
execute in his name, place and stead, in his capacity as director, officer or
both, as the case may be, the Form 10-K and any and all documents necessary or
incidental in connection therewith, including without limitation any amendments
to the Form 10-K, and to file the same with the Commission. Each of said
attorneys-in-fact shall have full power and authority to do and perform in the
name and on behalf of the undersigned in any and all capacities, every act
whatsoever necessary or desirable to be done in the premises as fully and to
all intents and purposes as the undersigned might or could do in person, the
undersigned hereby ratifying and confirming the acts that said
attorneys-in-fact and each of them, or their or his substitutes or substitute,
may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has executed this power
of attorney as of the 13th day of December, 1996.

/s/ RONALD C. LASSITER
--------------------------------------
Ronald C. Lassiter

<PAGE> 4
EXHIBIT 24

POWER OF ATTORNEY

NOW, THEREFORE, the undersigned in the capacity of a
director, officer or both a director and officer of the Company, as the case
may be, does hereby appoint Joseph L. von Rosenberg III and Robert A Gardiner,
and each of them, severally, as his true and lawful attorney or
attorneys-in-fact with full power of substitution and resubstitution, to
execute in his name, place and stead, in his capacity as director, officer or
both, as the case may be, the Form 10-K and any and all documents necessary or
incidental in connection therewith, including without limitation any amendments
to the Form 10-K, and to file the same with the Commission. Each of said
attorneys-in-fact shall have full power and authority to do and perform in the
name and on behalf of the undersigned in any and all capacities, every act
whatsoever necessary or desirable to be done in the premises as fully and to
all intents and purposes as the undersigned might or could do in person, the
undersigned hereby ratifying and confirming the acts that said
attorneys-in-fact and each of them, or their or his substitutes or substitute,
may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has executed this power
of attorney as of the 13th day of December, 1996.

/s/ ROBERT V. LEFFLER, JR.
------------------------------------
Robert V. Leffler, Jr.

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 99,938
<SECURITIES> 0
<RECEIVABLES> 11,839
<ALLOWANCES> 0
<INVENTORY> 29,919
<CURRENT-ASSETS> 144,548
<PP&E> 78,586
<DEPRECIATION> 36,431
<TOTAL-ASSETS> 233,143
<CURRENT-LIABILITIES> 45,221
<BONDS> 18,159
<COMMON> 7,387
0
3
<OTHER-SE> 144,923
<TOTAL-LIABILITY-AND-EQUITY> 233,143
<SALES> 95,678
<TOTAL-REVENUES> 95,678
<CGS> 76,328
<TOTAL-COSTS> 94,526
<OTHER-EXPENSES> (936)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,749
<INCOME-PRETAX> (3,533)
<INCOME-TAX> (1,012)
<INCOME-CONTINUING> (2,521)
<DISCONTINUED> 9,076
<EXTRAORDINARY> 0
<CHANGES> 467
<NET-INCOME> 7,022
<EPS-PRIMARY> .24
<EPS-DILUTED> .24

</TABLE>