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10-K
HRG GROUP, INC. filed this Form 10-K on 12/29/1994
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<PAGE>
 
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- --------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                               ----------------
 
                                   FORM 10-K
 
[X]            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                 SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
 
                  For the fiscal year ended September 30, 1994
                                       OR
[_]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
               SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
 
              For the transition period from          to
 
                         COMMISSION FILE NUMBER: 1-4219
 
                               ZAPATA CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
         STATE OF DELAWARE                           C-74-1339132
   (STATE OR OTHER JURISDICTION                    (I.R.S. EMPLOYER
                OF                                IDENTIFICATION NO.)
  INCORPORATION OR ORGANIZATION)
 
           P.O. BOX 4240                               77210-4240
          HOUSTON, TEXAS                              (ZIP CODE)
       (ADDRESS OF PRINCIPAL
        EXECUTIVE OFFICES)
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 940-6100
 
                               ----------------
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 

<TABLE>
<CAPTION>
                                                  NAME OF EACH EXCHANGE ON WHICH
               TITLE OF EACH CLASS                REGISTERED
               -------------------                ------------------------------
<S>                                               <C>
Common Stock, $0.25 par value....................    New York Stock Exchange
10 1/4% Subordinated Debentures due 1997.........    New York Stock Exchange
10 7/8% Subordinated Debentures due 2001.........    New York Stock Exchange
</TABLE>

 
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
  $2 Noncumulative Convertible Preference Stock, $1 par value.
 
  On December 28, 1994, there were outstanding 31,721,804 shares of the
Company's Common Stock, $0.25 par value. The aggregate market value of the
Company's voting stock held by non affiliates of the Company is $54,378,549,
based on the closing price in consolidated trading on December 28, 1994, for
the Company's Common Stock, the value of the number of shares of Common Stock
into which the Company's $2 Preference Stock was convertible on such date and
the redemption value of the Company's $6 Preferred Stock (which is not traded).
 
  INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS, YES  X , NO    .
 
  INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K.  [_]
 
DOCUMENTS INCORPORATED BY REFERENCE:
 
  Documents incorporated by reference: Portions of the Proxy Statement to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A
under the Securities Exchange Act of 1934 in connection with the Company's 1995
Annual Meeting of Stockholders are incorporated by reference into Part III
hereof (to the extent set forth in Items 10, 11, 12 and 13 of Part III of this
Annual Report on Form 10-K).
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<PAGE>
 
                               TABLE OF CONTENTS
 

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
 <C>         <S>                                                           <C>

 PART I

    Item 1.  Business...................................................     1
             General....................................................     1
             Historical Contributions of Major Divisions................     2
             Natural Gas Services--Compression..........................     3
             Natural Gas Services--Gathering, Processing and Marketing..     6
             Oil and Gas Operations.....................................     7
             Marine Protein Operations..................................    14
             Tidewater Ownership Interest...............................    16
             Employees..................................................    16
             Geographical Information...................................    16
             Executive Officers of the Registrant.......................    17

    Item 2.  Properties.................................................    17

    Item 3.  Legal Proceedings..........................................    18

    Item 4.  Submission of Matters to a Vote of Security Holders........    18

 PART II

    Item 5.  Market for the Registrant's Common Equity and Related
               Stockholder Matters......................................    19

    Item 6.  Selected Financial Data....................................    20

    Item 7.  Management's Discussion and Analysis of Financial Condition
              and Results of Operations.................................    21

    Item 8.  Financial Statements and Supplementary Data................    30

    Item 9.  Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure..................................    63

 PART III

    Item 10. Directors and Executive Officers of the Registrant.........    63

    Item 11. Executive Compensation.....................................    63

    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>

 
 
                                       i

<PAGE>
 

                                     PART I
 

ITEM 1. BUSINESS
 
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 and its consolidated subsidiaries, as applicable. In May 1994, Zapata
effected a one-for-five reverse stock split (the "Reverse Stock Split") of its
common stock, par value $0.25 per share ("Common Stock"). Unless specifically
stated otherwise, all Common Stock share and per share amounts set forth in
this Annual Report on Form 10-K have been adjusted to reflect the Reverse Stock
Split.
 
  In 1993, Zapata began to redirect its operations into the natural gas
services market. The Company is now engaged in the business of natural gas
compression as well as gas gathering, processing and marketing. Through its
compression operations, the Company rents, fabricates, sells, installs and
services natural gas compression packages. Through its gathering, processing
and marketing operations, the Company gathers and processes natural gas and its
constituent products, and markets and trades in natural gas liquids.
 
  The Company acquired the common stock of Cimarron Gas Holding Company
("Cimarron") early in fiscal 1993. Cimarron was engaged in the business of
marketing and trading natural gas liquids, as well as gathering and processing
natural gas and its constituent products. Cimarron was purchased to serve as
the vehicle for Zapata's expansion into the gathering and processing segments
of the natural gas services markets. Since being acquired, Cimarron has
purchased additional gathering and processing assets and expanded its
operations through the acquisition of Stellar Energy Corporation and three
affiliated companies (collectively "Stellar") in September 1993. During fiscal
1994, the Company generated approximately 65% of its revenues from its
gathering, processing, marketing and trading operations. Revenues from these
natural gas services operations include natural gas liquids trading activities
which typically generate high revenues, high expenses and low margins.
 
  Zapata acquired the natural gas compression businesses of Energy Industries,
Inc. and certain other affiliated companies (collectively "Energy Industries")
in November 1993. Energy Industries is engaged in the business of renting,
fabricating, selling, installing and servicing natural gas compressor packages.
Energy Industries operates one of the ten largest rental fleets of natural gas
compressor packages in the United States. The Energy Industries fleet of
approximately 700 compressor packages is located in Texas, Louisiana, Arkansas,
Oklahoma and New Mexico, as well as offshore in the Gulf of Mexico. During
fiscal 1994 the Company generated approximately 30% of its revenues from its
compression operations.
 
  In fiscal 1994, Zapata sold 4.13 million shares of its Tidewater Inc.
("Tidewater") common stock for a net price of $20.80 per share or $85.9
million. The proceeds of such sales were used to reduce the Company's
indebtedness and provide the capital necessary to expand the Company's natural
gas services operations. The Company now owns 673,077 shares of Tidewater
common stock. Tidewater is an international energy services company with two
principal lines of business: offshore marine services and compression services.
 
  In July 1994, Zapata announced that it intended to separate its marine
protein operations from its energy-related businesses. Alternatives for a sale
of the marine protein operations or a spin-off of the business to the
stockholders of Zapata were considered. 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. As a result of this
decision, the Company's financial statements have been restated in 1994 to
reflect the Company's marine protein operations as a discontinued operation.
 
  In September 1994, Zapata announced that its Board of Directors had
determined that the Company should immediately undertake efforts to sell its
U.S. natural gas producing properties. Zapata's Bolivian oil and gas operations
will not be impacted by this decision. Zapata's domestic natural gas reserves
have been
 
                                       1

<PAGE>
 
declining for a number of years, as no exploratory efforts have been undertaken
to offset gas production. The Board's decision to sell the properties is simply
an acceleration of the liquidation of the gas reserves currently occurring
through production. During fiscal 1994, the Company generated approximately 5%
of its revenues from its oil and gas operations.
 
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
(in thousands). As a result of the decision to sell the marine protein
operations, the Company's financial statements have been restated in 1994 to
reflect the Company's marine protein operations as a discontinued operation.
 

<TABLE>
<CAPTION>
                                   OPERATING                   DEPRECIATION,
                                    INCOME       IDENTIFIABLE  DEPLETION AND   CAPITAL
YEAR ENDED SEPTEMBER 30,  REVENUES  (LOSS)          ASSETS     AMORTIZATION  EXPENDITURES
- ------------------------  -------- ---------     ------------  ------------- ------------
<S>                       <C>      <C>           <C>           <C>           <C>
1994
  Natural gas services--
   compression..........  $ 72,522 $  7,970        $102,626       $ 4,867      $ 8,638
  Natural gas services--
   gathering, processing
   and marketing........   156,141   (1,063)         36,742         1,855        4,083
  Oil and gas...........    12,549  (28,285)(2)      20,062        33,770(2)    11,792
  Corporate.............             (8,767)         44,444(1)      2,321           67
                          -------- --------        --------       -------      -------
                          $241,212 $(30,145)       $203,874       $42,813      $24,580
                          ======== ========        ========       =======      =======
1993
  Natural gas services--
   gathering, processing
   and marketing........  $186,291 $   (552)       $ 40,871       $   460      $ 1,757
  Oil and gas...........    20,189    6,032          41,630         7,688        1,327
  Corporate.............             (6,769)        169,888(1)        378            8
                          -------- --------        --------       -------      -------
                          $206,480 $ (1,289)       $252,389       $ 8,526      $ 3,092
                          ======== ========        ========       =======      =======
1992
  Oil and gas...........  $ 30,094 $ 11,248        $ 50,191       $10,303      $ 3,963
  Corporate.............             (5,076)        170,066(1)        372        3,018
                          -------- --------        --------       -------      -------
                          $ 30,094 $  6,172        $220,257       $10,675      $ 6,981
                          ======== ========        ========       =======      =======
</TABLE>

- --------
(1) Includes Zapata's investment in Tidewater, a substantial portion of which
    was sold in fiscal 1994 and 1993.
(2) Includes a $29,152,000 provision for oil and gas property valuation as a
    result of low gas prices and a revision of estimated future costs.
 
  The net amounts of interest expense (net of interest income), other income
and income tax expense (benefit) from continuing operations were as set forth
below (in thousands).
 

<TABLE>
<CAPTION>
                                                                      INCOME
                                                                        TAX
                                                 INTEREST  OTHER      EXPENSE
               YEAR ENDED SEPTEMBER 30,          EXPENSE  INCOME     (BENEFIT)
               ------------------------          -------- -------    ---------
      <S>                                        <C>      <C>        <C>
      1994......................................  $4,095  $33,051(1)   $(494)
      1993......................................   8,673   23,571(1)   3,800
      1992......................................   8,910    6,231        678
</TABLE>

- --------
(1) Includes pretax gains of $37.5 million and $32.9 million in fiscal 1994 and
    1993 respectively, from sales of Tidewater common stock.
 
                                       2

<PAGE>
 
NATURAL GAS SERVICES--COMPRESSION
 
  In November 1993, Zapata purchased the natural gas compression businesses of
Energy Industries. Energy Industries is engaged in the business of renting,
fabricating, selling, installing and servicing natural gas compressor packages.
Total consideration paid for the purchase of Energy Industries and for a
related noncompetition agreement (collectively, the "Energy Industries
Acquisition") was $90.2 million. The purchase price consisted of $74.5 million
in cash and 2.7 million shares of Common Stock valued at $5.80 per share, which
approximated the average trading price prior to closing of the acquisition.
 
  Operations. A natural gas compressor package consists of a compressor, a
natural gas engine or electric motor, a heat exchanger, a control panel and
assorted piping and tubing. Natural gas compression is used in the production,
processing and delivery of natural gas. Energy Industries primarily supplies
natural gas compressor packages in natural gas production and processing
applications. In natural gas production applications, natural gas compression
is used to increase the flow rate of gas wells with low reservoir pressures. In
natural gas processing applications, natural gas compression is used in the
process of separating the various hydrocarbon components of the wellhead
natural gas stream. In interstate natural gas pipeline applications, natural
gas compression is used to increase the pressure of natural gas from reservoir
levels to interstate pipeline standards. Additionally, Energy Industries
manufactures heat exchangers used in fabricating natural gas compressor
packages and other industrial applications; the Company expects to dispose of
the heat exchanger manufacturing operation in fiscal 1995. The heat exchanger
operation does not have a material impact on the operating results or financial
position of the Company.
 
  Energy Industries fabricates natural gas compressor packages at its Corpus
Christi, Texas fabrication facility from components which are acquired from
various suppliers at market prices. Energy Industries maintains an inventory of
compressor and engine components at its Corpus Christi facility to support the
fabrication and repair of natural gas compressor packages.
 
  Including its Corpus Christi, Texas location, Energy Industries maintains
eleven branch offices in Texas, Louisiana, Oklahoma, Arkansas and New Mexico.
Branch office personnel negotiate natural gas compressor package rentals and
sales, perform maintenance services for Energy Industries' fleet of rental
compressors and other natural gas compressor packages on a contract basis and
recondition Energy Industries' rental fleet packages when rental contracts
expire. Energy Industries also has facilities for fabricating natural gas
compressor packages at its branches in Midland and Houston, Texas and
Lafayette, Louisiana, if market conditions require.
 
  The following table identifies major categories of Energy Industries' natural
gas compression revenue for fiscal years 1992 through 1994. The Company
acquired Energy Industries in November 1993, therefore Zapata's consolidated
financial results include only eleven months of Energy Industries operations.
For comparative purposes, however, the 1994 revenues presented in the following
tables are for the twelve months ended September 30, 1994.
 

<TABLE>
<CAPTION>
                                                          1994    1993    1992
                                                         ------- ------- -------
                                                             (IN THOUSANDS)
      <S>                                                <C>     <C>     <C>
      Compressor rentals................................ $17,575 $15,256 $13,456
      Fabrication and sales.............................  29,842  22,020  21,943
      Parts and service.................................  21,138  16,662  11,008
      Other.............................................   9,981   9,334   8,260
                                                         ------- ------- -------
        Total........................................... $78,536 $63,272 $54,667
                                                         ======= ======= =======
</TABLE>

 
  Natural Gas Compressor Package Rentals. Energy Industries maintains a fleet
of approximately 700 natural gas compressor packages of various capacities for
rental to natural gas producers and processors. Energy Industries rents natural
gas compressor packages to its customers under contracts which require monthly
payments based on a fixed fee or on the volume of gas compressed. The initial
fixed term of a natural
 
                                       3

<PAGE>
 
gas compressor package rental is generally between one and 36 months and
thereafter continues on a month-to-month basis. It is typical for a customer to
continue to rent a package for a period substantially longer than the initial
term of the contract. Contract compression pricing, which is based on
prevailing market conditions, generally contains provisions for periodic rate
adjustments to reflect market changes.
 
  Natural gas compressor package rental utilization is affected primarily by
the number and age of producing oil and gas wells, the volume of natural gas
consumed and natural gas prices. Rental rates for natural gas compressor
packages are determined primarily by the demand for packages and secondarily by
the size and horsepower of a natural gas compressor package. The following
table compares utilizations and rental rates (on a horsepower basis) and fleet
size for the Energy Industries fleet of natural gas compressor packages as of
the end of each of the past three years.
 

<TABLE>
<CAPTION>
                                                        AS OF SEPTEMBER 30,
                                                       ------------------------
                                                        1994     1993     1992
                                                       -------  -------  ------
      <S>                                              <C>      <C>      <C>
      FLEET UTILIZATION:
        Horsepower....................................    82.6%    74.4%   69.5%
      MONTHLY RENTAL RATE, BASED ON:
        Horsepower....................................  $16.61   $17.25  $17.71
      FLEET SIZE:
        Number of units...............................     706      681     653
        Horsepower.................................... 113,786  106,175  91,069
</TABLE>

 
  Utilization of compressor packages increased from 1992 to 1994 in response to
generally strengthening natural gas markets, a return of producer confidence
and greater emphasis being placed on the rental operations. Changes in rental
rates are primarily caused by the changes in the mix between smaller and higher
horsepower natural gas compressor packages in the fleet. Growth in the fleet
between 1992 and 1994 resulted from the 1994 acquisition of 41 additional
compressors and the construction of new compressor packages each year, net of
retirements and sales of older equipment from the rental fleet.
 
  Natural Gas Compressor Package Sales. In addition to operating a fleet of
natural gas compressor packages for rental purposes, Energy Industries designs,
fabricates and sells natural gas compressor packages designed to customer
specifications. Energy Industries sells compressor packages to natural gas
producers, gatherers and transmission companies which expect the long life of
their associated reserves or pipeline to justify the capital cost of acquiring,
rather than renting, a natural gas compressor package. Most of Energy
Industries' natural gas compressor package sales are for larger, high-
horsepower packages.
 
  Because of the relatively high capital costs associated with these units,
Energy Industries provides a capital lease financing option to its customers.
Under the terms of a typical capital lease, a purchaser will lease the natural
gas compressor package from Energy Industries for a period of between three and
four years at monthly lease rates. At the termination of the lease, the lessee
has the option to purchase the natural gas compressor package for a nominal
amount or return the natural gas compressor package to Energy Industries.
 
  The following table compares natural gas compressor package sales and cost of
sales for fiscal years 1992 through 1994.
 

<TABLE>
<CAPTION>
                                                       1994     1993     1992
                                                      -------  -------  -------
                                                       (IN THOUSANDS, EXCEPT
                                                        PERCENTAGE AMOUNTS)
      <S>                                             <C>      <C>      <C>
      Compressor package sales....................... $29,842  $22,020  $21,943
      Cost of sales..................................  24,596   16,867   18,910
                                                      -------  -------  -------
      Gross margin................................... $ 5,246  $ 5,153  $ 3,033
                                                      =======  =======  =======
      Gross margin/percentage........................    17.6%    23.4%    13.8%
</TABLE>

 
  The gross margin percentage in 1993 increased due to certain sales that
generated high gross margins.
 
                                       4

<PAGE>
 
  Parts and Service. Energy Industries provides on-site maintenance services to
its rental and sales customers and to users of other natural gas compressor
packages. Maintenance services provided by Energy Industries include regular
monitoring of compressor package operations and performance of a standardized,
routine maintenance program for equipment in the field. Energy Industries sells
compressor parts and engines in connection with maintenance service operations.
Each branch location and each field technician maintains a small inventory of
commonly used natural gas compressor package parts to support routine repairs
to natural gas compressor packages covered under maintenance contracts.
 
  Natural Gas Compression Markets. Energy Industries conducts the majority of
its operations in established natural gas producing regions of the United
States, located in Texas, Louisiana, Arkansas, Oklahoma, New Mexico and
offshore in the Gulf of Mexico. Its customers include natural gas companies and
pipelines which are involved in the production, processing and transmission of
natural gas.
 
  A substantial majority of the demand for natural gas compression (on a
horsepower basis) is met through the use of natural gas compressor packages
owned by the companies that use them. Energy Industries competes with other
fabricators of natural gas compressors for sales in this market. The demand for
newly constructed natural gas compressor packages is a function of growth in
the consumption of natural gas and the age of producing wells. Natural gas
compression is required to maintain production rates and to maximize
recoverable reserves as natural gas reservoirs age and field pressure declines.
 
  The remaining demand for natural gas compression is met through rental of
natural gas compressor packages. In addition to well age and natural gas
consumption, a structural shift in U.S. oil and gas operations has affected
demand for natural gas compression package rentals. Many of the major oil
companies have directed their focus toward international operations and away
from domestic natural gas reserves. Accordingly, these companies recently have
been selling their domestic natural gas reserves and minimizing staff in
domestic operations. As a result, demand for rental packages of natural gas
compressors is expected to increase as buyers of natural gas reserves or
producers with reduced staffs are less likely to own and operate natural gas
compressor packages and more likely to rent natural gas compressor packages to
meet their natural gas compression needs.
 
  International Operations. While most of Energy Industries' operations are
domestic, Energy Industries sells natural gas compressor packages and parts in
Canada through ENSERV, Inc. ("Enserv") and outside the U.S. and Canada through
Atlas Copco Airpower, N.V. ("Atlas Copco"). The following table compares
domestic and international revenues for 1992 through 1994.
 

<TABLE>
<CAPTION>
                                                       1994     1993     1992
                                                      -------  -------  -------
                                                       (IN THOUSANDS, EXCEPT
                                                        PERCENTAGE AMOUNTS)
      <S>                                             <C>      <C>      <C>
      COMPRESSOR PACKAGE SALES:
        Domestic..................................... $21,397  $16,727  $16,359
        International................................   8,445    5,293    5,584
                                                      -------  -------  -------
          Total...................................... $29,842  $22,020  $21,943
                                                      =======  =======  =======
      PERCENT OF TOTAL SALES:
        Domestic.....................................    71.7%    76.0%    74.6%
        International................................    28.3%    24.0%    25.4%
</TABLE>

 
  Energy Industries has entered into an agreement whereby it is an exclusive
supplier of gas compressor packages and parts to Enserv in Canada. This
agreement runs through October 1996.
 
  Additionally, Energy Industries has entered into a marketing agreement with
Atlas Copco, headquartered in Belgium, for package sales outside North America.
As compensation for use of its worldwide marketing and distribution network,
Atlas Copco receives a commission on all such international sales of Energy
Industries' equipment. This agreement runs through 1998 and also is subject to
automatic annual renewal unless notice is given of a party's desire to
terminate the relationship.
 
                                       5

<PAGE>
 
  Competition. The principal competitive factors in natural gas compression
markets are price, service, availability and delivery time. Energy Industries
operates in a highly competitive environment and competes with a large number
of companies, some of which are larger and have greater resources than Energy
Industries.
 
  Facilities and Real Estate. Energy Industries own facilities and related real
estate in Houston, Midland and Corpus Christi, Texas, Oklahoma City, Oklahoma
and Lafayette, Louisiana. The main fabrication facility is in Corpus Christi,
Texas, and the other properties are currently being used for branch offices.
Other branch facilities are leased from third parties.
 
NATURAL GAS SERVICES--GATHERING, PROCESSING AND MARKETING
 
  This segment of the Company's natural gas services operations involves two
major categories of business activities: the gathering and processing of
natural gas and its constituent products and the marketing and trading of
natural gas liquids ("NGL"). The Company purchased all of the stock of Cimarron
in November 1992 for $3.8 million, consisting of $2.5 million in cash and
437,333 shares of Common Stock. For purposes of recording the acquisition, the
stock consideration was valued at $1.3 million. Two of the three sellers remain
as officers of Cimarron, and all of the Cimarron employees became employees of
the Company.
 
  In September 1993, Cimarron acquired the interests of Stellar, a group of
companies engaged in natural gas gathering and processing, for an aggregate
purchase price of $16.4 million. The purchase price included $6.3 million in
cash, the redemption of $3.7 million of notes payable to former Stellar
shareholders and the assumption of $6.4 million of indebtedness of Stellar.
 
  The following table shows revenues and operating results for the two major
categories of business activities for fiscal 1994 and 1993 (in thousands):
 

<TABLE>
<CAPTION>
                                                                 OPERATING
                                                REVENUES       INCOME (LOSS)
                                            ----------------- ----------------
                                              1994     1993    1994     1993
                                            -------- -------- -------  -------
      <S>                                   <C>      <C>      <C>      <C>
      Gathering and Processing............. $ 22,867 $ 11,671 $   718  $   427
      NGL Marketing........................  133,274  174,620     703    1,345
      Selling and Administrative...........                    (2,484)  (2,324)
                                            -------- -------- -------  -------
        Total.............................. $156,141 $186,291 $(1,063) $  (552)
                                            ======== ======== =======  =======
</TABLE>

 
  Gathering and Processing. Following the acquisition of Stellar and the
construction of the Elm Grove gathering system in Oklahoma, Cimarron owns and
operates approximately 487 miles of natural gas gathering systems in West Texas
and Oklahoma and a gas processing plant in Sutton County, Texas. The systems
gather approximately 50 MMcf (million cubic feet) of natural gas per day and
the Sutton plant is capable of processing 25 MMcf of natural gas per day
following the expansion of the plant's capacity during 1994.
 
  Cimarron's other gathering and processing activities consist of ownership
interests in two natural gas gathering systems, one in Smith County, Texas, and
one in Texas and Beaver Counties, Oklahoma, and ownership interests in related
gas processing plants. The gathering system in Smith County includes
approximately eight miles of eight-inch gathering lines with capacity of about
30 MMcf per day. Five wells owned by others are currently connected to the
system. The related skid-mounted cryogenic gas processing plant, which began
operations in August 1992, has a throughput capacity of approximately 23 MMcf
per day. The gathering system in Oklahoma includes approximately 170 miles of
four- to ten-inch gathering lines with capacity of about 25 MMcf per day. That
system is connected to 34 wells owned by third parties. The related turbo
expander plant, with a throughput capacity of approximately 14 MMcf per day,
began operations in 1979.
 
                                       6

<PAGE>
 
  A comparison of average daily volumes of gas, measured in thousands of cubic
feet, gathered and processed during fiscal 1994 and 1993 is shown below.
 

<TABLE>
<CAPTION>
                                                                    1994   1993
                                                                   ------ ------
      <S>                                                          <C>    <C>
      Gathering................................................... 45,500 14,382
      Processing.................................................. 22,200 10,063
</TABLE>

 
  Marketing and Trading. Cimarron provides marketing services to natural gas
liquids processing plant owners and operators. The services include
transportation, fractionation, distribution, accounting, price forecasting and
sales of natural gas liquids for the account of such owners and operators.
Cimarron also actively markets natural gas liquids for its own account, with
volumes of approximately 28,000 barrels per day of natural gas liquids in the
Midwest and Gulf Coast markets.
 
  Successful results from Cimarron's marketing activities are dependent upon
the ability of Cimarron's marketers to perform an intermediary service for
sellers and buyers of natural gas liquids without exposing the Company to undue
financial risk through unanticipated price changes. Other marketing services
are carried out on a contract basis, with little financial risk to the Company.
 
  In addition, Cimarron maintains a fleet of approximately 128 leased and 3
owned railcars which transport feedstocks (butane, isobutane, gasoline, MTBE
and various aromatic mixtures) to refineries and petrochemical plants, and
Cimarron supplies wholesale propane in truckload quantities to propane
retailers and wholesalers.
 
  Competition. Cimarron's Smith County gathering system and processing plant,
which are operated by Cimarron's joint venture partner, face competition for
new well additions and additional gas processing from one nearby competing
system. However, the Company believes that Cimarron's processing plant has
superior liquid extraction capabilities. The gathering system and processing
plant in Oklahoma, which are operated by Cimarron, face competition for new
well additions and additional gas processing from several nearby competing
systems.
 
  Cimarron's marketing activities face significant competition. Cimarron's
competitors in its marketing efforts include other oil and gas production
companies, major interstate pipelines and their marketing affiliates, and
national and local gas gatherers, brokers, marketers and distributors of
varying sizes, financial resources and experience. Certain competitors, such as
major oil and gas production companies, have financial and other resources
substantially in excess of those available to Cimarron. Cimarron's marketing
activities are also affected by the actions of governmental regulatory
authorities such as the Federal Energy Regulatory Commission ("FERC"). Cimarron
is not, however, directly subject to regulation by the FERC. It is impossible
to predict how future regulatory actions will impact Cimarron's marketing
activities.
 
OIL AND GAS OPERATIONS
 
  The Company's principal oil and gas exploration and production activity is
the production of natural gas. The Company conducts oil and gas operations in
the United States and in Bolivia through its wholly-owned subsidiary, Zapata
Exploration Company ("Zapex"). In September 1994, Zapata announced that its
Board of Directors had determined that the Company should immediately undertake
efforts to sell its U.S. natural gas producing properties. The six properties
in the Gulf of Mexico, representing all of Zapata's domestic oil and gas
producing operations, may be sold individually or as a package depending upon
the interest expressed by prospective buyers. Zapata's Bolivian oil and gas
operations will not be impacted by this decision. Zapata's domestic natural gas
reserves have been declining for a number of years, as no exploratory efforts
have been undertaken to offset gas production. The Board's decision to sell the
properties is simply an acceleration of the liquidation of the gas reserves
currently occurring through production. Sales proceeds are estimated to equal
or exceed the net book value of the properties.
 
                                       7

<PAGE>
 
  The Company's major development projects were completed by the end of fiscal
1988. Other than the $9.3 million and $12.2 million oil and gas workover and
recompletion programs of the Company's Wisdom gas field completed in 1994 and
1992, the Company has not participated in any significant new domestic
exploration or development projects or acquired any additional significant
properties since 1988. However, since 1993, the Company committed to
participate in the drilling of three exploratory wells in its Bolivian
operation, two of which were drilled in 1994.
 
  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 and the additional risks of offshore operations, 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,
certain of the Company's investments in oil and gas properties are those of a
minority interest owner. Accordingly, others who hold interests in such
properties may determine the details of any exploration and development
drilling program.
 
  Oil and Gas Reserves. The following table sets forth information as to the
Company's proved and proved developed reserves of oil and natural gas as of
September 30, 1994, 1993 and 1992:
 

<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, 1994....................... 34,736  366.8  27,317  744.4
        September 30, 1993....................... 40,735  360.4  22,534  721.9
        September 30, 1992....................... 48,467  448.6  21,210  665.2
      TOTAL PROVED DEVELOPED RESERVES AS OF:
        September 30, 1994....................... 27,386  221.3  27,317  744.4
        September 30, 1993....................... 28,181  200.9  22,534  721.9
        September 30, 1992....................... 40,964  297.6  21,210  665.2
</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, 1994, no major favorable or adverse event has occurred which the Company
believes significantly affects or changes estimated reserve quantities as of
that date. See, however, "Significant Property" below. Zapata is not a party to
any contracts which 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, 1993.
 
  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.
 
                                       8

<PAGE>
 
  During fiscal 1994, the Company recorded a $29.2 million pretax writedown of
its oil and gas properties in the Gulf of Mexico. The writedown was the result
of several factors: lower natural gas prices, additional capitalized costs
incurred recently in connection with several workover wells at the Company's
Wisdom gas field and an increase in estimated future costs.
 
  Significant Property. At September 30, 1994, the Company owned interests in
six separate domestic producing properties, all of which were located in
federal waters in the Gulf of Mexico offshore Texas and Louisiana. The Company
owns 100% of the working interest in a single property, the Wisdom gas field,
consisting of two blocks on the Outer Continental Shelf, East Breaks 109 and
110, located approximately 100 miles south of Galveston, Texas. This property
includes a production platform from which nine development wells have been
drilled. The development was completed during fiscal 1988. During fiscal 1994,
the Wisdom gas field provided approximately 47% of the Company's U.S. gas
production and as of September 30, 1994, the Wisdom field represented
approximately 87% of the Company's remaining U.S. proved gas reserves. None of
the five other properties individually accounted for more than 10% of the
Company's total proved reserves as of September 30, 1994.
 
  In April 1993, one of the wells in the Wisdom gas field was shut-in when it
started producing sand. Prior to the failure, this well was capable of
producing 6.5 MMcf per day. After some minor repairs, the well was returned to
production at a significantly reduced level. Efforts to restore production from
this well have been deferred.
 
  In early September 1993, an additional well in the Wisdom gas field ceased
production as a result of an influx of sand and water. Immediately prior to the
time the well ceased producing, this well was capable of producing
approximately 5.5 MMcf per day. After some minor repairs, the well was returned
to production at a significantly reduced level. Efforts to restore production
commenced in February 1994 and the workover/recompletion of this well and one
additional well successfully restored production of these two wells to
acceptable levels. The Company undertook the recompletion of a third well in
the Wisdom gas field which was abandoned after a series of mechanical failures.
The Wisdom gas field was producing 10.8 MMcf per day in August 1994 before
curtailing production in September due to low gas prices.
 
  Bolivian Joint Venture. 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 a 25% interest), and all cash proceeds received by the
Company thereafter 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. The Company received
cash payments with respect to its 25% interest in the joint venture of $10.1
million during fiscal 1992 and $3.2 million during fiscal 1993. These amounts,
which were recorded as revenues in fiscal 1992 and 1993, respectively, include
the collection of past-due amounts and may not be indicative of future cash
flows from the Company's Bolivian interest. 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; outstanding
receivables related to production from prior months will continue to be
recognized as revenue when received. The Company recorded revenues of $4.1
million in fiscal 1994 from its Bolivian interest.
 
                                       9

<PAGE>
 
  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, 1994, 1993 and
1992. Natural gas production refers only to marketable production of gas on an
"as sold" basis.
 

<TABLE>
<CAPTION>
                                                   UNITED STATES     BOLIVIA
                                                   -------------- --------------
                                                    GAS   LIQUIDS  GAS   LIQUIDS
      PRODUCTION VOLUMES FOR THE YEAR ENDED:       (MMCF) (MBBL)  (MMCF) (MBBL)
      --------------------------------------       ------ ------- ------ -------
      <S>                                          <C>    <C>     <C>    <C>
        September 30, 1994........................  3,456  73.0   1,967   68.9
        September 30, 1993........................  7,067  47.1   1,665   55.3
        September 30, 1992........................ 10,197  58.6   1,682   54.3
</TABLE>

 
  The following table shows the average sales prices received by the Company
for its production for the three years ended September 30, 1994, 1993 and 1992:
 

<TABLE>
<CAPTION>
                                                   UNITED STATES    BOLIVIA
                                                   ------------- -------------
                                                    GAS  LIQUIDS  GAS  LIQUIDS
      AVERAGE SALES PRICES FOR THE YEAR ENDED:     (MCF)  (BBL)  (MCF)  (BBL)
      ----------------------------------------     ----- ------- ----- -------
      <S>                                          <C>   <C>     <C>   <C>
        September 30, 1994........................ $2.08 $14.67  $1.34 $12.64
        September 30, 1993........................  2.32  16.53   1.15  17.41
        September 30, 1992........................  1.82  18.45   1.70  17.00
</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, 1994, 1993 and 1992:
 

<TABLE>
<CAPTION>
      AVERAGE PRODUCTION COSTS FOR THE YEAR ENDED:         UNITED STATES BOLIVIA
      --------------------------------------------         ------------- -------
      <S>                                                  <C>           <C>
        September 30, 1994................................     $1.42      $.22
        September 30, 1993................................       .77       .05
        September 30, 1992................................       .75       .03
</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 1992 and 1994 include the effects of $3.0 million and $600,000,
respectively, in workover expense incurred as a part of the Wisdom gas field
workover and recompletion programs completed in May 1992 and September 1994.
Differences between sales prices and production (lifting) costs do not
represent profit.
 
  Productive Wells and Acreage. On September 30, 1994, the Company's U.S. oil
and gas properties consisted of working interests in 40 gross oil and gas wells
(17 net wells) capable of production, of which the Company operated 15. The
following table shows the number of producing wells and wells capable of
production as of September 30, 1994:
 

<TABLE>
<CAPTION>
                                                               UNITED
                                                               STATES   BOLIVIA
                                                              --------- --------
      PRODUCTIVE OIL AND GAS WELLS:                           OIL  GAS  OIL GAS
      -----------------------------                           --- ----- --- ----
      <S>                                                     <C> <C>   <C> <C>
        Gross................................................   3    37  --   17
        Net..................................................   1 15.75  -- 4.37
</TABLE>

 
  One or more completions in the same bore hole are counted as one well. Eleven
gross (6.61 net) gas wells in the United States and 12 gross (3.00 net) gas
wells in Bolivia are dual completions. A "gross well" is a well in which the
Company owns a working interest. A "net well" is deemed to exist when the sum
of the fractional working interests owned by the Company in gross wells equals
one.
 
                                       10

<PAGE>
 
  The following table sets forth certain information with respect to the
developed and undeveloped acreage of the Company as of September 30, 1994:
 

<TABLE>
<CAPTION>
                             DEVELOPED(1)    UNDEVELOPED(2)         TOTAL
                            --------------- ----------------- -----------------
      ACREAGE               GROSS(3) NET(4) GROSS(3)  NET(4)  GROSS(3)  NET(4)
      -------               -------- ------ --------- ------- --------- -------
      <S>                   <C>      <C>    <C>       <C>     <C>       <C>
      United States
        Offshore...........   7,012  3,661     32,803  13,739    39,815  17,400
      Foreign
        Bolivia............   5,440  1,360  1,262,240 337,724 1,267,680 339,084
                             ------  -----  --------- ------- --------- -------
          Total............  12,452  5,021  1,295,043 351,463 1,307,495 356,484
                             ======  =====  ========= ======= ========= =======
</TABLE>

- --------
(1) Developed acreage is acreage spaced or assignable to productive wells.
(2) Undeveloped acreage is acreage on which wells have not been drilled or
    completed to a point that would permit the production of commercial
    quantities of oil and gas, regardless of whether such acreage contains
    proved reserves. All of the Company's undeveloped acreage is held under
    leases which are currently held by production except for undeveloped
    Bolivian acreage.
(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. Other than the $9.3 million and $12.2 million workover and
recompletion programs during 1994 and 1992, respectively, with respect to the
Company's Wisdom gas field, the Company did not participate in any domestic
exploratory or development drilling during the years ended September 30, 1994,
1993 and 1992. However, since September 30, 1993, the Company has participated
in drilling two exploratory wells in its Bolivian operation which has achieved
total depth. The first well, the Los Suris #2, was successful. The second well,
the San Antonio #1, has been temporarily abandoned.
 
  Marketing. The revenues generated by the Company's exploration and production
operations are highly dependent upon the prices of, and demand for, natural
gas, and, to a lesser extent, oil. For the last several years, prices of oil
and gas have reflected a worldwide surplus of supply over demand. From time to
time, the Company has curtailed its gas production in response to the low price
of gas.
 
  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. Historically,
demand for, and prices of, natural gas are seasonal, generally peaking in the
winter when heating requirements are highest.
 
  Substantially all of the Company's natural gas production in the United
States is sold on the spot market, principally to independent natural gas
marketers. During each of the last three fiscal years, no purchaser of the
Company's oil and gas production accounted for more than 10% of the Company's
total consolidated revenues (including revenues attributable to the Company's
discontinued marine protein operations). The Company believes that the loss of
any individual purchaser would not have a material adverse effect on the
Company.
 
  Competition. The Company faces significant competition in its oil and gas
operations. The Company's competitors in its producing efforts include major
oil and gas production companies and numerous independent oil and gas
companies, individuals and drilling and income programs. The Company's
competitors in its marketing efforts include other oil and gas production
companies, major interstate pipelines
 
                                       11

<PAGE>
 
and their marketing affiliates, and national and local gas gatherers, brokers,
marketers and distributors of varying sizes, financial resources and
experience. Certain competitors, such as major oil and gas production
companies, have financial and other resources substantially in excess of those
available to the Company.
 
  Governmental Regulation. Because its producing properties are located on the
federally controlled Gulf Coast portions of the Outer Continental Shelf,
various aspects of the production and sale of the Company's oil and gas are
regulated by federal authorities. Offshore operations and attendant government
royalty matters are within the jurisdiction of the Minerals Management Service,
an agency within the Department of the Interior. Historically, all of the
Company's domestic natural gas was sold in so-called "first sales" and was
subject to certain of the pricing and other provisions of the Natural Gas
Policy Act of 1978 (the "NGPA"), the Natural Gas Act (the "NGA"), and the
regulations and orders issued by the FERC in implementing those Acts. Under the
Natural Gas Wellhead Decontrol Act of 1989 ("Decontrol Act"), all remaining
natural gas wellhead pricing, sales certificate and abandonment regulation of
first sales by the FERC was terminated on January 1, 1993. Prior to statutory
deregulation, the Company utilized the procedures contained in FERC Order No.
490, issued in early 1988, to achieve the required abandonment of some of its
previous gas sales, and subsequently used the automatic FERC certificate
authority of that order to sell those volumes for resale in interstate
commerce. Order No. 490 has been on appeal to the U.S. Court of Appeals for the
Sixth Circuit for a considerable length of time; however, in light of favorable
Supreme Court review of relevant portions of other analogous FERC rulemakings,
motions have been filed at the Sixth Circuit seeking termination of that
appeal. Further action on those motions is pending. The Company cannot predict
whether Order No. 490 will be upheld, if reviewed by the appellate court, but
does not anticipate any material adverse effect upon the marketing of the
Company's natural gas production as a result of that review.
 
  The FERC also regulates interstate natural gas pipeline transportation rates
and service conditions, which affect the marketing of gas produced by the
Company, as well as the revenues received by the Company for sales of such
natural gas. This regulation is pursuant to the NGA, the NGPA and, to the
extent of operations on the Outer Continental Shelf, the Outer Continental
Shelf Lands Act (the "OCSLA"). Under the OCSLA, all gathering and transporting
of gas on the Outer Continental Shelf must be performed on an "open and
nondiscriminatory" basis. While the NGA and NGPA do not contain precisely the
same standard, since the latter part of 1985, through its Order No. 436 and
Order No. 500 rulemakings, the FERC has endeavored to make on-shore natural gas
transportation more accessible to gas buyers and sellers on an open and
nondiscriminatory basis, and the FERC's efforts have significantly altered the
marketing and pricing of natural gas. The FERC has also taken action to require
those interstate pipelines which operate offshore on the Outer Continental
Shelf to operate in a manner consistent with the FERC's regulations governing
onshore operations. Another related effort has been made with respect to
intrastate pipeline operations pursuant to the FERC's NGPA 311 authority, under
which the FERC establishes rules by which intrastate pipelines may participate
in certain interstate activities without becoming subject to full NGA
jurisdiction. These Orders have gone through various permutations, due in part
to the FERC's response to court review, but have generally remained intact as
promulgated. Parts of Order No. 500 pertaining to the FERC's abandonment
authority remain subject to court review, however, and the Company is unable to
predict the impact on the Company's natural gas operations of further judicial
action concerning that Order. The FERC's jurisdiction over natural gas
transportation is unaffected by the Decontrol Act.
 
  On April 8, 1992, the FERC issued Order No. 636 requiring further
restructuring of the sales and transportation services provided by interstate
pipeline companies. Order 636 amended certain existing regulations and adopted
certain new regulations governing all interstate pipelines that perform open
access transportation (defined to include storage), under either the NGA or the
NGPA within Part 284 of the FERC's regulations. The FERC considered the changes
necessary to improve the competitive structure of the interstate natural gas
pipeline industry and to create a regulatory framework that will put gas
sellers into more direct contractual relations with gas buyers than has
historically been the case. Order 636 reflected the FERC's finding that under
the preexisting regulatory structure, such interstate pipelines and other gas
merchants, including producers, did not compete on an equal basis. Order 636
was designed to equalize that
 
                                       12

<PAGE>
 
marketplace. This equalization process was implemented through negotiated
settlements in individual pipeline service restructuring proceedings, designed
specifically to "unbundle" those services (e.g., transportation, sales and
storage) provided by many interstate pipelines so that producers, consumers,
marketers and other industry participants could secure services from the most
economical source, whether interstate pipelines or other parties. The result of
the FERC initiatives has been to substantially reduce or bring to an end the
interstate pipelines' traditional role as wholesalers of natural gas in favor
of providing only natural gas storage, transportation and related services. The
restructuring proceedings resulting from Order 636 continued throughout 1994,
with all pipelines having received FERC orders approving their compliance
filings, subject to conditions, and all such pipelines having implemented these
new services.
 
  Although Order 636 does not regulate gas producers such as the Company, Order
636 was intended to foster increased competition within all phases of the
natural gas industry. It is unclear what impact, if any, increased competition
within the natural gas industry under Order 636 will have on the Company as a
producer. Furthermore, although the FERC earlier denied a stay of the
effectiveness of Order 636, thus assuring that its requirements will be
implemented, because the requirements of Order 636 were implemented through
individual restructuring proceedings on a pipeline-by-pipeline basis, it is
impossible to predict what effect, if any, Order 636 ultimately will have on
the Company and its gas marketing efforts. Numerous petitions seeking judicial
review of the FERC's Order 636 series of orders have been filed and remain
pending. Because the restructuring requirements that have emerged to date from
this lengthy administrative and judicial review process are in some instances
different from those of Orders 636, as originally promulgated and modified on
rehearing, it is not possible to predict what effect, if any, the final rule
resulting from these Orders will have on the Company.
 
  Under the NGA, facilities used for and operations involving the processing of
natural gas are exempt from FERC jurisdiction. Facilities used for and
operations involving the production and gathering of natural gas are exempt
from the FERC's NGA jurisdiction, while facilities used for and operations
involving interstate transmission are not. State regulation of gathering
facilities generally includes various safety, environmental and, in some
circumstances, nondiscriminatory take requirements. While some states provide
for the rate regulation of pipelines engaged in the intrastate transportation
of natural gas, such regulation has not generally been applied against
gatherers of natural gas. However, Oklahoma has recently enacted legislation
that prohibits the imposition of unjustly or unlawfully discriminatory
gathering rates. Natural gas gathering, especially when performed by interstate
pipelines or their affiliates, has received greater regulatory scrutiny
following the pipeline industry restructuring under Order No. 636, but state
and federal agencies have been receptive to a broader examination of all
gathering service providers, and the Company cannot predict whether, or to what
extent, this scrutiny will lead to further regulatory action affecting
Cimarron's independent gathering business.
 
  The U.S. Oil Pollution Act of 1990 ("OPA '90") and regulations promulgated
thereunder impose a variety of regulations on "responsible parties" related to
the prevention of oil spills and liability for damages resulting from such
spills. A "responsible party" includes the owner or operator of a facility or
vessel, or the lessee or permittee of the area in which an offshore facility is
located. OPA '90 assigns liability to each responsible party for oil removal
costs and a variety of public and private damages. While liability limits apply
in some circumstances, a responsible party for an Outer Continental Shelf
facility must pay all spill removal costs incurred by a federal, state or local
government. OPA '90 also imposes ongoing requirements on a responsible party,
including proof of financial responsibility to cover at least some costs in a
potential spill and preparation of an oil spill contingency plan. The effect of
OPA '90 on offshore oil and gas operators is uncertain because the Minerals
Management Service ("MMS") has not yet finalized implementing regulations under
OPA '90. The Company cannot predict the final form of the financial
responsibility regulations that will be adopted by the MMS, but such
regulations have the potential to result in the imposition of material costs.
 
  The Company's domestic oil and gas operations are subject to extensive state
and federal regulations which have increased the cost of doing business by
requiring additional equipment or methods to eliminate
 
                                       13

<PAGE>
 
or reduce pollution and have increased financial exposure as in the case of
federal laws and regulations which may result in absolute liability for cleanup
and removal of offshore oil spills. Governments may from time to time suspend
or curtail operations considered to be detrimental to the ecology or which may
jeopardize public safety. The Company does not anticipate any material adverse
effect on its financial or competitive position as a result of compliance with
such laws and regulations.
 
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.
 
  In July 1994, Zapata announced that it intended to separate its marine
protein operations from its energy-related businesses. Alternatives for a sale
of the marine protein operations or a spin-off of the business to the
stockholders of Zapata were considered. 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. As a result, the operating
results related to the marine protein operations are reported under the
discontinued operations classification. Based on preliminary offers to purchase
the marine protein operations, the Company has recorded an $8.9 million after-
tax book loss.
 
  Because the magnitude of the fish catch depends on the availability of the
natural resource, which is affected by various factors beyond the Company's
control, and because the prices for the Company's products are established by
worldwide supply and demand relationships over which the Company has no
control, the Company cannot predict the profitability of this business segment
in any given year.
 
  Fishing. The Company owns a fleet of 51 fishing vessels and 27 spotter
aircraft for use in its fishing operations and also leases or charters
additional vessels and aircraft where necessary to facilitate operations.
During the 1994 fishing season in the Gulf of Mexico, where the fishing season
runs from mid-April through October, the Company operated 35 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. Each
steamer transports 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, which unloads the fish at the Company's processing
plants.
 
  Processing. The Company owns five processing plants--three in Louisiana, one
in Mississippi and one in Virginia--where the menhaden are processed into fish
meal, fish oil and fish solubles. The fish are unloaded from the vessels into
storage boxes and then conveyed into steam cookers. The fish are then passed
through presses to remove most of the oil and water. The solid portions of the
fish are dried and then ground into fish meal. The liquid that is produced in
the cooking and pressing operations contains oil, water, dissolved protein and
some fish solids. This liquid is decanted to remove the solids and is then put
through a centrifugal oil/water separation process. The separated fish oil is a
finished product. The separated water and protein mixture is further processed
through evaporators to remove the soluble protein, which can be sold as a
finished product or added to the solid portions of the fish for processing into
fish meal.
 
  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
 
                                       14

<PAGE>
 
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.
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 August 1993, the Company acquired a 60% equity interest in Venture Milling
Company ("Venture"), a Delaware corporation involved in the milling of animal
feeds and protein-ingredient products for the poultry, hog and dairy
industries. Venture leases and operates a feed mill in Seaford, Delaware and
manages its processing operations and sales activities independent of the
Company. The Company's financial results for the 1994 or 1993 fiscal years were
not materially impacted by activity related to Venture.
 
  Marketing. Most of the Company's 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 $34,143,000 as of September 30, 1994 compared to
$33,504,000 on September 30, 1993. 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.
 
  Competition. The principal competition for the Company's fish meal and fish
solubles are 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
renamed 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
 
                                       15

<PAGE>
 
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 a "hazardous substance" into the environment; and
the federal Occupational Safety and Health Act ("OSHA"). The OSHA hazard
communications standard, the Environmental Protection Agency community right-
to-know regulations under Title III of the federal Superfund Amendment and
Reauthorization Act and similar state statutes require the Company to organize
information about hazardous materials used or produced in its operations.
Certain of this information must be provided to employees, state and local
governmental authorities and local citizens. Numerous other environmental laws
and regulations, along with similar state laws, also apply to the marine
protein operations of the Company, and all such laws and regulations are
subject to change.
 
  The Company has made, and anticipates that it will make in the future,
expenditures in the ordinary course of its business in connection with
environmental matters. Such expenditures have not been material in the past and
are not expected to be material in the future. However, there is no assurance
that environmental laws and regulations enacted in the future will not
adversely affect the Company's marine protein operations.
 
TIDEWATER OWNERSHIP INTEREST
 
  The Company now owns 673,077 shares of Tidewater common stock. Zapata sold
3.5 million shares of Tidewater common stock in 1993 and 4.1 million shares in
1994.
 
  Tidewater, an international energy services company with headquarters in New
Orleans, has two principal lines of business: offshore marine services and
compression services. Tidewater's offshore marine services division principally
provides support services to the domestic and international offshore petroleum
industry. Tidewater's compression services division principally provides the
domestic energy industry with a broad range of engineered products and
technical services used primarily in production, enhanced recovery and
transmission of natural gas and in natural gas processing.
 
EMPLOYEES
 
  On September 30, 1994, the Company and its subsidiaries employed
approximately 1,600 persons. Approximately 120 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.
 
  On November 17, 1994, a majority of the Company's shore-based employees at
the Company's Moss Point, Mississippi plant voted against union representation
by the United Paperworkers International Union. On November 28, 1994, the
results of that election were certified by the National Labor Relations Board.
 
GEOGRAPHICAL INFORMATION
 
  Certain geographical information with respect to the Company's business is
set forth in Note 15 of Notes to Consolidated Financial Statements.
 
                                       16

<PAGE>
 
EXECUTIVE OFFICERS OF THE REGISTRANT
 
  The names, ages and current offices of the executive officers of the Company,
who are to serve until the next annual meeting of the Board of Directors to be
held in 1995, 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>
Malcolm I. Glazer (66)..  Chairman of the Board of Directors,         July 1994
                           President and Chief Executive Officer
Ronald C. Lassiter (62).  Acting Chief Operating Officer              December 1994
Lamar C. McIntyre (56)..  Vice President, Chief Financial Officer and October 1994
                           Treasurer
Bruce K. Williams (46)..  Chairman, President and Chief Executive     July 1987
                           Officer of Zapex
Robert W. Jackson (51)..  President and Chief Executive Officer of    November 1992
                           Cimarron
</TABLE>

 
  A description of the business experience during the past five years for each
of the executive officers of Zapata is set forth below.
 
  Malcolm I. Glazer, a director since 1993, has served as Chairman of the Board
of Directors since July 1994, and as President and Chief Executive Officer
since August 1994. He also is a self-employed, private investor whose
diversified portfolio consists of investments in television broadcasting,
restaurants, health care, banking, real estate, stocks, government securities
and corporate bonds. He is a director and Chairman of the Board of
Gilbert/Robinson, Inc.
 
  Ronald C. Lassiter, who has served as acting Chief Operating Officer of
Zapata since December 1994, has been a director since 1974 and was Chairman of
the Board of Directors of Zapata from December 1985 to July 1994. From January
1983 to July 1994, he served as Chief Executive Officer of Zapata, and from
July 1994 until December 1994, he served as Chairman and Chief Executive
Officer of Zapata Protein, Inc. He served as President of Zapata from July 1978
until December 1985, when the office was eliminated. He has served in various
positions with Zapata since 1970, and he served as a director of Zapata Gulf
Marine Corporation from November 1984 to January 1992. Mr. Lassiter also serves
as a director of Daniel Industries, Inc.
 
  Lamar C. McIntyre has served as Vice President, Chief Financial Officer and
Treasurer since October 1994. He served as Vice President, Tax and Treasurer
from 1989 through September 1994.
 
  Bruce K. Williams has served as Chairman, President and Chief Executive
Officer of Zapex since January 1991. He served as President of Zapex from July
1987 to January 1991, as Executive Vice President of Zapex from January 1986 to
July 1987 and as Vice President-Business Development and Administration of
Zapex from January 1983 to January 1986.
 
  Robert W. Jackson has served as President and Chief Executive Officer of
Cimarron since its acquisition by Zapata in November 1992, and for at least the
five years prior thereto he was the principal stockholder and Chairman and
Chief Executive Officer of Cimarron and its predecessors.
 

I
TEM 2. PROPERTIES
 
  In addition to the properties discussed above with respect to each business
segment, the Company leases office space in Houston, Texas for its executive
offices pursuant to a lease which will expire in 2002. 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. Coverage also incudes control of well
coverage for oil and gas exploration and production activities.
 
                                       17

<PAGE>
 

ITEM 3. LEGAL PROCEEDINGS
 
  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. The Company believes that it is not presently a party
to any litigation the outcome of which would have a material adverse effect on
its results of operations or financial condition.
 
  Debentures Action. On July 9, 1991, a purported class action lawsuit styled
Armand A. Vari, et al. v. Zapata Corporation, et al. was filed in the U.S.
District Court for the Southern District of Florida, Miami Division (Civil
Action No. 91-1455), naming as defendants Zapata, each of its directors and two
of its executive officers, and IBJ Schroder Bank & Trust Company. The
plaintiffs alleged that the defendants violated or aided and abetted violations
of various provisions of the federal securities laws and state law in
connection with tender offers initiated by Zapata on November 5, 1990 with
respect to its then-outstanding Debentures. The plaintiffs, acting on behalf of
themselves and purportedly all other persons who either tendered Debentures to
Zapata or sold Debentures in the market during the period from November 5, 1990
through December 31, 1990, claimed that the defendants made materially false
and misleading statements in connection with the tender offers, and sought
damages in an unspecified amount. In November 1991, the U.S. District Court in
Miami granted a motion filed by the defendants to transfer the lawsuit to the
U.S. District Court for the Southern District of Texas in Houston.
 
  In April 1994, the Court granted Zapata's and the individual defendants'
motion for summary judgment. In granting the motion for summary judgment, the
Court dismissed with prejudice all federal claims filed against Zapata and the
individual defendants. The plaintiffs did not appeal the judgment, which became
final in May 1994. Moreover the plaintiffs did not elect to re-file their state
law claims in the appropriate state courts.
 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  No matter was submitted to a vote of Zapata's stockholders during the fourth
quarter of fiscal 1994.
 
                                       18

<PAGE>
 

                                    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 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. The
high and low sales prices for the Common Stock as reported in the consolidated
transactions reporting system and adjusted to reflect the reverse stock split
for each quarterly period for the last two fiscal years, as well as the amount
per share of dividends declared during such periods, are shown in the following
table.
 

<TABLE>
<CAPTION>
                         SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
     QUARTER ENDED           1994        1994     1994        1993         1993        1993     1993        1992
     -------------       ------------- -------- --------- ------------ ------------- -------- --------- ------------
<S>                      <C>           <C>      <C>       <C>          <C>           <C>      <C>       <C>
High sales price........    $ 5.50      $ 6.25    $6.88      $8.13         $6.25      $6.25     $6.25      $5.63
Low sales price.........      4.00        4.00     5.63       5.00          4.38       5.00      3.75       3.43
Dividends declared......     0.035       0.035       --         --            --         --        --         --
</TABLE>

 
  The Company announced in December 1994 that its Board of Directors had
determined to discontinue the payment of dividends on its Common Stock and $2
Noncumulative Convertible Preference Stock ("Preference Stock").
 
  The rights of holders of the Common Stock to receive dividends or other
payments with respect thereto are subject to the prior and superior rights of
holders of Zapata's Preferred Stock and Preference Stock, then outstanding. As
of the date of this Report, Zapata had outstanding 22,498 shares of $6
Cumulative Preferred Stock ("Preferred Stock") and 2,627 shares of Preference
Stock.
 
  As of June 30, 1994, Zapata redeemed one-half of the approximately 45,000
outstanding shares of the Company's Preferred Stock at $100 per share. The
Company will redeem the balance of its outstanding Preferred Stock in January
1995.
 
  On December 28, 1994, there were 10,148 holders of record of Common Stock.
 
                                       19

<PAGE>
 

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. In connection with the 1990 Restructuring
and effective as of October 1, 1990, the Company implemented, for accounting
purposes, a "quasi-reorganization," an elective accounting procedure that
permits a company which has emerged from financial difficulty to restate its
accounts and establish a fresh start in an accounting sense. The Company's
financial statements were restated in 1994 to reflect the Company's marine
protein operations as a discontinued operation and in 1990 to reflect the
Company's offshore drilling operations as a discontinued operation.
 

<TABLE>
<CAPTION>
                                     YEAR ENDED SEPTEMBER 30,
                         ---------------------------------------------------------
                           1994         1993        1992    1991         1990
                         --------     --------     ------- -------  --------------
                                 (IN THOUSANDS, EXCEPT PER SHARE)
 
                               AFTER QUASI-                         BEFORE QUASI-
                              REORGANIZATION                        REORGANIZATION
<S>                      <C>          <C>          <C>     <C>      <C>
INCOME STATEMENT DATA:
  Revenues.............. $241,212 (1) $206,480 (1) $30,094 $22,496     $31,431
  Operating income
   (loss)...............  (30,145)(2)   (1,289)      6,172    (441)      2,888
  Income (loss) from
   continuing
   operations...........     (695)(3)    9,809 (4)   2,815   2,757     (16,570)
  Per common share
   income (loss) from
   continuing
   operations...........    (0.04)        0.34        0.09    0.09       (2.66)
  Cash dividends paid...    1,566        2,933         --      --          --
  Common Stock dividends
   declared, per share..     0.07          --          --      --          --
CASH FLOW DATA:
  Capital expenditures..   24,580        3,092       6,981   4,057       2,090
</TABLE>

 

<TABLE>
<CAPTION>
                         SEPTEMBER 30, SEPTEMBER 30,  SEPTEMBER 30, SEPTEMBER 30, OCTOBER 1,   SEPTEMBER 30,
                             1994          1993           1992          1991         1990           1990
                         ------------- -------------  ------------- ------------- ----------   --------------
                                                          (IN THOUSANDS)
 
                                                                                               BEFORE QUASI-
                                       AFTER QUASI-REORGANIZATION                              REORGANIZATION
<S>                      <C>           <C>            <C>           <C>           <C>          <C>
BALANCE SHEET DATA:
  Working capital.......    $88,112      $157,216(5)     $72,858       $88,303     $99,990       $(340,262)
  Property and
   equipment, net.......     87,083        56,227         50,876        54,594      61,266          61,266
  Net assets of
   discontinued
   operations...........     55,000        68,698         60,679        61,415     354,492         364,130
  Total assets..........    258,874       321,087        280,936       295,367     557,432         587,120
  Current maturities of
   long-term debt.......      2,478         2,384         19,446        10,484     200,740(6)      639,375
  Long-term debt........     59,860       131,584        112,111       131,557     138,933           1,179
  Stockholder's equity..    154,542       146,264        124,880       122,853     112,525        (174,557)
</TABLE>

- --------
(1) Includes $156.1 million and $186.3 million of revenues in 1994 and 1993,
    respectively, from Cimarron, which was acquired during the first quarter of
    fiscal 1993. (After $157.2 million and $186.8 million in expenses in 1994
    and 1993, respectively, Cimarron incurred operating losses of $1.1 million
    and $552,000 in 1994 and 1993, respectively).
(2) Includes a $29.2 million oil and gas valuation provision.
(3) Includes a $37.5 million pretax gain from the sale of 4.1 million shares of
    Tidewater common stock and expenses of $7.4 million related to the
    prepayment of Norex indebtedness.
(4) Includes a $32.9 million pretax gain from the sale of 3.5 million shares of
    Tidewater common stock, a $6.4 million prepayment penalty in connection
    with the senior debt refinancing and a $5.7 million pretax loss resulting
    from the disposition of Zapata's investment in Arethusa (Offshore) Limited
    ("Arethusa").
(5) Includes $75.1 million of restricted cash primarily generated from the sale
    of Tidewater common stock in June 1993 which was subsequently used to fund
    the cash portion of the purchase price of the Energy Industries
    Acquisition.
(6) Includes indebtedness of $173.0 million due to senior creditors, $26.9
    million due to the holders of subordinated debentures classified as debt
    and related restructuring liabilities and $985,000 of current maturities of
    long-term debt.
 
                                       20

<PAGE>
 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
  The following is a discussion of the Company's financial condition and
results of operations. This discussion should be read in conjunction with the
Consolidated Financial Statements of the Company appearing under Item 8 herein.
 
BACKGROUND
 
  Zapata Corporation has undergone a significant transformation during the last
four years and the Company's new identity is still in the process of evolving.
 
  In fiscal 1991, the Company sold its offshore drilling business in which it
historically had a significant presence to Arethusa (Offshore) Limited
("Arethusa"). The cash proceeds from the sale was the catalyst for a
comprehensive financial restructuring which resulted in a significant reduction
in Zapata's debt and an increase in the number of outstanding shares of the
Company's common stock ("Common Stock").
 
  In fiscal 1992, Zapata Gulf Marine Corporation ("Zapata Gulf") of which
Zapata owned 34.7% was merged into Tidewater Inc. ("Tidewater"). As a result,
Zapata's investment in the marine services sector was represented by 8.3
million shares of Tidewater common stock.
 
  Zapata acquired Cimarron Gas Holding Company and its subsidiaries
(collectively, "Cimarron") early in fiscal 1993 for $3.8 million consisting of
$2.5 million and 437,333 shares of Common Stock. Cimarron was purchased to
serve as the vehicle for the Company's expansion into the gathering and
processing segments of the natural gas services markets.
 
  In May 1993, Zapata completed a refinancing of its senior debt which enabled
the Company to move forward with its strategic plan to redirect its focus into
the natural gas services market. Zapata raised a total of $111.4 million from
the issuance of debt and equity pursuant to a Second Amended and Restated
Master Restructuring Agreement dated as of April 16, 1993, as amended (the
"Norex Agreement"), between Zapata and Norex Drilling Ltd. ("Norex Drilling"),
a wholly owned subsidiary of Norex America, Inc. ("Norex America" and
collectively with Norex Drilling and other affiliates, "Norex"). The Norex
Agreement enabled the Company to refinance its then outstanding senior debt and
substantially reduced the amount of required debt service payments for fiscal
years 1994 and 1995.
 
  Under the terms of the Norex Agreement, Zapata issued $82.6 million in
principal amount of senior notes to Norex, maturing in three years and bearing
interest at 13%. In addition, Norex purchased 3 million shares of Common Stock
for $11.25 million and 17.5 million shares of $1 Preference Stock for $17.5
million. The $1 Preference Stock was to pay dividends at an annual rate of 8.5%
and was exchangeable into 673,077 shares of Zapata's Tidewater common stock at
the option of Norex. In August 1993, Norex exchanged all of its $1 Preference
Stock for $17.5 million aggregate principal amount of 8.5% unsecured
exchangeable notes, maturing in 1996. Such notes are also exchangeable into
673,077 shares of Tidewater common stock. Such refinancing transactions are
collectively referred to as the "Norex Refinancing."
 
  In June 1993, the Company sold 3.5 million shares of its Tidewater common
stock in an underwritten public offering for net proceeds of $73.5 million.
Zapata used the proceeds to invest in the natural gas compression sector.
 
  In September 1993, the Company, through Cimarron, acquired the interests of
Stellar Energy Corporation and three affiliated companies (collectively,
"Stellar") engaged in natural gas gathering and processing for $16.4 million.
The purchase price included $6.3 million, the redemption of $3.7 million of
notes payable to former Stellar shareholders and the assumption of $6.4 million
of indebtedness of Stellar. The cash portion of the purchase price was financed
with working capital. The acquisition of Stellar significantly expanded the
Company's gas gathering and processing capability by adding 350 miles of
gathering systems in Texas and Oklahoma as well as a processing plant in West
Texas.
 
                                       21

<PAGE>
 
  In November 1993, Zapata purchased the natural gas compression businesses of
Energy Industries, Inc. and certain other affiliated companies as well as
certain real estate used by the business (collectively, "Energy Industries").
Energy Industries is engaged in the business of renting, fabricating, selling,
installing and servicing natural gas compressor packages. Energy Industries
operates the one of the ten largest rental fleets of natural gas compressor
packages in the United States. Its compressor fleet is located in Texas,
Louisiana, Arkansas, Oklahoma and New Mexico, as well as offshore in the Gulf
of Mexico. Total consideration paid for the purchase of Energy Industries and
for a related noncompetition agreement (collectively, the "Energy Industries
Acquisition") was $90.2 million. The purchase price consisted of $74.5 million
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.
 
  Additionally, in November 1993 Zapata sold 3.75 million shares of its
Tidewater common stock for $77.8 million. In December 1993, $73.7 million of
the proceeds from the November sale of Tidewater common stock was used to
prepay $68.5 million of the 13% senior indebtedness to Norex, along with
accrued interest, and to pay a $3.5 million prepayment premium.
 
  In March 1994, Zapata sold 375,175 additional shares of its Tidewater common
stock for a net price of $21.34 per share generating $8.0 million. The Company
currently owns 673,077 shares of Tidewater common stock all of which are
reserved for the possible exchange, at the election of Norex, for the $17.5
million aggregate principal amount of 8.5% unsecured exchangeable notes of the
Company held by Norex.
 
  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 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. Zapata's
Board of Directors declared two quarterly Common Stock dividends in fiscal 1994
of $0.035 per share totalling approximately $1.1 million each that were paid in
July 1994 and October 1994.
 
  As of June 30, 1994, Zapata redeemed one-half of the approximately 45,000
outstanding shares of the Company's $6 Cumulative Preferred Stock (Preferred
Stock) at $100 per share. The Company will redeem the balance of its
outstanding Preferred Stock in January 1995. Under terms of the Preferred
Stock, Zapata can redeem a maximum of 22,500 shares of the stock in a calendar
year.
 
  In July 1994, Zapata announced that it intended to separate its marine
protein operations from its energy-related businesses. Alternatives for a sale
of the marine protein operations or a spin-off of the business to the
stockholders of Zapata were considered. 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. Based on preliminary offers
to purchase the marine protein operations, the Company has recorded an $8.9
million after tax book loss. As a result of the decision to sell, the Company's
financial statements were restated to reflect the marine protein operations as
a discontinued operation.
 
  In September 1994, Zapata announced that its Board of Directors had
determined that the Company should 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, may be
sold individually or as a package depending upon the interest expressed by
prospective buyers. Zapata's Bolivian oil and gas operations will not be
impacted by this decision. Zapata's domestic natural gas reserves have been
declining for a number of years as no exploratory efforts have been undertaken
to offset gas production. The Board's decision to sell the properties is simply
an acceleration of the liquidation of the gas reserves currently occurring
through production. Sales proceeds are estimated to equal or exceed the net
book value of the properties.
 
                                       22

<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES
 
  In September 1994, the Company prepaid the remaining $17.3 million of its 13%
senior convertible indebtedness to Norex that was due in 1996, along with
accrued interest, and paid a prepayment premium of $655,000. The prepayment was
facilitated by the initial drawdown of $15 million from a $30 million bank
credit facility with Texas Commerce Bank Association (the "TCB Loan Agreement")
that Zapata arranged for its natural gas compression operations, Energy
Industries, in September 1994.
 
  At September 30, 1994, Zapata's financial condition is stronger than that of
any time in recent history. Long-term debt of $59.9 million compares favorably
to working capital of $88.1 million and stockholders' equity of $154.5 million.
Additionally, the Company owns 673,077 shares of Tidewater common stock.
 
  As of September 30, 1994, the Company's weighted-average interest rate had
been reduced to 8.8% as a result of the Norex debt prepayments. Mandatory
principal payments for the next twelve months total $2.5 million. Depending
upon certain conditions, the principal payments due in 1996 may be exchanged
for shares of Zapata's Tidewater common stock as provided for in the Norex
Agreement.
 
  The Company considers its current liquidity position to be adequate. The TCB
Loan Agreement provides Energy Industries with financial flexibility.
Additionally, with the acquisition of Energy Industries, Zapata believes that
its cash flow from operations will be sufficient to meet operating needs and
its financial commitments.
 
  The TCB Loan Agreement provides Energy Industries with a revolving credit
facility that converts after two years to a three-year amortizing term loan.
The TCB Loan Agreement bears interest at a variable interest rate that may be
adjusted periodically. Pursuant to the TCB Loan Agreement, Energy Industries
has agreed to maintain certain financial covenants and to limit additional
indebtedness, dividends, dispositions and acquisitions. The amount of
restricted net assets for Energy Industries at September 30, 1994 was
approximately $65.0 million. Additionally, Energy Industries' ability to
transfer funds to Zapata Corporation was limited to $5.0 million at September
30, 1994. The Company remains subject to a covenant in the Norex Agreement
which requires it to maintain a consolidated tangible net worth of at least
$100 million.
 
  Reflecting the effects of the Norex Refinancing and the sale in June 1993 of
the Tidewater common stock, Zapata's working capital improved $84.4 million
during fiscal 1993 and totalled $157.2 million as of September 30, 1993. In
fiscal 1993, cash and restricted cash components increased $55.0 million and
current maturities of long-term debt were reduced by $17.1 million to $2.4
million.
 
  Net cash provided by operating activities during fiscal 1994 totalled $9.3
million as compared to $16.7 million used by operating activities in fiscal
1993. The improvement in 1994 was attributable to the positive contribution
from the Company's compression operations, reduced interest expense, lower fees
associated with Zapata's senior debt and an increase in fish meal and fish oil
inventories in 1993.
 
  Net cash used by operating activities in fiscal 1993 totalled $16.7 million
and compared unfavorably to the $5.2 million provided by operating activities
in 1992. The use of cash was attributable to lower operating income, an
increase in fish meal and fish oil inventories and the prepayment penalty
associated with the Norex Refinancing.
 
  Due to the significant transactions which occurred during fiscal years 1994
and 1993, cash flow from investing activities is combined with financing
activities for the following analysis. On a combined basis, these activities
used $11.0 million during fiscal 1994 and $3.4 million during fiscal 1993. This
difference can be attributed to increased capital expenditures and to the
redemption of preferred stock. Capital expenditures increased in 1994 due to
the combination of the following: workover projects at the Wisdom gas field,
the expansion of the natural gas gathering and processing operations and the
expansion of the compressor rental fleet.
 
                                       23

<PAGE>
 
  Net cash used by investing activities of $4.9 million in fiscal 1993
approximated the $4.5 million use of cash in 1992. Investing activities in 1993
consisted of the cash received from the disposition of the Company's investment
in Arethusa, the cash used in the acquisitions of Cimarron and Stellar and
capital expenditures. Capital expenditures were lower in 1993 as a result of
the completion of a major oil and gas production capital project in 1992.
Reflecting the Norex Refinancing, net cash provided by financing activities of
$1.5 million in fiscal 1993 compared favorably to the net use of cash in fiscal
1992 of $10.5 million.
 
RESULTS OF OPERATIONS
 
General
 
 Fiscal 1994--1993
 
  Zapata's net loss of $8.3 million for fiscal 1994 compared unfavorably to the
net income of $9.4 million in fiscal 1993. A net loss from the discontinued
marine protein operation in fiscal 1994 totalled $7.6 million and compared
unfavorably to the $436,000 net loss in fiscal 1993. The fiscal 1994 loss from
discontinued operations includes an estimated loss on disposition of $8.9
million. The discontinued marine protein results include allocations of
interest on general corporate debt of $2.5 million and $3.9 million in 1994 and
1993, respectively.
 
  On a continuing operations basis, a loss of $695,000 in fiscal 1994 compared
unfavorably to income of $9.8 million in fiscal 1993. The fiscal 1994 loss
included a $29.2 million pretax write-down of the Company's oil and gas
properties in the Gulf of Mexico as a result of low gas prices and a revision
of estimated future costs. Sales of Tidewater common stock generated pretax
gains of $37.5 million in fiscal 1994 and $32.9 million in fiscal 1993. The
fiscal 1994 gain was partially offset by a $7.4 million expense associated with
the Norex debt prepayments; this expense was comprised of debt prepayment
penalties totalling $4.1 million and a $3.3 million write-off of previously
deferred expenses related to the origination of such indebtedness. The fiscal
1993 gain was partially offset by a $6.4 million prepayment penalty that Zapata
was required to pay in connection with refinancing of senior indebtedness and a
$5.7 million loss from the disposal of Zapata's investment in Arethusa.
Interest expense was reduced substantially in fiscal 1994 as compared to 1993
reflecting the effects of the restructuring of indebtedness in fiscal 1993 and
overall reduction of the Company's indebtedness in fiscal 1994.
 
  Revenues of $241.2 million and an operating loss of $30.1 million in fiscal
1994 compared to revenues of $206.5 million and an operating loss of $1.3
million in fiscal 1993. The oil and gas valuation provision in fiscal 1994 more
than offset the contribution from the newly-acquired natural gas compression
operations. The 1994 operating loss also included a $2.4 million expense
related to a reduction in staff at the Company's corporate headquarters and
write-off of leasehold improvements.
 
 Fiscal 1993--1992
 
  The Company's net income of $9.4 million for fiscal 1993 represented a
significant improvement from net income of $2.4 million for fiscal 1992. The
discontinued marine protein operations incurred net losses of $436,000 and
$384,000 in fiscal 1993 and 1992, respectively, which includes allocations of
interest on general corporate debt of $3.9 million and $3.7 million,
respectively.
 
  The Company's income from continuing operations of $9.8 million in fiscal
1993 compared favorably to the income of $2.8 million in fiscal 1992. The
improvement was due to the $32.9 million pretax gain from the sale of Tidewater
common stock in June 1993.
 
  The Company's operating loss of $1.3 million for fiscal 1993 compared
unfavorably to the fiscal 1992 operating income of $6.2 million. The shortfall
was primarily attributable to reduced receipts from Bolivian oil and gas
operations. Fiscal 1993 income included equity income of $1.1 million from
Zapata's investment in Tidewater compared to equity income of $1.5 million in
fiscal 1992.
 
                                       24

<PAGE>
 
  As a result of Zapata's decision to sell 3.5 million shares of its Tidewater
common stock, Zapata changed the method of accounting for its investment in
Tidewater from the equity to the cost method of accounting, effective January
1, 1993. Consequently, Zapata's equity interest in Tidewater's results has not
been included as equity income since December 31, 1992. Instead, Tidewater's
dividends to Zapata have been included in other income when declared.
 
  During 1993, revenues and expenses were significantly higher than those
reported for the corresponding 1992 period. The increase resulted from the
inclusion of the activities of Cimarron which was acquired during the first
quarter of fiscal 1993. Cimarron's natural gas liquids trading business
typically generates high revenues, high expenses and low margins. Revenues of
$206.5 million for fiscal 1993 (including $186.3 million in revenues from
Cimarron) were significantly higher than the $30.1 million of revenues reported
for fiscal 1992.
 
 Natural Gas Services Operations--Compression
 
  In November 1993, Zapata purchased Energy Industries, a participant in all
segments of the natural gas compression industry. Additionally, in April 1994
Energy Industries acquired 41 additional compressors for $2.0 million. Energy
Industries operates one of the ten largest rental fleets of natural gas
compressor packages in the United States. Its compressor fleet is located in
Texas, Louisiana, Arkansas, Oklahoma and New Mexico, as well as offshore in the
Gulf of Mexico.
 
  The major segments of Energy Industries' natural gas compression revenues and
operating results for the eleven-month period ended September 30, 1994, in
thousands, are identified below.
 

<TABLE>
<CAPTION>
                                                                ELEVEN MONTHS
                                                               ENDED SEPTEMBER
                                                                   30, 1994
                                                              ------------------
                                                                       OPERATING
                                                              REVENUES  RESULTS
                                                              -------- ---------
      <S>                                                     <C>      <C>
      Compressor Rental...................................... $16,252   $4,866
      Fabrication and Sales..................................  27,560    5,384
      Parts and Service .....................................  19,608    3,958
      Other..................................................   9,102    1,492
      Selling and Administrative.............................      --   (7,730)
                                                              -------   ------
                                                              $72,522   $7,970
                                                              =======   ======
</TABLE>

 
  Natural gas compressor package rental utilization is affected by the number
and age of producing oil and gas wells, the volume of natural gas consumed and
natural gas prices. Rental rates are determined by the demand for compressor
packages and vary by size and horsepower of a compressor package. Utilization
of the Company's rental units has improved during fiscal 1994 to a level that
now exceeds the reported industry average due primarily to a greater emphasis
being placed on rental operations and to the changes in the size of the
compressor packages in the rental fleet. Energy Industries' utilization, rental
rates and fleet size as of September 30, 1994 are set forth in the following
table.
 

<TABLE>
<CAPTION>
                                                                   SEPTEMBER 30,
                                                                       1994
                                                                   -------------
      <S>                                                          <C>
      FLEET UTILIZATION:
        Horsepower................................................       82.6%
      MONTHLY RENTAL RATE, BASED ON:
        Horsepower................................................     $16.61
      FLEET SIZE:
        Number of units...........................................        706
        Horsepower................................................    113,786
</TABLE>

 
                                       25

<PAGE>
 
  The Company expects to dispose of its heat exchanger manufacturing operation
in fiscal 1995. The sale of the heat exchanger operation will not have a
material impact on the Company's results of operations or financial position.
 
 Natural Gas Services Operations -- Gathering, Processing and Marketing
 
  Zapata's natural gas gathering, processing and marketing operations are
conducted through Cimarron which was acquired early in fiscal 1993 to serve as
the vehicle for the Company's expansion into the natural gas services market.
As a division of Zapata, Cimarron's operations involve two major categories of
business activities: the gathering and processing of natural gas and its
constituent products and the marketing and trading of natural gas liquids
(NGL).
 
  Revenues and operating results for fiscal 1994 and 1993 are presented in the
following table by major category, in thousands.
 

<TABLE>
<CAPTION>
                                                                 OPERATING
                                                 REVENUES         RESULTS
                                             ----------------- ---------------
                                               1994     1993    1994     1993
                                             -------- -------- -------  ------
      <S>                                    <C>      <C>      <C>      <C>
      Gathering and Processing.............. $ 22,867 $ 11,671 $   718  $  427
      NGL Marketing.........................  133,274  174,620     703   1,345
      Selling and Administrative............                    (2,484) (2,324)
                                             -------- -------- -------  ------
                                             $156,141 $186,291 $(1,063) $ (552)
                                             ======== ======== =======  ======
</TABLE>

 
  For fiscal 1994, gathering and processing revenues increased as a result of
the expansion of the division's gathering and processing operations during
fiscal 1994 and 1993 while marketing revenues declined primarily due to the
Company's decision to reduce its natural gas trading activities. The gathering
and processing operations, however, incurred operating losses in the second and
third quarters of fiscal 1994 as processing margins were negatively impacted by
an uncharacteristic imbalance in the prices of natural gas and NGL. Subsequent
to the end of the third fiscal quarter, liquids prices increased resulting in
improved operating results from the gathering and processing operation.
 
  In fiscal 1993, Zapata's natural gas gathering, processing and marketing
division incurred an operating loss that was attributable to weak demand for
refinery feedstocks, a soft liquids trading market and a write-off of a liquids
trading receivable. Additionally, the division undertook a substantial business
development effort in 1993 as prospective acquisition candidates and expansion
opportunities were examined. These efforts resulted in increased administrative
expenses.
 
  In fiscal 1994 and 1993, Cimarron significantly expanded its natural gas
gathering and processing activities through the acquisition and expansion of
natural gas gathering systems in West Texas and Oklahoma and a gas processing
plant in Sutton County, Texas. A comparison of average daily volumes of gas,
measured in thousands of cubic feet, gathered and processed during fiscal 1994
and 1993 is shown below.
 

<TABLE>
<CAPTION>
                                                                    1994   1993
                                                                   ------ ------
      <S>                                                          <C>    <C>
      Gathering................................................... 45,500 14,382
      Processing.................................................. 22,200 10,063
</TABLE>

 
 Oil and Gas Operations
 
  Reflecting the $29.2 million property valuation provision, as well as lower
prices for U.S. natural gas and lower U.S. natural gas production, revenues of
$12.6 million and an operating loss of $28.3 million for fiscal 1994 compared
unfavorably to the fiscal 1993 revenues of $20.2 million and operating income
of $6.0 million. The valuation provision was the result of several factors:
lower natural gas prices, additional capitalized costs incurred recently in
connection with several workover wells at the Company's Wisdom gas field and an
increase in estimated future costs.
 
                                       26

<PAGE>
 
  In September 1994, Zapata announced that its Board of Directors had
determined that the Company should 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, may be
sold individually or as a package depending upon the interest expressed by
prospective buyers. Zapata's Bolivian oil and gas operations will not be
impacted by this decision. Zapata's domestic natural gas reserves have been
declining for a number of years as no exploratory efforts have been undertaken
to offset gas production. The Board's decision to sell the properties is simply
an acceleration of the liquidation of the gas reserves currently occurring
through production. Sales proceeds are estimated to equal or exceed the net
book value of the properties.
 
  The Bolivian operations contributed approximately $3.5 million and $3.2
million to operating income in fiscal 1994 and 1993, respectively. 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 fiscal 1994.
 
  Zapata's domestic natural gas production for fiscal 1994 was approximately
one-half of the fiscal 1993 period's level of production. The decline in
production was due to production difficulties encountered during 1993 at the
Wisdom gas field, the Company's most significant oil and gas property. U.S.
spot gas prices declined during the second half of fiscal 1994 and compared
unfavorably to prices in the corresponding fiscal 1993 period. The decline was
due primarily to an oversupply of natural gas that resulted from mild weather
conditions during the summer and early fall.
 
  In late April 1993 one of the oil and gas division's wells in the Wisdom gas
field was shut-in when such well started producing sand. Prior to the failure,
this well was capable of producing 6.5 MMcf per day. After some minor repairs,
the well was returned to production at a significantly reduced level. Efforts
to restore production from this well have been deferred.
 
  In early September 1993 an additional well in the Wisdom gas field ceased
production as a result of an influx of sand and water. Immediately prior to the
time the well ceased producing, this well was capable of producing
approximately 5.5 MMcf per day. After some minor repairs, the well was returned
to production at a significantly reduced level. Efforts to restore production
commenced in February 1994 and the workover/recompletion of this well and one
additional well successfully restored production of these wells to acceptable
levels. The Company undertook the recompletion of a third well in the Wisdom
gas field which was abandoned after a series of mechanical failures. The Wisdom
gas field was producing 10.8 MMcf per day in August 1994 before curtailing
production in September due to low gas prices.
 
  Revenues of $20.2 million and operating income of $6.0 million for fiscal
1993 were substantially below the fiscal 1992 revenues of $30.1 million and
operating income of $11.2 million. Despite higher prices for U.S. natural gas
and the absence of workover expenses of the Wisdom gas field, the division's
1993 results declined due to the combination of reduced revenues from the
Bolivian oil and gas operations and lower U.S. natural gas production. Cash
receipts from the Bolivian operation totalled $3.2 million in 1993 versus $10.1
million in 1992. Bolivian receipts, recognized as revenues, included
collections of certain past-due receivables in fiscal 1992. Results for the
fiscal 1992 period included $3.0 million of Wisdom gas field workover expenses.
 
  U.S. spot gas prices improved during fiscal 1993 and remained substantially
higher than the extremely low levels experienced during fiscal 1992. However,
Zapata's natural gas production for fiscal 1993 was 31% lower than the fiscal
1992 level of production. A major contributing factor to the decline in
production was due to the production difficulties at the Wisdom gas field.
 
 Tidewater
 
  In June 1993, Zapata completed the sale of 3.5 million of its shares of
Tidewater common stock through an underwritten public offering. The shares were
sold for a net price of $21.25 per share or $73.5 million and
 
                                       27

<PAGE>
 
the sale generated a 1993 pretax gain of $32.9 million. The gain is reflected
on the statement of operations as other income. In November 1993, Zapata sold
an additional 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 net price of $21.34 per share or
$8.0 million. The fiscal 1994 sales generated pretax gains totaling $37.5
million; the gains are recorded in other income. As of September 1994, the
Company owns 673,077 shares of Tidewater common stock.
 
  As a result of its decision to sell a portion of its Tidewater common stock,
effective January 1, 1993, Zapata changed from the equity to the cost method of
accounting for its investment in Tidewater. Consequently, Zapata has not
included its percentage of Tidewater's results as equity income since December
31, 1992. Instead, Tidewater dividends to Zapata have been included as other
income when, as and if declared.
 
  For fiscal 1993, Zapata's reported equity income of $1.1 million was based on
15.6% of Tidewater's results for the three months ended December 31, 1992. Such
percentage represented Zapata's ownership percentage of Tidewater. For fiscal
1992, the Company's equity income of $1.5 million was based on the combination
of 34.7% of Zapata Gulf's results for the three months ended December 31, 1991
and 15.7% of Tidewater's results for the nine months ended September 30, 1992.
 
OTHER INCOME (EXPENSE)
 
  Other expense of $4.4 million in fiscal 1994 includes expenses of $7.4
million related to the prepayment of the Norex indebtedness, a $2.8 million
gain related to the settlement of a coal note receivable that had previously
been written off and $700,000 dividend income from Zapata's Tidewater common
stock. Also, fiscal 1994 includes a $1.4 million expense related to a
terminated pension plan.
 
  Other expense of $10.5 million incurred during fiscal 1993 included three
significant items: a $6.4 million prepayment penalty incurred in connection
with the refinancing of the Company's senior debt in May 1993, a $5.7 million
loss resulting from the disposition of the Company's investment in Arethusa
which Zapata was required to make when the Company's offshore drilling rig
fleet was sold, and $1.3 million dividend income generated by Tidewater common
stock.
 
  Other income in 1992 of $4.7 million was attributable to a $1.7 million
pension plan curtailment and settlement gain associated with the termination of
management agreements with Arethusa, and to the receipt of $2.7 million from
notes written down in previous years.
 
TAXES
 
  The provision for U.S. income tax for 1994 reflects a benefit resulting from
a pretax loss from consolidated operations. In 1993 and 1992, the provisions
reflect expenses resulting from pretax consolidated income.
 
DISCONTINUED OPERATIONS--MARINE PROTEIN
 
  In July 1994, Zapata announced that it intended to separate its marine
protein operations from its energy-related businesses. Alternatives for a sale
of the marine protein operations or a spin-off of the business to the
stockholders of Zapata were considered. 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. Based on preliminary offers
to purchase the marine protein operations, the Company has recorded an $8.9
million after tax book loss. As a result of the decision to sell, the operating
results related to the marine protein operations are reported under the
discontinued operations classification.
 
                                       28

<PAGE>
 
  Revenues of $96.6 million and operating income of $5.4 million for fiscal
1994 compared favorably to the fiscal 1993 revenues of $58.6 million and
operating income of $4.3 million. The improved results were achieved by
increased sales volumes that resulted from the combination of a 37% increase in
the fiscal 1994 fish catch as compared to 1993 and to higher levels of
inventories which were carried over from the fiscal 1993 fishing season.
Compared to the prior year, sales volume of fish meal during fiscal 1994 was
55% higher while the average per ton price of $344 was 9% lower. Likewise, fish
oil volumes doubled during 1994 as compared to 1993 while the average per ton
price of $300 was 6% lower.
 
  Although fish catch improved in fiscal 1993, the marine protein division's
operating results for 1993 were slightly lower than fiscal 1992 results.
Revenues of $58.6 million and operating income of $4.3 million for fiscal 1993
compared unfavorably to the fiscal 1992 revenues of $76.3 million and operating
income of $4.7 million. The shortfall was attributable to the combination of
lower sales volumes for fish meal and fish oil, and lower prices for fish meal
that offset the positive effects from the improved fish catch.
 
  During 1993, fish meal prices averaged $376 per ton, down slightly from the
1992 average price of $380 per ton. However, because of an oversupply of fish
meal from South America, prices for prime fish meal (the marine protein
division's primary product) temporarily dropped precipitously during 1993. When
prices fell, management intentionally stopped selling product until prices
recovered later in the year. This decision contributed to lower meal sales
volumes during the year and higher inventories at year-end. The average price
at which fish oil was sold during fiscal 1993 increased from $295 per ton in
1992 to $320 per ton.
 
  The price for fish meal generally bears a relationship to prevailing soybean
meal prices, while prices for fish oil are usually based on prices for
vegetable fats and oils, such as soybean and palm oils. Thus, the prices for
the Company's products are significantly influenced by worldwide supply and
demand relationships over which the Company has no control, and tend to
fluctuate to a significant extent over the course of a year and from year to
year.
 
  The Company's total fish catch for fiscal 1994 improved for the second
consecutive year after dropping in fiscal 1992. The fish catch for fiscal 1994
improved approximately 37% from the 1993 level; the fiscal 1993 catch improved
approximately 10% from the catch in fiscal 1992. 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.
 
RECENTLY ISSUED ACCOUNTING STANDARDS
 
  In the first quarter of fiscal 1994, Zapata was required to adopt Statement
of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." The adoption of SFAS 109 changed Zapata's method of accounting for
income taxes to an asset and liability approach. The impact of adopting SFAS
109 was to record an increase to capital in excess of par value of $15.3
million and a net deferred tax asset of $11.6 million arising from the
recognition of previously existing credit carryforward items.
 
  Additionally, 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. Zapata currently owns 673,077
shares of Tidewater common stock which had a book value of approximately $7.9
million. As a result of adopting SFAS 115, this security is reported at fair
value at September 30, 1994 and any unrealized gain or loss recorded as a
separate component of stockholders' equity (net of deferred income taxes). At
September 30, 1994 an adjustment was made to increase investments in equity
securities by $6.6 million and increase stockholders equity by $4.3 million for
the unrealized appreciation (net of deferred taxes).
 
                                       29

<PAGE>
 

I
TEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To the Stockholders and Board of Directors,
Zapata Corporation:
 
  We have audited the accompanying consolidated balance sheets of Zapata
Corporation and subsidiaries as of September 30, 1994 and the related
consolidated statements of operations, cash flows and stockholders' equity for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Zapata
Corporation and subsidiaries as of September 30, 1994 and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles. We also audited the
adjustments for discontinued operations described in Note 2 that were applied
to restate the 1993 and 1992 consolidated financial statements. In our opinion,
such adjustments are appropriate and have been properly applied to those
consolidated financial statements.
 
  As described in Notes 1 and 9, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" and Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" in 1994.
 
 
                                          Coopers & Lybrand L.L.P.
 
Houston, Texas
December 16, 1994

 
                                       30

<PAGE>
 

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To the Stockholders and Board of Directors,
Zapata Corporation:
 
  We have audited the balance sheet of Zapata Corporation (a Delaware
corporation) and subsidiary companies as of September 30, 1993, and the related
income statement, statement of cash flows and reinvested earnings (deficit) and
capital in excess of par value for each of the two years in the period ended
September 30, 1993 prior to the restatement (and, therefore, are not presented
herein) for discontinued operations as described in Note 2 to the restated
financial statements. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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 the 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 financial position of Zapata Corporation and
subsidiary companies as of September 30, 1993, and the results of their
operations and their cash flows for each of the two years in the period ended
September 30, 1993, in conformity with generally accepted accounting
principles.
 
 
                                          Arthur Andersen LLP
 
Houston, Texas
December 17, 1993

 
                                       31

<PAGE>
 
                               ZAPATA CORPORATION
 
                           CONSOLIDATED BALANCE SHEET
 
                                  A S S E T S
 

<TABLE>
<CAPTION>
                                                    SEPTEMBER 30, SEPTEMBER 30,
                                                        1994          1993
                                                    ------------- -------------
                                                          (IN THOUSANDS)
<S>                                                 <C>           <C>
Current assets:
  Cash and cash equivalents........................   $ 14,386      $ 16,008
  Restricted cash..................................        779        75,083
  Receivables......................................     27,591        22,201
  Inventories:
    Compressor equipment and components............     17,629
    Gas liquids products...........................        414         1,437
  Prepaid expenses and other current assets........      2,049         1,615
  Net assets of discontinued operations............     55,000        68,698
                                                      --------      --------
      Total current assets.........................    117,848       185,042
                                                      --------      --------
Investments and other assets:
  Notes receivable (net of a $4.3 million allowance

   in 1994 and 1993)...............................      1,925         2,844
  Investments in equity securities.................     14,471        56,289
  Goodwill.........................................     25,812         7,455
  Deferred income taxes............................      3,315
  Other assets.....................................      8,420        13,230
                                                      --------      --------
      Total investments and other assets...........     53,943        79,818
                                                      --------      --------
Property and equipment:
  Natural gas services--compression................     56,661
  Natural gas services--gathering and processing...     18,395        14,324
  Oil and gas, full cost method....................     77,066        65,274
  Corporate........................................      5,213         5,184
                                                      --------      --------
                                                       157,335        84,782
  Accumulated depreciation, depletion and
   amortization....................................    (70,252)      (28,555)
                                                      --------      --------
                                                        87,083        56,227
                                                      --------      --------
      Total assets.................................   $258,874      $321,087
                                                      ========      ========
</TABLE>

 
    The accompanying notes are an integral part of the financial statements.
 
                                       32

<PAGE>
 
                               ZAPATA CORPORATION
 
                           CONSOLIDATED BALANCE SHEET
 
                      LIABILITIES AND STOCKHOLDERS' EQUITY
 

<TABLE>
<CAPTION>
                                                    SEPTEMBER 30, SEPTEMBER 30,
                                                        1994          1993
                                                    ------------- -------------
                                                          (IN THOUSANDS)
<S>                                                 <C>           <C>
Current liabilities:
  Current maturities of long-term debt.............   $  2,478      $  2,384
  Accounts payable.................................     13,384        16,186
  Accrued liabilities:
    Compensation and employee benefits.............      3,438         1,042
    Other..........................................      9,460         7,431
  Income taxes payable.............................        976           783
                                                      --------      --------
      Total current liabilities....................     29,736        27,826
                                                      --------      --------
Long-term debt.....................................     59,860       131,584
                                                      --------      --------
Deferred income taxes..............................                      105
                                                      --------      --------
Other liabilities..................................     14,736        15,308
                                                      --------      --------
Commitments and contingencies (Note 10)
Stockholders' equity:
  $6.00 cumulative preferred stock (no par),
   outstanding: 22,498 shares (1994) and 44,943
   shares (1993)...................................      2,255         4,500
  $2.00 noncumulative convertible preference stock
   ($1.00 par), outstanding: 2,627 shares (1994)
   and 2,637 shares (1993).........................          3             3
  Common Stock ($0.25 par), outstanding: 31,716,991
   shares (1994) and 28,940,592 shares (1993)......      7,930        36,176
  Capital in excess of par value...................    138,293        92,906
  Reinvested earnings, from October 1, 1990
   (deficit balance prior to quasi-reorganization
   at September 30, 1990: $296,850,000)............      1,785        12,679
  Investment in equity securities-unrealized gain,
   net of taxes....................................      4,276
                                                      --------      --------
                                                       154,542       146,264
                                                      --------      --------
      Total liabilities and stockholders' equity...   $258,874      $321,087
                                                      ========      ========
</TABLE>

 
    The accompanying notes are an integral part of the financial statements.
 
 
                                       33

<PAGE>
 
                               ZAPATA CORPORATION
 
                      CONSOLIDATED STATEMENT OF OPERATIONS
 

<TABLE>
<CAPTION>
                                                   YEARS ENDED SEPTEMBER 30,
                                                   ---------------------------
                                                     1994      1993     1992
                                                   --------  --------  -------
                                                   (IN THOUSANDS, EXCEPT PER
                                                        SHARE AMOUNTS)
<S>                                                <C>       <C>       <C>
Revenues.......................................... $241,212  $206,480  $30,094
                                                   --------  --------  -------
Expenses:
  Operating.......................................  212,450   189,114    7,933
  Provision for oil & gas property valuation......   29,152
  Depreciation, depletion and amortization........   13,661     8,526   10,675
  Selling, general and administrative.............   16,094    10,129    5,314
                                                   --------  --------  -------
                                                    271,357   207,769   23,922
                                                   --------  --------  -------
Operating income (loss)...........................  (30,145)   (1,289)   6,172
                                                   --------  --------  -------
Other income (expense):
  Interest income.................................    2,043     2,403    2,642
  Interest expense................................   (6,138)  (11,076) (11,552)
  Gain on sale of Tidewater common stock..........   37,457    32,928
  Equity in income of unconsolidated affiliates...              1,125    1,497
  Other...........................................   (4,406)  (10,482)   4,734
                                                   --------  --------  -------
                                                     28,956    14,898   (2,679)
                                                   --------  --------  -------
Income (loss) from continuing operations before
 income taxes.....................................   (1,189)   13,609    3,493
                                                   --------  --------  -------
Provision (benefit) for income taxes..............     (494)    3,800      678
                                                   --------  --------  -------
Income (loss) from continuing operations..........     (695)    9,809    2,815
                                                   --------  --------  -------
Discontinued marine protein operations (Note 2):
  Income (loss) from discontinued operations, net
   of income taxes................................    1,273      (436)    (384)
  Loss on disposition, net of income taxes........   (8,897)
                                                   --------  --------  -------
                                                     (7,624)     (436)    (384)
                                                   --------  --------  -------
Net income (loss).................................   (8,319)    9,373    2,431
Preferred and preference stock dividends..........      356       404      404
                                                   --------  --------  -------
Net income (loss) to Common Stockholders.......... $ (8,675) $  8,969  $ 2,027
                                                   ========  ========  =======
Per share data:
  Income (loss) from continuing operations........ $  (0.04) $   0.34  $  0.09
  Loss from discontinued operations...............    (0.24)    (0.01)   (0.01)
                                                   --------  --------  -------
  Net income (loss) per share..................... $  (0.28) $   0.33  $  0.08
                                                   ========  ========  =======
</TABLE>

 
    The accompanying notes are an integral part of the financial statements.
 
                                       34

<PAGE>
 
                               ZAPATA CORPORATION
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
 

<TABLE>
<CAPTION>
                                                  YEARS ENDED SEPTEMBER 30,
                                                 -----------------------------
                                                   1994      1993       1992
                                                 --------  ---------  --------
                                                       (IN THOUSANDS)
<S>                                              <C>       <C>        <C>
Cash flow provided (used) by operating
 activities:
  Continuing operations:
    Net income (loss) from continuing
     operations................................. $   (695) $   9,809  $  2,815
                                                 --------  ---------  --------
    Adjustments to reconcile net income (loss)
     to net cash provided (used) by operating
     activities:
      Depreciation, amortization and valuation
       provision................................   42,813      8,526    10,675
      Gain on sale of assets, net...............  (37,457)   (27,198)      (55)
      Equity in income of unconsolidated
       affiliates...............................              (1,125)   (1,497)
      Cash dividends received...................               1,238       620
      Changes in assets and liabilities:
        Receivables.............................    1,113      5,926     1,588
        Inventories.............................      976      2,997
        Accounts payable and accrued
         liabilities............................   (3,617)    (4,867)   (6,769)
        Deferred income taxes...................   (4,137)     1,738       295
        Other assets and liabilities............    4,263     (5,253)   (2,799)
                                                 --------  ---------  --------
          Total adjustments.....................    3,954    (18,018)    2,058
                                                 --------  ---------  --------
        Cash flow provided (used) by continuing
         operations.............................    3,259     (8,209)    4,873
                                                 --------  ---------  --------
  Discontinued operations:
    Income (loss) from discontinued operations..    1,273       (436)     (384)
    Loss on disposition.........................   (8,897)
    Decrease (increase) in net assets of
     discontinued operations....................   13,698     (8,019)      736
                                                 --------  ---------  --------
      Cash flow provided (used) by discontinued
       operations...............................    6,074     (8,455)      352
                                                 --------  ---------  --------
        Net cash provided (used) by operating
         activities.............................    9,333    (16,664)    5,225
                                                 --------  ---------  --------
Cash flow provided (used) by investing
 activities:
  Proceeds from disposition of investments and
   other........................................   88,533     84,466        79
  Restricted cash investments...................   74,304    (75,083)
  Proceeds from notes receivable................    1,061        994     2,359
  Business acquisitions, net of cash acquired...  (73,222)   (12,139)
  Capital expenditures..........................  (24,580)    (3,092)   (6,981)
                                                 --------  ---------  --------
        Net cash provided (used) by investing
         activities.............................   66,096     (4,854)   (4,543)
                                                 --------  ---------  --------
Cash flow provided (used) by financing
 activities:
  Borrowings....................................   15,000    101,375
  Proceeds from issuance of Common Stock........              11,250
  Principal payments of long-term obligations...  (88,240)  (108,216)  (10,484)
  Preferred stock redemption....................   (2,245)
  Dividend payments.............................   (1,566)    (2,933)
                                                 --------  ---------  --------
        Net cash provided (used) by financing
         activities.............................  (77,051)     1,476   (10,484)
                                                 --------  ---------  --------
Net decrease in cash and cash equivalents.......   (1,622)   (20,042)   (9,802)
Cash and cash equivalents at beginning of year..   16,008     36,050    45,852
                                                 --------  ---------  --------
Cash and cash equivalents at end of year........ $ 14,386  $  16,008  $ 36,050
                                                 ========  =========  ========
</TABLE>

 
    The accompanying notes are an integral part of the financial statements.
 
                                       35

<PAGE>
 
                               ZAPATA CORPORATION
 
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
 

<TABLE>
<CAPTION>
                                                         CAPITAL
                                                            IN
                                                          EXCESS              INVESTMENTS
                          PREFERRED PREFERENCE  COMMON    OF PAR   REINVESTED  IN EQUITY
                            STOCK     STOCK     STOCK     VALUE     EARNINGS  SECURITIES
                          --------- ---------- --------  --------  ---------- -----------
                                                 (IN THOUSANDS)
<S>                       <C>       <C>        <C>       <C>       <C>        <C>
Balance at September 30,
 1991...................   $ 4,500     $ 3     $ 31,698  $ 84,969    $1,683     $
Net income..............                                              2,431
Preferred stock
 dividends declared.....                                               (404)
Other...................                             (1)        1
                           -------     ---     --------  --------    ------
Balance at September 30,
 1992...................     4,500       3       31,697    84,970     3,710
Net income..............                                              9,373
Preferred stock
 dividends declared.....                                               (404)
Refinancing of bank debt
 (3.0 million shares)...                          3,750     7,041
Acquisition of Cimarron
 (437,333 shares).......                            547       741
Other...................                            182       154
                           -------     ---     --------  --------    ------
Balance at September 30,
 1993...................     4,500       3       36,176    92,906    12,679
Net loss................                                             (8,319)
Cash dividends declared:
  Common stock..........                                             (2,219)
  Preferred stock.......                                               (354)
  Preference stock......                                                 (2)
Common Stock one-for-
 five reverse split.....                        (31,657)   31,657
Preferred stock
 redemption.............    (2,245)
Unrealized gain (net of
 taxes).................                                                         4,276
Reclassification of
 deferred tax asset.....                                    1,585
Acquisition of Energy
 Industries (2.7 million
 shares)................                          3,375    12,285
Other...................                             36      (140)
                           -------     ---     --------  --------    ------     ------
Balance at September 30,
 1994...................   $ 2,255     $ 3     $  7,930  $138,293    $1,785     $4,276
                           =======     ===     ========  ========    ======     ======
</TABLE>

 
    The accompanying notes are an integral part of the financial statements.
 
                                       36

<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
 
 Consolidation
 
  The financial statements include Zapata Corporation and its wholly and
majority owned domestic and foreign subsidiaries (collectively, "Zapata" or the
"Company"). Investments in affiliated companies and joint ventures representing
a 20% to 50% voting interest are accounted for using the equity method, while
interests of less than 20% are accounted for using the cost method, except for
investments in oil and gas properties. All investments in oil and gas
properties and joint ventures are proportionately consolidated. All significant
intercompany accounts and transactions are eliminated in consolidation. Certain
reclassifications of prior year information have been made to conform with the
current year presentation. Additionally, prior year information and footnotes
have been restated to reflect the Company's marine protein operation as a
discontinued operation.
 
 Restricted Cash
 
  Restricted cash includes cash held in short-term investments to collateralize
letters of credit totalling $779,000 and $1.0 million in fiscal 1994 and 1993,
respectively, that will expire in one year or less. Additionally, in fiscal
1993, $74.1 million from the sale of Tidewater Inc. ("Tidewater") common stock
was held in restricted short-term investments for the purpose of consummating
the Energy Industries, Inc. acquisition as discussed in Note 4.
 
 Inventories
 
  Materials, parts and supplies are stated at average cost. Compressor, fish
product and gas liquids inventories are stated at the lower of average cost or
market.
 
  The marine protein division allocates costs to production from its fish catch
using a standard cost that is based on the total fish catch and total costs
associated with each fishing season. The costs incurred during the off season
months of December to April are deferred to the next fishing season (April to
December) and then allocated to production as the fish catch is processed.
 
 Investments in 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. Zapata currently owns 673,077 shares of
Tidewater common stock. As a result of adopting SFAS 115, these securities are
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 is determined on the
average cost method. At September 30, 1994 an adjustment has been made to
increase investments in equity securities by $6.6 million to $14.5 million
based on the value of such shares at the close of trading on September 30, 1994
of $21.50 per share, with an increase of $4.3 million to stockholders' equity
for the unrealized appreciation (net of deferred taxes).
 
 Goodwill
 
  Goodwill represents the excess of the cost of an acquisition over fair value
of net assets acquired. Management assesses whether there has been a permanent
impairment in the value of goodwill and the amount of such impairment by
comparing anticipated undiscounted future cash flows with the carrying value of
goodwill. Goodwill associated with the acquisition of Energy Industries, Inc.
in fiscal 1994 totalled $19.3 million and is being amortized over 40 years
using the straight-line method. Goodwill related to the
 
                                       37

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
acquisitions of Cimarron Gas Holding Company ("Cimarron") and the Stellar
Companies ("Stellar") in fiscal 1993 totalled $7.5 million and is being
amortized over 20 years using the straight-line method. Accumulated goodwill
amortization totalled $949,000 and $124,000 as of September 30, 1994 and 1993.
 
 Property, equipment and depreciation
 
  Property and equipment are recorded at cost. However, the Company effected an
accounting quasi-reorganization as of October 1, 1990 at which time the
historical cost basis of the Company's property and equipment was adjusted to
the fair value of such property and equipment. The carrying value of the assets
utilized in the marine protein operations was reduced to estimated fair value.
 
  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>
      Natural gas compressors......................................       15
      Gas gathering systems and gas processing plants..............       15
      Fishing vessels and fish processing plants...................    15-20
      Furniture and fixtures.......................................     3-10
</TABLE>

 
  Gains and losses resulting from sales and retirements of property and
equipment are included in operating income. Property and equipment no longer in
service pending disposition is classified as other assets and is recorded at
estimated net realizable value.
 
 Oil and gas operations
 
  Under the full cost accounting method all costs associated with property
acquisition and exploration for, and development of, oil and gas reserves are
capitalized within cost centers established on a country-by-country basis.
Capitalized costs within a cost center, as well as the estimated future
expenditures to develop proved reserves and estimated net costs of
dismantlement and abandonment, are amortized using the unit-of-production
method based on estimated proved oil and gas reserves. All costs relating to
production activities are charged to expense as incurred.
 
  Capitalized oil and gas property costs, less accumulated depreciation,
depletion and amortization and related deferred income taxes, are limited to an
amount (the ceiling limitation) equal to the sum of (a) the present value
(discounted at 10%) of estimated future net revenues from the projected
production of proved oil and gas reserves, calculated at prices in effect as of
the balance sheet date (with consideration of price changes only to the extent
provided by fixed and determinable contractual arrangements), and (b) the lower
of cost or estimated fair value of unproved and unevaluated properties, less
(c) income tax effects related to differences in the book and tax basis of the
oil and gas properties.
 
 Revenue recognition
 
  The Company utilizes the sales method of accounting for sales of natural gas
whereby revenues are recognized based on the amount of gas sold to purchasers.
The amount of natural gas sold may differ from the amount to which the Company
is entitled based on its working interests in the properties. The Company's
reserve estimates are adjusted accordingly to reflect any imbalance positions.
The gas imbalance position was not significant to the Company's financial
position at September 30, 1994.
 
                                       38

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
 
  All of the Company's oil and gas production from its Bolivian properties is
sold to Yacimientos Petroliferos Fiscales Bolivianos ("YPFB"), Bolivia's state-
owned oil company. Because of YPFB's improved performance under renegotiated
contracts and improved operating conditions in Bolivia, Zapata returned to the
accrual method of accounting for its Bolivian oil and gas operations in fiscal
1994. Prior to 1994, the Company used cash-basis revenue recognition for sales
from its Bolivian oil and gas properties. The effect of changing to accrual
accounting in 1994 increased revenues by $1.8 million. Fiscal 1994, 1993 and
1992 revenues include $4.1 million, $3.2 million and $10.1 million,
respectively, related to the Bolivian oil and gas properties.
 
  Revenues related to the natural gas services marketing activities are
recognized when all obligations to deliver products are satisfied. Revenues
related to natural gas processing activities are recognized when products are
produced and sold, while revenues related to the gathering activities are
recognized as gas flows through the Company's pipelines.
 
  The Company's natural gas compression operation sells, leases and rents gas
compressors in the oil and gas industry. Leases are accounted for as either
sales-type or operating. Revenue from sales-type leases is recognized at the
inception of the lease, whereas, revenue from operating leases is recognized
over the lease term.
 
 Futures Contracts
 
  The Company's natural gas gathering and processing operation periodically
enters into futures contracts to hedge its exposure to price fluctuations on
natural gas and natural gas liquids transactions. Recognized gains and losses
on hedge contracts are reported as a component of the related transaction. In
fiscal 1994 and 1993, the Company recognized a loss of $34,000 and a gain of
$178,000, respectively, related to such hedge transactions. At September 30,
1994, such unrealized losses on open hedge transactions were insignificant.
 
 Income taxes
 
  Zapata adopted Statement of Financial Accounting Standards No. 109 ("SFAS
109"), "Accounting for Income Taxes" as of October 1, 1993. The adoption of
SFAS 109 changed Zapata's method of accounting for income taxes to the asset
and liability approach. This approach requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of existing
temporary differences between the financial reporting and tax reporting basis
of assets and liabilities, and operating loss and tax credit carryforwards for
tax purposes.
 
 Earnings per share
 
  Income per share is based on the weighted average number of common shares and
common share equivalents outstanding during each year. Common share equivalents
include the average shares issuable for convertible preference stock and stock
options. Income used for purposes of this calculation has been reduced by
accruals for preferred and preference stock dividends.
 
  Loss per share is based on the weighted average number of common shares
outstanding during each year. No common share equivalents are incorporated in
fiscal 1994 calculations because to do so would be antidilutive. Preferred
stock dividends are considered as their effect is to increase the loss per
share.
 
  The average shares used in the per share calculations were 31,377,498 in
1994, 27,324,993 in 1993 and 25,723,048 in 1992.
 
                                       39

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
 
 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 which 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.
 
 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 shares outstanding have been restated to
reflect the reverse stock split.
 
NOTE 2. DISCONTINUED OPERATIONS OF MARINE PROTEIN
 
  In July 1994, Zapata announced that it intended to separate its marine
protein operations from its energy-related businesses. Alternatives for a sale
of the marine protein operations or a spin-off of the business to the
stockholders of Zapata were considered. 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. Based on preliminary offers
to purchase the marine protein operations, the Company has recorded an $8.9
million after tax book loss.
 
                                       40

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 2. DISCONTINUED OPERATIONS OF MARINE PROTEIN--(CONTINUED)
 
  The consolidated financial statements have been restated to report
separately the net assets and operating results of these discontinued
operations. Summarized results and financial position of the discontinued
operations are shown below (amounts in thousands):

<TABLE>
<CAPTION>
                                                       YEARS ENDED SEPTEMBER
                                                                30,
                                                      ------------------------
                                                       1994    1993     1992
                                                      ------- -------  -------
<S>                                                   <C>     <C>      <C>
FINANCIAL RESULTS
Revenues............................................. $96,614 $58,565  $76,319
Expenses.............................................  94,273  59,151   76,621
                                                      ------- -------  -------
Income (loss) before taxes...........................   2,341    (586)    (302)
Income tax provision.................................   1,068    (150)      82
                                                      ------- -------  -------
Net income (loss) *.................................. $ 1,273 $  (436) $  (384)
                                                      ======= =======  =======
</TABLE>

 

<TABLE>
<CAPTION>
                                                               SEPTEMBER 30,
                                                              -----------------
                                                                1994     1993
                                                              --------  -------
<S>                                                           <C>       <C>
FINANCIAL POSITION
Current assets............................................... $ 49,016  $42,775
Investments and other........................................    8,022    5,938
Property and equipment, net..................................   43,134   44,010
                                                              --------  -------
                                                               100,172   92,723
                                                              --------  -------
Debt.........................................................    9,749    8,392
Other liabilities and deferred income taxes..................   26,526   15,633
                                                              --------  -------
                                                                36,275   24,025
                                                              --------  -------
Net book value...............................................   63,897   68,698
Reserve for loss on disposition..............................   (8,897)
                                                              --------  -------
Estimated net value.......................................... $ 55,000  $68,698
                                                              ========  =======
</TABLE>

- --------
* Net income (loss) includes allocations of interest expense on general
  corporate debt of $2.5 million in 1994, $3.9 million in 1993 and $3.7
  million in 1992. Interest expense was allocated to discontinued operations
  based on a ratio of net assets to be sold to the sum of total net assets of
  the Company plus general corporate debt.
 
NOTE 3. DISPOSITION OF OIL & GAS ASSETS
 
  In September 1994, Zapata announced that its Board of Directors had
determined that the Company should 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, may
be sold individually or as a package depending upon the interest expressed by
prospective buyers. Zapata's Bolivian oil and gas operations will not be
impacted by this decision. Management of the Company estimates the sales
proceeds from the disposition of these assets will equal or exceed the net
book value of these properties.
 
  The net book value of the domestic properties to be sold totalled $14.1
million at September 30, 1994. Following is a summary of the results of
operations of the Company's domestic oil and gas operations (amounts in
thousands):

<TABLE>
<CAPTION>
                                                                  YEAR ENDED
                                                              SEPTEMBER 30, 1994
                                                              ------------------
      <S>                                                     <C>
      Revenues...............................................      $  8,432
      Expenses *.............................................       (40,260)
                                                                   --------
      Loss before income taxes...............................      $(31,828)
                                                                   ========
</TABLE>

- --------
* Expenses include a $29.2 million valuation provision.
 
                                      41

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 4. ACQUISITIONS
 
  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. Energy
Industries is in the business of renting, fabricating, selling, installing and
servicing natural gas compressor packages. 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 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 is 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>

 
  The following pro forma information for Zapata for the twelve months ended
September 30, 1994 and September 30, 1993 includes the historical results of
Zapata, adjusted for the results of Energy Industries as if the Energy
Industries Acquisition had been consummated on October 1, 1992 (unaudited) (in
thousands, except per share amounts).
 

<TABLE>
<CAPTION>
                                                                TWELVE MONTHS
                                                                    ENDED
                                                                SEPTEMBER 30,
                                                              ------------------
                                                                1994      1993
                                                              --------  --------
      <S>                                                     <C>       <C>
      Revenues..............................................  $247,226  $269,752
      Income (loss) from continuing operations before taxes.      (891)   20,180
      Income (loss) from continuing operations..............      (501)   14,000
      Income (loss) per share from continuing operations....     (0.03)     0.45
</TABLE>

 
  The pro forma adjustments to Zapata's results for fiscal 1994 to reflect the
Energy Industries Acquisition increased revenues by $6,014,000, as well as
reducing the loss from continuing operations before taxes by $174,000.
Additional pro forma adjustments for fiscal 1994 included the elimination of
$124,000 of various operating and administrative expenses that were charged to
Energy Industries from an affiliate, additional depreciation of $120,000 and
$41,000 of goodwill amortization, a reduction in net interest expense of
$161,000 related to notes receivable and payable that were not acquired by
Zapata and a federal tax provision of $104,000.
 
  The pro forma adjustments to Zapata's results for fiscal 1993 to reflect the
Energy Industries Acquisition increased revenues by $63,272,000, as well as
income before tax by $3,737,000. Additional pro forma
 
                                       42

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 4. ACQUISITIONS--(CONTINUED)
adjustments for fiscal 1993 included the elimination of $2,696,000 of various
operating and administrative expenses that were charged to Energy Industries
from an affiliate, additional depreciation of $1,440,000 and $429,000 of
goodwill amortization, a reduction in net interest expense of $2,007,000
related to notes receivable and payable that were not acquired by Zapata, a
federal tax provision of $2,380,000 and the issuance of 2.7 million shares of
Common Stock.
 
  The pro forma amounts presented above may not be indicative of the results
that would have actually resulted if the transactions had occurred on the date
indicated or which may be obtained in the future.
 
  The Company expects to dispose of its heat exchanger manufacturing operation
in fiscal 1995. These operations were acquired as part of the Energy Industries
acquisition. The sale of the heat exchanger operation is not expected to have a
material impact on the Company's results of operations or financial position.
 
  During the first quarter of fiscal 1993, Zapata acquired the common stock of
Cimarron for $3.8 million consisting of $2.5 million and 437,333 shares of
Common Stock. Cimarron through its subsidiaries is involved in natural gas and
natural gas liquids related businesses. Zapata accounted for the acquisition
using the purchase method of accounting and recorded $2.0 million of goodwill
in connection therewith. The goodwill is being amortized over 20 years. The
following assets and liabilities were acquired effective October 1, 1992 (in
millions):
 

<TABLE>
       <S>                                                                <C>
       Current assets.................................................... $20.3
       Property and equipment, net.......................................   2.0
                                                                          -----
                                                                          $22.3
                                                                          =====
       Current liabilities............................................... $19.6
       Long-term debt....................................................    .7
                                                                          -----
                                                                          $20.3
                                                                          =====
</TABLE>

 
  In September 1993, Cimarron acquired the natural gas gathering and processing
plant interests of Stellar for approximately $16.4 million. The purchase price
reflects an upward adjustment of $200,000 related to the net working capital of
Stellar as of August 31, 1993. The acquisition was financed through the use of
working capital cash and assumption of certain existing indebtedness of
Stellar. The acquisition of Stellar is not significant to the Company's results
of operations or financial position. Zapata accounted for the acquisition using
the purchase method of accounting and recorded $5.5 million of goodwill in
connection therewith. The goodwill is being amortized over 20 years.
 
NOTE 5. UNCONSOLIDATED AFFILIATES
 
  In January 1992, Zapata exchanged its 34.7% interest in Zapata Gulf Marine
Corporation ("Zapata Gulf") for approximately 8.3 million shares of Tidewater
common stock. Zapata sold 4.1 million and 3.5 million shares of its Tidewater
common stock in fiscal 1994 and 1993, respectively. Initially, Zapata followed
the equity method of accounting for its investment in Tidewater based on its
percent 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 8,258,220 shares of Tidewater
 
                                       43

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 5. UNCONSOLIDATED AFFILIATES--(CONTINUED)
common stock. Consequently, Zapata has not reported its percentage of
Tidewater's results since such time. Instead, Tidewater's dividends of
approximately $826,000 and $480,000 that were declared in March 1993 and July
1993, respectively, were included in other income. Zapata received dividends
from Tidewater totalling $719,000, $2.5 million and $620,000 in fiscal 1994,
1993 and 1992, respectively.
 
  The Company was also engaged directly in the offshore drilling business until
October 31, 1990, when its offshore drilling rigs were sold to Arethusa
(Offshore) Limited ("Arethusa"). In conjunction with the sale, the Company made
a $17.5 million investment in Arethusa. In fiscal 1993, the Company disposed of
its investment in Arethusa for $11.8 million resulting in a pretax loss of $5.7
million. The Company accounted for its investment in Arethusa using the cost
method of accounting.
 
  A summary of equity in net income of and investments in unconsolidated
affiliates is shown below:
 

<TABLE>
<CAPTION>
                                                          EQUITY IN INVESTMENTS
                                                             NET       AS OF
                                                           INCOME   SEPTEMBER 30
                                                          --------- ------------
                                                              (IN THOUSANDS)
      <S>                                                 <C>       <C>
      1994
      Tidewater..........................................  $   --     $ 14,471
                                                           ======     ========
      1993
      Tidewater..........................................  $1,125     $ 56,289
                                                           ======     ========
      1992
      Zapata Gulf and Tidewater..........................  $1,497     $ 96,957
      Arethusa...........................................               17,500
                                                           ------     --------
                                                           $1,497     $114,457
                                                           ======     ========
</TABLE>

 
  In June 1993, Zapata completed a sale of 3.5 million shares of its Tidewater
stock through an underwritten public offering. The Tidewater shares were sold
at a net price of $21.25 per share or $73.5 million and the sale generated a
third-quarter 1993 pretax gain of $32.9 million. In November 1993, Zapata sold
3.75 million shares of its Tidewater common stock through an underwritten
public offering for a net price of $20.75 per share or $77.8 million; the sale
resulted in a pretax gain of $33.8 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. These gains
are reflected on the statement of operations as other income. The Company now
owns 673,077 shares of Tidewater common stock all of which are reserved for the
possible exchange for $17.5 million of senior indebtedness held by Norex. See
Note 6.
 
                                       44

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 6. DEBT
 
  At September 30, 1994 and 1993, Zapata's consolidated debt consisted of the
following:
 

<TABLE>
<CAPTION>
                                                                1994     1993
                                                               ------- --------
                                                                (IN THOUSANDS)
<S>                                                            <C>     <C>
Senior debt:
  Norex senior secured notes due in 1996 at 13%............... $       $ 50,000
  Norex senior convertible notes due in 1996 at 13%...........           34,234
  Norex unsecured exchangeable notes due in 1996 at 8.5%......  17,500   17,500
  Texas Commerce Bank revolving/term credit facility for
   Energy Industries, interest at prime or Eurodollar rates,
   7.75% at September 30, 1994, due in quarterly installments
   beginning in 1997 through 1999, collateralized by certain
   compression assets.........................................  15,000
  Debt due in monthly installments through 1996,
   collateralized by certain gas gathering systems, average
   interest at prime plus 0.5% (8.25% and 6.5% at September
   30, 1994 and 1993, respectively)...........................   3,775    6,371
  Other debt at 7.7%..........................................     200
                                                               ------- --------
                                                                36,475  108,105
                                                               ------- --------
Subordinated debt:
10 1/4% debentures due 1997...................................  15,621   15,621
10 7/8% debentures due 2001...................................  10,242   10,242
                                                               ------- --------
                                                                25,863   25,863
                                                               ------- --------
Total Debt....................................................  62,338  133,968
                                                               ------- --------
Less current maturities.......................................   2,478    2,384
                                                               ------- --------
Long-term debt................................................ $59,860 $131,584
                                                               ======= ========
</TABLE>

 
  The fair value of total long term debt at September 30, 1994 approximates
book value and at September 30, 1993 was estimated to be $136.7 million.
 
  On May 17, 1993, Zapata completed certain financial transactions with Norex
Drilling Ltd. ("Norex Drilling"), a wholly owned subsidiary of Norex America,
Inc. ("Norex America" and collectively with Norex Drilling and other
affiliates, "Norex"), through which Zapata raised $111.4 million from the
issuance of debt and equity pursuant to a Second Amended and Restated Master
Restructuring Agreement dated as of April 16, 1993, as amended (the "Norex
Agreement"). The Norex Agreement enabled Zapata to refinance its then
outstanding senior debt and substantially reduce the amount of required debt
service payments for the following two years.
 
  Under the terms of the Norex Agreement, Zapata issued $50.0 million of senior
secured notes and $32.6 million of senior convertible notes to Norex. In
addition, Norex purchased 3 million shares of Common Stock for $11.25 million
and 17.5 million shares of $1 Preference Stock for $17.5 million. The $1
Preference Stock was to pay dividends at an annual rate of 8.5% and was
exchangeable into 673,077 shares of Zapata's Tidewater common stock at the
option of Norex. In August 1993, Norex exchanged all of its $1 Preference Stock
for $17.5 million aggregate principal amount of 8.5% unsecured exchangeable
note, maturing May 16, 1996. Such notes are also exchangeable into 673,077
shares of Tidewater common stock. An officer of Norex was elected to the Zapata
Board of Directors in July 1993 and was an executive officer of Zapata from
July 1994 to December 1994.
 
  In December 1993, $73.7 million of the proceeds from the sale of 3.75 million
shares of Zapata's Tidewater common stock were used to prepay $68.5 million of
the Company's 13% senior indebtedness to
 
                                       45

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 6. DEBT--(CONTINUED)
Norex, along with accrued interest, and to pay a $3.5 million prepayment
premium. Also, Zapata wrote-off $3.3 million of previously deferred expenses
related to the origination of such indebtedness. In September 1994, Zapata
repaid the remaining balance of its 13% senior convertible indebtedness to
Norex and a required prepayment premium of $655,000 with proceeds from the
initial drawdown of $15 million from a $30 million bank credit facility that
Zapata arranged with Texas Commerce Bank National Association (the "TCB Loan
Agreement") for its natural gas compression operations, Energy Industries.
 
  The TCB Loan Agreement provides Energy Industries with a $30 million
revolving credit facility that converts after two years to a three year
amortizing term loan. The TCB Loan Agreement bears interest at a variable
interest rate that may be adjusted periodically based upon prime or Eurodollar
interest rates. Pursuant to the TCB Loan Agreement, Energy Industries agreed to
maintain certain financial covenants and to limit additional indebtedness,
dividends, dispositions and acquisitions. The amount of restricted net assets
for Energy Industries at September 30, 1994 was approximately $65.0 million.
Additionally, Energy Industries' ability to transfer funds to Zapata
Corporation was limited to $5.0 million at September 30, 1994. The Company
remains subject to a covenant in the Norex debt agreement that requires Zapata
to maintain a consolidated tangible net worth as defined in such agreement of
at least $100 million. As of September 30, 1994, the Company was in compliance
with all provisions governing its outstanding indebtedness.
 
 Annual maturities
 
  The annual maturities of long-term debt for the five years ending September
30, 1999 are as follows (in thousands):
 

<TABLE>
       <S>             <C>                     <C>                     <C>                    <C>
        1995            1996                    1997                    1998                   1999
       ------          -------                 -------                 ------                 ------
       $2,478          $18,996                 $20,622                 $5,000                 $5,000
</TABLE>

 
NOTE 7. CASH FLOW INFORMATION
 
  For purposes of the statement of cash flows, all highly liquid investments
with an original maturity of three months or less are considered to be cash
equivalents.
 
  Net cash provided (used) by operating activities reflects cash payments of
interest and income taxes.
 

<TABLE>
<CAPTION>
                                                         1994   1993     1992
                                                        ------ -------  -------
                                                            (IN THOUSANDS)
       <S>                                              <C>    <C>      <C>
       Cash paid during the fiscal year for:
         Interest...................................... $7,142 $12,836  $15,328
         Income tax payments (refund)..................  4,507     (10)     158
</TABLE>

 
  In fiscal 1994 and 1993, interest expense of $1.3 million and $1.7 million,
respectively, associated with the Norex senior secured and convertible notes
was deferred to the maturity date of such notes. As discussed in Note 6, these
notes were prepaid in full in fiscal 1994.
 
NOTE 8. PREFERRED, PREFERENCE AND COMMON STOCK
 
 Preferred stock
 
  Zapata has authorized two million shares of preferred stock issuable in one
or more series. On June 7, 1994, Zapata announced that it would redeem one-half
of the approximately 45,000 outstanding shares of the Company's preferred
stock. The preferred stock was redeemed at $100 a share. The Company will
redeem the balance of its outstanding preferred stock in January 1995. The
22,498 outstanding shares are entitled to vote on all matters submitted to
stockholders, are recorded at the involuntary liquidation preference of $100
 
                                       46

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 8. PREFERRED, PREFERENCE AND COMMON STOCK--(CONTINUED)
per share, and are redeemable at $100 per share. The stated quarterly dividend
is $2.25 per share. On September 30, 1993, Zapata paid the accumulated and
unpaid balance of preferred dividends totalling $2.9 million. Quarterly
dividends were declared and paid in fiscal 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 per share and $30.00
per share in liquidation. The stated quarterly dividend, which is non-
cumulative, 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 Common Stock and
preference stock.
 
 Common stock
 
  Zapata has authorized 165 million shares of Common Stock, of which 31,716,991
were issued and outstanding at September 30, 1994.
 
  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 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.
 
  Under the 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 1994, options to purchase 24,000 shares under the
1981 Plan were exercised at $3.13. At September 30, 1994, options to purchase
30,000 shares under the 1981 Plan at $3.13 were outstanding and exercisable.
 
  Zapata's Special Incentive Plan (the "1987 Plan") provides for the granting
of stock options and the awarding of restricted stock. Under the 1987 Plan,
options may be granted at prices equivalent to the market value of the Common
Stock at the date of grant. Options become exercisable on dates as determined
by the Committee, provided that the earliest such date cannot occur before six
months after the date of grant. Unexercised options will expire on varying
dates, up to a maximum of 10 years from the date of grant. The
 
                                       47

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 8. PREFERRED, PREFERENCE AND COMMON STOCK--(CONTINUED)
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, 1994, a total of 163,666
shares of Common Stock were reserved for the future granting of stock options
or the awarding of restricted stock under the 1987 Plan. During 1994, options
to purchase 20,000 shares under the 1987 Plan at $7.19 were granted and an
option to purchase 20,000 shares at $4.22 was exercised. At September 30, 1994,
172,000 options were outstanding under the 1987 Plan at prices ranging from
$3.13 to $7.19 and 98,667 options were exercisable.
 
  On December 6, 1990, the stockholders approved a new stock option plan (the
"1990 Plan"). The 1990 Plan provides for the granting of non-qualified 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 10 years from the date of grant. The 1990
Plan provides for the issuance of options to purchase up to 1,000,000 shares of
the Company's Common Stock. At September 30, 1994, a total of 32,666 shares of
Common Stock were reserved for the future granting of stock options under the
1990 Plan. During 1994, options to purchase 35,622 shares under the 1990 Plan
at $3.13 were exercised and options to purchase 104,478 shares at $3.13 were
cancelled. At September 30, 1994, a total of 663,900 options at a price of
$3.13 were outstanding and exercisable under the 1990 Plan. No options were
granted in 1994 under the 1990 Plan.
 
NOTE 9. INCOME TAXES
 
  Zapata adopted Statement of Financial Accounting Standards No. 109 ("SFAS
109"), "Accounting for Income Taxes" as of October 1, 1993. The adoption of
SFAS 109 changed Zapata's method of accounting for income taxes to the asset
and liability approach. This approach requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of existing
temporary differences between the financial reporting and tax reporting basis
of assets and liabilities, and operating loss and tax credit carryforwards for
tax purposes. The impact of adopting SFAS 109 was to record an increase to
capital in excess of par value of $15.3 million and a net deferred tax asset of
$11.6 million arising from the recognition of previously existing credit
carryforward items. Subsequently, the Company announced its decision to sell
its marine protein operation, which reduced the amount of tax credit
carryforward items that are expected to be utilized, resulting in an adjustment
that reduced capital in excess of par and the deferred tax asset by $13.7
million. 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 in the
deferred tax valuation allowance, if any, will be allocated to capital in
excess of par value.
 
  Zapata and its domestic subsidiaries file a consolidated U.S. federal income
tax return. The provision for income tax expense (benefit) consisted of the
following:

<TABLE>
<CAPTION>
                                                              1994    1993  1992
                                                             ------  ------ ----
                                                               (IN THOUSANDS)
      <S>                                                    <C>     <C>    <C>
      Current:
        State............................................... $  650  $      $
        U.S. ...............................................  3,585     636
      Deferred:
        U.S. ............................................... (4,729)  3,164  678
                                                             ------  ------ ----
                                                             $ (494) $3,800 $678
                                                             ======  ====== ====
</TABLE>

 
                                       48

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 9. INCOME TAXES--(CONTINUED)
 
  Income tax expense (benefit) was allocated to operations as follows:
 

<TABLE>
<CAPTION>
                                                             1994    1993   1992
                                                             -----  ------  ----
                                                              (IN THOUSANDS)
      <S>                                                    <C>    <C>     <C>
      Continuing Operations................................. $(494) $3,800  $678
      Discontinued Operations............................... 1,068    (150)   82
                                                             -----  ------  ----
          Total............................................. $ 574  $3,650  $760
                                                             =====  ======  ====
</TABLE>

 
  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>
                                                      1994     1993     1992
                                                     -------  -------  -------
                                                         (IN THOUSANDS)
      <S>                                            <C>      <C>      <C>
      Book depreciation in excess of tax
       depreciation................................  $   616  $(1,379) $(2,077)
      Tax deduction related to oil and gas
       exploration and production over (under) book
       expenses....................................   (6,277)    (163)   1,254
      Tax gain in excess of book gain on stock
       sale........................................  (10,116)  (8,065)
      Changes to tax carryforwards and other.......    7,806   12,771    1,501
      Amortization of intangibles..................      452
      Charge off uncollectible note................    2,790
                                                     -------  -------  -------
                                                     $(4,729) $ 3,164  $   678
                                                     =======  =======  =======
</TABLE>

 
  For federal income tax purposes, Zapata has $16.6 million of investment tax
credit carryforwards expiring in 1995 through 2001, and has $11.4 million of
alternative minimum tax credit carryforwards. The use of tax credits may be
limited as a result of a change of ownership as calculated for tax purposes.
Investment tax credit carryforwards are reflected in the balance sheet as a
reduction of deferred taxes using the flow-through method.
 
  The following table reconciles the income tax provisions for 1994, 1993 and
1992 computed using the U.S. statutory rate of 35%, 34% and 34%, respectively,
to the provisions reflected in the financial statements.
 

<TABLE>
<CAPTION>
                                                          1994    1993    1992
                                                          -----  ------  ------
                                                            (IN THOUSANDS)
      <S>                                                 <C>    <C>     <C>
      Taxes at statutory rate...........................  $(416) $4,627  $1,188
      Recovery of nondeductible book losses.............           (259)
      Amortization of intangibles not deductible for
       tax..............................................    185
      Other.............................................   (737)     (1)    (64)
      Equity/dividend income not recognized for tax pur-
       poses............................................   (176)   (567)   (446)
      State taxes.......................................    650
                                                          -----  ------  ------
                                                          $(494) $3,800  $  678
                                                          =====  ======  ======
</TABLE>

 
                                       49

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 9. INCOME TAXES--(CONTINUED)
 
  Temporary differences and tax credit carryforwards that gave rise to
significant portions of deferred tax assets and liabilities as of September 30,
1994 are as follows:
 

<TABLE>
<CAPTION>
                                                             SEPTEMBER 30, 1994
                                                             ------------------
                                                               (IN THOUSANDS)
      <S>                                                    <C>
      Deferred Tax Assets:
        Asset write-downs not yet deductible................      $ 3,640
        Investment tax credit carryforwards.................       16,603
        Alternative minimum tax credit carryforwards........       11,409
        Other...............................................        2,154
                                                                  -------
          Total deferred tax assets.........................       33,806
        Valuation allowance.................................      (19,321)
                                                                  -------
          Net deferred tax assets...........................       14,485
                                                                  -------
      Deferred Tax Liabilities:
        Property and equipment..............................       (1,444)
        Basis difference on stock investment................       (1,650)
        Pension.............................................       (2,472)
        Unrealized investment gain on Tidewater common
         stock..............................................       (2,302)
        Other...............................................       (3,302)
                                                                  -------
          Total deferred tax liabilities....................      (11,170)
                                                                  -------
          Net deferred tax asset............................      $ 3,315
                                                                  =======
</TABLE>

 
  The valuation allowance represents managements estimates of tax credit
carryforwards that may not be ultimately utilized given current facts and
circumstances. Management believes that the net deferred tax asset will be
realized through future taxable income.
 
NOTE 10. COMMITMENTS AND CONTINGENCIES
 
 Sales-type leases receivable
 
  Energy Industries provides a capital lease financing option to its customers.
Future minimum lease payments receivable resulting from the sale of compression
packages under sales-type leases are due to Zapata as follows: $3,769,000 in
1995, $241,000 in 1996 and $77,000 in 1997; deferred interest totalling $51,000
is included in such amounts. Energy Industries periodically sells a portion of
its lease receivables. Certain lease receivables are sold with partial recourse
to Energy Industries. At September 30, 1994 the total amount of recourse to
Energy Industries on the unpaid balance of all previously sold lease
receivables was $1.7 million. During 1994, Energy Industries sold a total of
$8.3 million of lease receivables.
 
 Operating leases receivable
 
  Energy Industries maintains a fleet of natural gas compressor packages for
rental under operating leases. At September 30, 1994 the net book value of such
property was $46.3 million (accumulated depreciation totalled $3.5 million).
Future minimum lease payments receivable under remaining noncancellable
operating leases as of September 30, 1994 are as follows: $3,256,000 in 1995,
$782,000 in 1996 and $190,000 in 1997.
 
 Operating leases payable
 
  Future minimum payments under operating lease obligations aggregate $7.6
million, and for the five years ending September 30, 1999 are:
 

<TABLE>
<CAPTION>
                                                   1995   1996   1997  1998 1999
                                                  ------ ------ ------ ---- ----
                                                          (IN THOUSANDS)
      <S>                                         <C>    <C>    <C>    <C>  <C>
      Lease obligations.......................... $1,906 $1,244 $1,048 $902 $700
</TABLE>

 
 
                                       50

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 10. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
  Rental expenses for operating leases were $2.8 million, $723,000 and $38,000
in 1994, 1993 and 1992, respectively.
 
 Litigation
 
  On July 9, 1991, a purported class action lawsuit styled Armand A. Vari, et
al. v. Zapata Corporation, et al. was filed in the U.S. District Court for the
Southern District of Florida, Miami Division (Civil Action No. 91-1455), naming
as defendants Zapata, each of its directors and two of its executive officers,
and IBJ Schroder Bank & Trust Company. The lawsuit was dismissed on summary
judgment in 1994.
 
  Zapata is defending various claims and litigation arising from continuing and
discontinued operations. In the opinion of management, uninsured losses, if
any, resulting from these matters and from the matter discussed above will not
have a material adverse effect on Zapata's results of operations or financial
position.
 
NOTE 11. FINANCIAL INSTRUMENTS
 
 Concentrations of Credit Risk
 
  As indicated in the industry segment information which appears in Note 15,
the market for the Company's services and products is primarily the natural gas
industry. The Company's customers consist primarily of major integrated
international oil companies and independent natural gas marketers and
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, 1994 and 1993 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 12. PENSION PLANS
 
 Qualified Pension Plans
 
  Zapata has a noncontributory pension plan covering certain U.S. employees.
Plan benefits are generally based on employees' years of service and
compensation level. All of the costs of this plan are borne by Zapata. The plan
has adopted an excess benefit formula integrated with covered compensation.
Participants are 100% vested in the accrued benefit after five years of
service.
 
  Net pension credits for 1994, 1993 and 1992 included the following
components:
 

<TABLE>
<CAPTION>
                                                        1994    1993     1992
                                                       ------  -------  -------
                                                           (IN THOUSANDS)
      <S>                                              <C>     <C>      <C>
      Service cost--benefits earned during the year..  $  190  $   189  $   549
      Interest cost on projected benefit obligations.   1,146      939    1,457
      Actual loss (gain) on plan assets..............  (1,477)     728   (3,012)
      Amortization of transition asset and other
       deferrals.....................................    (176)  (3,207)     (65)
                                                       ------  -------  -------
        Net pension credit of continuing operations..  $ (317) $(1,351) $(1,071)
                                                       ======  =======  =======
</TABLE>

 
 
                                       51

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 12. PENSION PLANS--(CONTINUED)
  The Company's funding policy is to make contributions as required by
applicable regulations. No contributions to the plan have been required since
1984. The plan's funded status and amounts recognized in the Company's balance
sheet at September 30, 1994 and 1993 is presented below:
 

<TABLE>
<CAPTION>
                                                               1994     1993
                                                              -------  -------
                                                              (IN THOUSANDS)
      <S>                                                     <C>      <C>
      Fair value of plan assets.............................. $21,452  $20,943
                                                              -------  -------
      Actuarial present value of benefit obligations:
        Vested benefits......................................  17,460   14,505
        Nonvested benefits...................................     381      446
                                                              -------  -------
        Accumulated benefit obligation.......................  17,841   14,951
        Additional benefits based on projected salary
         increases...........................................     684      760
                                                              -------  -------
        Projected benefit obligations........................  18,525   15,711
                                                              -------  -------
      Excess of plan assets over projected benefit
       obligations...........................................   2,927    5,232
      Unrecognized transition asset..........................  (3,928)  (4,419)
      Unrecognized prior service cost........................      13       15
      Unrecognized net loss..................................   7,949    7,177
                                                              -------  -------
      Prepaid pension cost................................... $ 6,961  $ 8,005
                                                              =======  =======
</TABLE>

 
  The unrecognized transition asset at October 1, 1987 was $10.6 million, which
is being amortized over 15 years. For 1994 and 1993 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. For 1992 the
actuarial present value of the projected benefit obligations was based on a
5.5% annual increase in salary levels and an 8.0% 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 1994, 1993 and 1992.
 
  The effect of the assumption changes in 1993 resulted in an increase in the
projected benefit obligation and a corresponding increase in the unrecognized
net loss. The combined unrecognized net loss of $7.9 million at September 30,
1994 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 is currently negotiating
a settlement with the U.S. Department of Labor that the Zapata Corporation
Pension Plan would assume the liability associated with the reduction in
benefits of the Dredging Plan participants. The accumulated benefit obligation
at September 30, 1994 that would be assumed by the plan is estimated to be $2.1
million, of which $1.4 million has been expensed in the 1994 statement of
operations as other expense.
 
  During 1992, Zapata terminated agreements with Arethusa and its subsidiaries,
pursuant to which Zapata managed the operation of Arethusa's rigs. In
connection therewith, Arethusa agreed to establish a pension plan into which
Zapata transferred its pension obligation with respect to certain employees who
terminated their employment with Zapata and became employees of Arethusa. A
gain of $1.7 million associated with this curtailment and settlement is
included in the 1992 statement of operations as other income.
 
 
                                       52

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 12. PENSION PLANS--(CONTINUED)
 Supplemental Pension Plan
 
  Effective April 1, 1992, Zapata adopted a supplemental pension plan, which
provides supplemental retirement payments to senior executives of Zapata. The
amounts of such payments will be equal to the difference between the amounts
received under the applicable pension plan, and the amounts that would
otherwise be received if pension plan payments were not reduced as the result
of the limitations upon compensation and benefits imposed by federal law.
Effective December 1994, the supplemental pension plan was terminated.
 
  For 1994, 1993 and 1992 the actuarial present value of the projected benefit
obligations was based on weighted-average annual increase in salary levels of
2.1%, 2.1% and 5.5%, respectively, and discount rates of 7.5%, 7.5% and 8.0%,
respectively.
 
  Net pension expense for 1994, 1993 and 1992 included the following
components:
 

<TABLE>
<CAPTION>
                                                                  1994 1993 1992
                                                                  ---- ---- ----
                                                                  (IN THOUSANDS)
      <S>                                                         <C>  <C>  <C>
      Service cost--benefits earned during the year.............. $ 68 $ 86 $28
      Interest cost on projected benefit obligations.............   72   53  25
      Amortization of prior service cost.........................  487   87  44
                                                                  ---- ---- ---
        Net pension expense...................................... $627 $226 $97
                                                                  ==== ==== ===
</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, 1994 and 1993 are presented below:
 

<TABLE>
<CAPTION>
                                                               1994     1993
                                                              -------  -------
                                                              (IN THOUSANDS)
      <S>                                                     <C>      <C>
      Fair value of plan assets.............................. $        $
      Actuarial present value of benefit obligations:
      Vested benefits........................................     935      831
      Nonvested benefits.....................................               34
                                                              -------  -------
        Accumulated benefit obligation.......................     935      865
        Additional benefits based on projected salary
         increases...........................................               90
                                                              -------  -------
        Projected benefit obligation.........................     935      955
                                                              -------  -------
      Excess of projected benefit obligations over plan
       assets................................................    (935)    (955)
      Unrecognized net loss..................................              154
      Unrecognized prior service costs.......................              479
      Additional minimum liability...........................             (543)
                                                              -------  -------
      Unfunded accrued liability............................. $  (935) $  (865)
                                                              =======  =======
</TABLE>

 
NOTE 13. RELATED PARTY TRANSACTIONS
 
  During 1994, Zapata made purchases totalling $7.3 million from a company
owned by a director and shareholder of Zapata. At September 30, 1994, Zapata
owed $663,000 related to these purchases.
 
  Zapata received $317,000, $249,000 and $187,000 in 1994, 1993 and 1992,
respectively, from a 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.
 
                                       53

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 13. RELATED PARTY TRANSACTIONS--(CONTINUED)
 
  During 1994 and 1993, Zapata received $104,000 and $31,000, respectively,
from Norex associated with an administrative services arrangement pursuant to
which Zapata provided office space and certain administrative services to
Norex. See Note 6 for additional transactions with Norex.
 
NOTE 14. 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 15
due to the exclusion of certain nonoperating expenses from the information
shown as required by SFAS No. 69.
 
                  CAPITALIZED COSTS OF OIL AND GAS PROPERTIES
 

<TABLE>
<CAPTION>
                                                         UNITED
                                                         STATES  BOLIVIA  TOTAL
                                                         ------- ------- -------
                                                             (IN THOUSANDS)
<S>                                                      <C>     <C>     <C>
1994
Capitalized costs
 Evaluated properties................................... $74,872 $2,195  $77,067
Accumulated depreciation, depletion and amortization....  60,794     55   60,849
                                                         ------- ------  -------
Net capitalized costs................................... $14,078 $2,140  $16,218
                                                         ======= ======  =======
1993
Capitalized costs
 Evaluated properties................................... $65,274         $65,274
Accumulated depreciation, depletion and amortization....  27,078          27,078
                                                         -------         -------
Net capitalized costs................................... $38,196         $38,196
                                                         =======         =======
</TABLE>

 
 
                                       54

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 14. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
 
                    COSTS INCURRED IN PROPERTY ACQUISITION,
                     EXPLORATION AND DEVELOPMENT ACTIVITIES
 

<TABLE>
<CAPTION>
                                                       UNITED
                                                       STATES  BOLIVIA  TOTAL
                                                       ------  ------- -------
                                                           (IN THOUSANDS)
<S>                                                    <C>     <C>     <C>
1994
Expenditures:
  Development......................................... $9,598  $2,195  $11,793
                                                       ======  ======  =======
1993
Expenditures:
  Acquisition of unproved properties.................. $   12          $    12
  Development.........................................   (466)            (466)
                                                       ------          -------
                                                       $ (454)         $  (454)
                                                       ======          =======
1992
Expenditures:
  Acquisition of unproved properties.................. $   18          $    18
  Development.........................................  3,945            3,945
                                                       ------          -------
                                                       $3,963          $ 3,963
                                                       ======          =======
</TABLE>

 
           RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES
 

<TABLE>
<CAPTION>
                                                     UNITED
                                                     STATES   BOLIVIA  TOTAL
                                                    --------  ------- --------
                                                         (IN THOUSANDS)
<S>                                                 <C>       <C>     <C>
1994
Revenues........................................... $  8,432  $ 4,117 $ 12,549
Production costs...................................    5,749      519    6,268
Depreciation, depletion and amortization...........   33,715       55   33,770
                                                    --------  ------- --------
Income before income taxes*........................  (31,032)   3,543  (27,489)
Income taxes.......................................  (10,551)   1,205   (9,346)
                                                    --------  ------- --------
Net income *....................................... $(20,481) $ 2,338 $(18,143)
                                                    ========  ======= ========
1993
Revenues........................................... $ 17,011  $ 3,178 $ 20,189
Production costs...................................    5,642      107    5,749
Depreciation, depletion and amortization...........    7,688             7,688
                                                    --------  ------- --------
Income before income taxes*........................    3,681    3,071    6,752
Income taxes.......................................    1,252    1,044    2,296
                                                    --------  ------- --------
Net income *....................................... $  2,429  $ 2,027 $  4,456
                                                    ========  ======= ========
1992
Revenues........................................... $ 19,984  $10,110 $ 30,094
Production costs...................................    7,877       56    7,933
Depreciation, depletion and amortization...........   10,303            10,303
                                                    --------  ------- --------
Income before income taxes*........................    1,804   10,054   11,858
Income taxes.......................................      613    3,419    4,032
                                                    --------  ------- --------
Net income *....................................... $  1,191  $ 6,635 $  7,826
                                                    ========  ======= ========
</TABLE>

- --------
* Before deducting selling, general, administrative and interest expenses.
 
                                       55

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 14. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
 
 Oil and gas reserves
 
  During fiscal 1994, the Company recorded a $29.2 million pretax writedown of
its oil and gas properties in the Gulf of Mexico. The writedown was the result
of several factors: lower natural gas prices, additional capitalized costs
incurred recently in connection with several workover wells at the Company's
Wisdom gas field and an increase in estimated future costs.
 
  Zapata's domestic natural gas production for fiscal 1994 was approximately
one half of the fiscal 1993 period's level of production which was 31% lower
than the fiscal 1992 level of production. The decline in production was due to
production difficulties encountered during 1993 at the Wisdom gas field, the
Company's most significant oil and gas property.
 
  In late April 1993, one of the oil and gas division's wells in the Wisdom gas
field was shut-in when the well began producing sand. Prior to the failure,
this well was capable of producing 6.5 MMcf per day. After some minor repairs,
the well was returned to production at a significantly reduced level. Efforts
to restore production from this well have been deferred.
 
  In early September 1993 an additional well in the Wisdom gas field ceased
production as a result of an influx of sand and water. Immediately prior to the
time the well ceased producing, this well was capable of producing
approximately 5.5 MMcf per day. After some minor repairs, the well was returned
to production at a significantly reduced level. Efforts to restore production
commenced in February 1994 and the workover/recompletion of this well and one
additional well successfully restored production of these wells to acceptable
levels. The Company undertook the recompletion of an additional well in the
Wisdom gas field which was abandoned after a series of mechanical failures. The
Wisdom gas field was producing 10.8 MMcf per day in August 1994 before
curtailing production in September due to low gas prices.
 
  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 upon 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.
 
  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. 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.
 
                                       56

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 14. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
 
                        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, 1991...          .6         61.8           .7        23.7          1.3         85.5
  Revisions of previous
   estimates............         (.1)        (3.1)                     (.8)         (.1)        (3.9)
  Production............         (.1)       (10.2)                    (1.7)         (.1)       (11.9)
                           ---------  -----------    ---------  ----------    ---------  -----------
Proved reserves as of
   September 30, 1992...          .4         48.5           .7        21.2          1.1         69.7
  Revisions of previous
   estimates............                     (1.1)                     3.0                       1.9
  Production............                     (7.0)                    (1.7)                     (8.7)
  Purchase of reserves
   in place.............                       .4                                                 .4
                           ---------  -----------    ---------  ----------    ---------  -----------
Proved reserves as of
   September 30, 1993...          .4         40.8           .7        22.5          1.1         63.3
  Revisions of previous
   estimates............          .1         (2.8)          .1         6.7           .2          3.9
  Production............         (.1)        (3.3)         (.1)       (1.9)         (.2)        (5.2)
                           ---------  -----------    ---------  ----------    ---------  -----------
Proved reserves as of
   September 30, 1994...          .4         34.7           .7        27.3          1.1         62.0
                           =========  ===========    =========  ==========    =========  ===========
Proved developed re-
   serves as of
   September 30, 1991...          .4         53.5           .7        23.7          1.1         77.2
  September 30, 1992....          .3         41.0           .7        21.2          1.0         62.2
  September 30, 1993....          .2         28.2           .7        22.5           .9         50.7
  September 30, 1994....          .2         27.4           .7        27.3           .9         54.7
</TABLE>

 
 Standardized measure of discounted future net cash flows
 
  The information presented below concerning the net present value of aftertax
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.
 
  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.
 
                                       57

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 14. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
 
  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. On September 30, 1987, the Company wrote
off its remaining $17.2 million investment in its oil and gas properties in
Bolivia. However, 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. Additionally, in 1994 Zapata participated in drilling two
exploratory wells in its Bolivian operation. The standardized measure
information below excludes cash flow information relating to the Bolivian
properties prior to 1994.
 
  The net present value of future cash flows, computed as prescribed by SFAS
No. 69, should not be construed as the fair value of Zapata's oil and gas
operations. The computation is based on assumptions that in some cases may not
be realistic and estimates that are subject to substantial uncertainties. Since
the discounted cash flows are based on proved reserves as defined by the SEC,
they are subject to the same uncertainties and limitations inherent in the
reserve estimates, which include among others, no consideration of probable
reserves and stable hydrocarbon prices at year-end levels. Additionally, the
timing of future production and cash flows, given the current state of the U.S.
natural gas market, is subject to significant uncertainty. 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.
 
            STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
                          RELATING TO PROVED RESERVES
 

<TABLE>
<CAPTION>
                                                       UNITED
                                                       STATES  BOLIVIA  TOTAL
                                                      -------- ------- --------
                                                           (IN THOUSANDS)
<S>                                                   <C>      <C>     <C>
1994
  Estimated future cash flows Revenues from
   hydrocarbon sales................................. $ 51,380 $44,473 $ 95,853
    Production costs.................................   19,132  12,010   31,142
    Development costs................................    7,899     825    8,724
    Dismantlement and abandonment....................    7,924            7,924
                                                      -------- ------- --------
  Future net cash flows before income taxes..........   16,425  31,638   48,063
  Estimated income tax payments......................      941  10,165   11,106
                                                      -------- ------- --------
  Future net cash flows..............................   15,484  21,473   36,957
  10% discount.......................................    1,570  10,142   11,712
                                                      -------- ------- --------
  Standardized measure of discounted future net cash
   flows............................................. $ 13,914 $11,331 $ 25,245
                                                      ======== ======= ========
1993
  Estimated future cash flows
    Revenues from hydrocarbon sales.................. $104,889         $104,889
    Production costs.................................   28,399           28,399
    Development costs................................   14,960           14,960
                                                      --------         --------
  Future net cash flows before income taxes..........   61,530           61,530
  Estimated income tax payments......................   11,283           11,283
                                                      --------         --------
  Future net cash flows..............................   50,247           50,247
  10% discount.......................................   12,345           12,345
                                                      --------         --------
  Standardized measure of discounted future net cash
   flows............................................. $ 37,902         $ 37,902
                                                      ========         ========
</TABLE>

 
                                       58

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 14. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)

<TABLE>
<CAPTION>
                                                       UNITED
                                                       STATES  BOLIVIA  TOTAL
                                                      -------- ------- --------
                                                           (IN THOUSANDS)
<S>                                                   <C>      <C>     <C>
1992
  Estimated future cash flows Revenues from
   hydrocarbon sales................................. $106,284         $106,284
    Production costs.................................   27,059           27,059
    Development costs................................    8,860            8,860
                                                      --------   ---   --------
  Future net cash flows before income taxes..........   70,365           70,365
  Estimated income tax payments......................   12,545           12,545
                                                      --------   ---   --------
  Future net cash flows..............................   57,820           57,820
  10% discount.......................................   10,818           10,818
                                                      --------   ---   --------
  Standardized measure of discounted future net cash
   flows............................................. $ 47,002         $ 47,002
                                                      ========   ===   ========
</TABLE>

 
              CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE
                   NET CASH FLOWS RELATING TO PROVED RESERVES
 

<TABLE>
<CAPTION>
                                                      1994     1993     1992
                                                     -------  -------  -------
                                                         (IN THOUSANDS)
<S>                                                  <C>      <C>      <C>
Standardized measure, beginning of year--U.S........ $37,902  $47,002  $58,780
Standardized measure, beginning of year--Bolivia....  10,312
  Change in sales prices, net of production costs... (24,990)   8,163   (3,038)
  Costs incurred or transferred into the
   amortization pool during the period that reduced
   estimated future development costs...............   4,975             2,188
  Changes in estimated future development and
   abandonment costs................................  (4,638)  (4,679)    (660)
  Sales, net of production costs....................  (6,281) (11,369) (12,107)
  Revisions of quantity estimates...................   3,243   (1,800)  (4,260)
  Purchase of reserves in-place.....................            1,098
  Accretion of discount.............................   4,283    5,397    7,004
  Net change in income taxes........................    (149)   2,048    4,291
  Changes in production rates and other.............     588   (7,958)  (5,196)
                                                     -------  -------  -------
Standardized measure, end of year................... $25,245  $37,902  $47,002
                                                     =======  =======  =======
</TABLE>

 
                                       59

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 15. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION (UNAUDITED)
 
  Zapata's continuing businesses are comprised of three industry segments
operating in the U.S. and one foreign country. The natural gas compression
segment rents, fabricates, sells, installs and services natural gas compressor
packages. The natural gas gathering, processing and marketing segment gathers
and processes natural gas and its constituent products, and markets and trades
in natural gas liquids in the U.S. The oil and gas segment is engaged in the
production of crude oil and natural gas in the U.S. and Bolivia. Export sales
of compressors and related equipment in 1994 totalled $9.9 million. Such sales
were made primarily to Canadian markets.
 
                          INDUSTRY SEGMENT INFORMATION
 

<TABLE>
<CAPTION>
                                                               DEPRECIATION,
                                   OPERATING                     DEPLETION
                                    INCOME       IDENTIFIABLE       AND        CAPITAL
YEAR ENDED SEPTEMBER 30,  REVENUES  (LOSS)          ASSETS     AMORTIZATION  EXPENDITURES
- ------------------------  -------- ---------     ------------  ------------- ------------
                                                (IN THOUSANDS)
<S>                       <C>      <C>           <C>           <C>           <C>
1994
Natural gas services--
 compression............  $ 72,522 $  7,970        $102,626       $ 4,867      $ 8,638
Natural gas services--
 gathering, processing
 and marketing..........   156,141   (1,063)         36,742         1,855        4,083
Oil and gas.............    12,549  (28,285)(2)      20,062        33,770(2)    11,792
Corporate...............             (8,767)         44,444(1)      2,321           67
                          -------- --------        --------       -------      -------
                          $241,212 $(30,145)       $203,874       $42,813      $24,580
                          ======== ========        ========       =======      =======
1993
Natural gas services--
 gathering, processing
 and marketing..........  $186,291 $   (552)       $ 40,871       $   460      $ 1,757
Oil and gas.............    20,189    6,032          41,630         7,688        1,327
Corporate...............             (6,769)        169,888(1)        378            8
                          -------- --------        --------       -------      -------
                          $206,480 $ (1,289)       $252,389       $ 8,526      $ 3,092
                          ======== ========        ========       =======      =======
1992
Oil and gas.............  $ 30,094 $ 11,248        $ 50,191       $10,303      $ 3,963
Corporate...............             (5,076)        170,066(1)        372        3,018
                          -------- --------        --------       -------      -------
                           $30,094 $  6,172        $220,257       $10,675      $ 6,981
                          ======== ========        ========       =======      =======
</TABLE>

- --------
(1) Includes Zapata's investment in Tidewater, a substantial portion of which
    was sold in fiscal 1994 and 1993.
(2) Includes a $29,152,000 provision for oil and gas property valuation as a
    result of low gas prices and a revision of estimated future costs.
 
                                       60

<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 16. 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>          <C>
FISCAL 1994
Revenues................. $59,539     $53,285     $ 66,793     $ 61,595
                          =======     =======     ========     ========
Operating income (loss).. $   338     $  (775)    $(18,180)(3) $(11,528)(4)
Other income (expense),
 net.....................  25,867 (1)   3,113 (2)    2,201       (2,225)
Provision (benefit) for
 income taxes............   9,190         984       (5,499)      (5,169)
                          -------     -------     --------     --------
Income (loss) from con-
 tinuing operations......  17,015       1,354      (10,480)      (8,584)
Income (loss) from dis-
 continued operations....     313         918          906       (9,761)(5)
                          -------     -------     --------     --------
Net income (loss)........ $17,328     $ 2,272     $ (9,574)    $(18,345)
                          =======     =======     ========     ========
Per share:
Income (loss) from con-
 tinuing operations...... $  0.55     $  0.04     $  (0.34)    $  (0.27)
Income (loss) from dis-
 continued operations....    0.01        0.03         0.03        (0.31)
                          -------     -------     --------     --------
Net income (loss)........ $  0.56     $  0.07     $  (0.31)    $  (0.58)
                          =======     =======     ========     ========
FISCAL 1993
Revenues................. $57,971     $62,137     $ 45,203     $ 41,169
                          =======     =======     ========     ========
Operating income (loss).. $ 1,983     $  (725)    $   (984)    $ (1,563)
Other income (expense),
 net.....................    (307)     (1,054)      17,451 (6)   (1,192)
Provision (benefit) for
 income taxes............     191        (888)       5,599       (1,102)
                          -------     -------     --------     --------
Income (loss) from con-
 tinuing operations......   1,485        (891)      10,868       (1,653)
Income (loss) from dis-
 continued operations....    (447)       (651)        (378)       1,040
                          -------     -------     --------     --------
Net income (loss)........ $ 1,038     $(1,542)    $ 10,490     $   (613)
                          =======     =======     ========     ========
Per share:
Income (loss) from con-
 tinuing operations...... $  0.06     $ (0.04)    $   0.38     $  (0.06)
Income (loss) from dis-
 continued operations....   (0.02)      (0.02)       (0.01)        0.04
                          -------     -------     --------     --------
Net income (loss)........ $  0.04     $ (0.06)    $   0.37     $  (0.02)
                          =======     =======     ========     ========
</TABLE>

- --------
(1) Includes a pretax gain of $33.9 million from the sale of 3.75 million
    shares of Tidewater common stock and a $6.8 million prepayment penalty in
    connection with the partial prepayment of Zapata's Norex indebtedness.
(2) Includes a pretax gain of $3.6 million from the sale of 375,175 shares of
    Tidewater common stock.
(3) Includes an $18.8 million valuation provision for oil and gas property
    valuation.
(4) Includes a $10.4 million valuation provision for oil and gas property
    valuation.
(5) Includes the estimated loss to be realized on disposal of the marine
    protein operations including a fourth quarter adjustment to insurance
    claims of $590,000, net of tax.
(6) Includes a pretax gain of $32.9 million from the sale of 3.5 million shares
    of Tidewater common stock, a $6.4 million prepayment penalty in connection
    with the refinancing of Zapata's senior indebtedness and a $6.0 million
    write-down of Zapata's investment in Arethusa to approximate estimated
    market value. A $300,000 gain was recorded in the fourth quarter when
    Zapata disposed of its investment in Arethusa.
 
                                       61

<PAGE>
 
                              MANAGEMENT'S REPORT
 
To the Stockholders, Zapata Corporation:
 
  The management of Zapata Corporation has prepared and is responsible for the
financial statements and related financial data contained in this report. The
financial statements were prepared in accordance with generally accepted
accounting principles and by necessity include certain amounts determined using
management's best estimates and judgements.
 
  Management is responsible for and maintains accounting and internal control
systems which provide reasonable assurance that, among other things, assets are
safeguarded and transactions are properly authorized and recorded to permit the
preparation of financial statements in accordance with generally accepted
accounting principles. The accounting and internal control systems are
supported by written policies and procedures. Management believes that as of
this date, the Company's system of internal controls is adequate to accomplish
the objectives discussed herein.
 
  The financial statements have been audited by independent public accountants
nominated by the Board of Directors and elected by the stockholders. Their
audits were made in accordance with generally accepted auditing standards and
accordingly, they have obtained an overall understanding of the Company's
system of internal accounting controls and have conducted other tests as they
consider necessary to support their opinion on the financial statements.
 
  The Board of Directors, through its Audit Committee composed exclusively of
outside directors, is responsible for reviewing and monitoring the financial
statements and accounting practices. The Audit Committee meets periodically
with management and the independent public accountants to ensure that each is
properly discharging its duties. The independent public accountants have full
and free access to, and meet with, the Audit Committee, with or without the
presence of management.
 
                                          Malcolm I. Glazer
                                          Chairman, President and Chief
                                           Executive Officer
 
                                          Lamar C. McIntyre
                                          Vice President, Chief Financial
                                           Officer,
                                          and Treasurer
 
December 29, 1994
 
                                       62

<PAGE>
 

I
TEM 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
 
  Pursuant to General Instruction G of Form 10-K, the information called for by
Item 10 of Part III of Form 10-K is incorporated by reference to the
information set forth in the Company's definitive proxy statement relating to
the 1995 Annual Meeting of Stockholders of the Company (the "1995 Proxy
Statement") to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), in response to Items 401
and 405 of Regulation S-K under the Securities Act of 1933, as amended, and the
Exchange Act ("Regulation S-K"), or if the 1995 Proxy Statement is not so filed
within 120 days after September 30, 1994 such information will be included in
an amendment to this report filed not later than the end of such period.
Reference is also made to the information appearing in Item 1 of Part I of this
Annual Report on Form 10-K under the caption "Business--Executive Officers of
the Registrant."
 

ITEM 11. EXECUTIVE COMPENSATION
 
  Pursuant to General Instruction G of Form 10-K, the information called for by
Item 11 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 1995 Proxy Statement in response to Item 402 of
Regulation S-K, or if the 1995 Proxy Statement is not so filed within 120 days
after September 30, 1994 such information will be included in an amendment to
this report filed not later than the end of such period.
 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
  Pursuant to General Instruction G of Form 10-K, the information called for by
Item 12 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 1995 Proxy Statement in response to Item 403 of
Regulation S-K, or if the 1995 Proxy Statement is not so filed within 120 days
after September 30, 1994 such information will be included in an amendment to
this report filed not later than the end of such period.
 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
  Pursuant to General Instruction G of Form 10-K, the information called for by
Item 13 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 1995 Proxy Statement in response to Item 404 of
Regulation S-K, or if the 1995 Proxy Statement is not so filed within 120 days
after September 30, 1994 such information will be included in an amendment to
this report filed not later than the end of such period.
 
 
                                       63

<PAGE>
 

                                    PART IV
 

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
 
  (A) LIST OF DOCUMENTS FILED.

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
  (1) Consolidated Financial statements, Zapata Corporation and subsidiary
   companies--
       Report of Coopers & Lybrand L.L.P., independent public accountants.  30
       Report of Arthur Andersen LLP, independent public accountants,
        dated December 17, 1993 ..........................................  31
       Consolidated balance sheet--September 30, 1994 and 1993............  32
       Consolidated statement of operations for the years ended Septmeber
        30, 1994, 1993 and 1992...........................................  34
       Consolidated statement of cash flows for the years ended September
        30, 1994, 1993 and 1992...........................................  35
       Consolidated statement of stockholders' equity for the years ended
        September 30, 1994, 1993 and 1992.................................  36
       Notes to consolidated financial statements.........................  37

  (2) Supplemental Schedule:
       Report of Coopers & Lybrand L.L.P., independent public accountants.  68
       III--Zapata Corporation (parent company condensed financial
        statements).......................................................  69
</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.
 
 
 
                                       64

<PAGE>
 
  (3) Exhibits
 
  The exhibits indicated by an asterisk (*) are incorporated by reference.
 

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                            DESCRIPTION OF EXHIBIT
 -------                           ----------------------
 <C>        <S>
     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 August 17, 1994.
     4(a)*  --Second Amended and Restated Master Restructuring Agreement, dated
             as of April 16, 1993 between Zapata and Norex Drilling Ltd.
             (Exhibit 12 to Zapata's Amendment No. 3 to Schedule 13D dated
             April 30, 1993).
     4(b)*  --First Amendment to Second Amended and Restated Master
             Restructuring Agreement dated as of May 17, 1993 between Zapata
             and Norex Drilling, Ltd. (Exhibit 4(c) to Zapata's Registration
             Statement on Form S-1 (No. 33-68034)).
     4(c)*  --Second Amendment to Second Amended and Restated Master
             Restructuring Agreement, dated as of December 17, 1993 between
             Zapata and Norex Drilling, Ltd. (Exhibit 4(c) to Zapata's Annual
             Report on Form 10-K for the fiscal year ended September 30, 1993
             (File No. 1-4219)).
     4(d)*  --Securities Liquidity Agreement, dated as of December 19, 1990, by
             and among Zapata and each of the securities holders parties
             thereto (Exhibit 4(b) to Zapata's Annual Report on Form 10-K for
             the fiscal year ended September 30, 1990 (File No. 1-4219)).
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)*+ --Employment Agreement dated as of April 15, 1991 between Zapata
             and Marvin Migura (Exhibit 10(n) to Zapata's Registration
             Statement on Form S-1 (Registration No. 33-40268)).
    10(h)*+ --Employment Agreement dated as of April 15, 1991 between Zapata
             and David W. Skarke (Exhibit 10 m) to Zapata's Annual Report on
             Form 10-K for the fiscal year ended September 30, 1991 (File No.
             1-4219)).
</TABLE>

 
                                       65

<PAGE>
 

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                            DESCRIPTION OF EXHIBIT
 -------                           ----------------------
 <C>        <S>
    10(i)*+ --Incentive Appreciation Agreement, dated November 12, 1992,
             between Cimarron Gas Companies, Inc. and Robert W. Jackson
             (Exhibit 2(b) to Zapata's Current Report on Form 8-K dated
             November 24, 1992 (File No. 1-4219)).
    10(j)*+ --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(k)*+ --Employment Agreement, dated November 12, 1992, between Cimarron
             Gas Companies, Inc. and Robert W. Jackson (Exhibit 10 to Zapata's
             Current Report on Form 8-K dated November 24, 1992 (File No. 1-
             4219)).
    10(l)*+ --Consulting Agreement between Ronald C. Lassiter and Zapata
             Corporation 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(m)*  --Agreement dated as of July 1, 1993 among Zapata Corporation,
             Malcolm I. Glazer, Avram A. Glazer and Norex Drilling Ltd.
             (Exhibit 1 to Zapata's Current Report on Form 8-K dated July 1,
             1993 (File No. 1-4218)).
    10(n)*  --Release Agreement dated as of July 1, 1993 among Zapata
             Corporation, Malcolm I. Glazer and Avram A. Glazer (Exhibit 10(b)
             to Zapata's Quarterly Report on Form 10-Q for the fiscal quarter
             ended June 30, 1993 (File No. 1-4219)).
    10(o)*  --Merger, Purchase and Sale Agreement dated as of August 5, 1993 by
             and among Zapata, Zapata Compression Investments, Inc., Zapata
             Rentals, Inc., Zapata Energy Industries, Inc. and EII, Rentals,
             Cormar Enerquip, Holt Company of Louisiana and the shareholder
             thereof (Exhibit 10(f) to Zapata's Quarterly Report on Form 10-Q
             for the fiscal quarter ended June 30, 1993 (File No. 1-4219)).
    10(p)*  --Real Property Purchase and Sale Agreement, dated as of August 5,
             1993 by and between Zapata Energy Industries, Inc., as Purchaser,
             and Holt Commercial Properties Ltd., as Seller, (Exhibit 10(g) to
             Zapata's Quarterly Report on Form 10-Q for the fiscal quarter
             ended June 30, 1993).
    10(q)+  --Noncompetition Agreement dated as of November 9, 1993 by and
             among Zapata Corporation and Peter M. Holt and Benjamin D. Holt,
             Jr.
    10(r)*+ --Consulting Agreement dated as of November 9, 1993 between Zapata
             Corporation and Peter M. Holt.
    10(s)*  --Stock Purchase Agreement dated as of September 14, 1993 by and
             among Cimarron Gas Holding Company, Zapata, and those shareholders
             of Stellar Energy Corporation, Stellar Pipeline Company, Stellar
             Transmission Corporation, and Kodiak Compression, Inc. (Exhibit
             10(ai) to Zapata's Registration Statement on Form S-1 (No. 33-
             68034)).
    10(t)+  --Employment Agreement between Lamar C. McIntyre and Zapata
             Corporation dated as of October 1, 1994.
    10(u)+  --Consulting Agreement dated as of July 1, 1994 between Zapata
             Corporation and Thomas H. Bowersox.
    10(v)*  --Amendment No. 1 to the Merger, Purchase and Sale Agreement dated
             as of November 4, 1993 by and among Zapata, Zapata Compression
             Investments, Inc., Zapata Rentals, Inc., Zapata Energy Industries,
             Inc. and EII, Rentals, Cormar, Enerquip, Holt Company of Louisiana
             and the Shareholders thereof (Exhibit 10(aj) to Zapata's
             Registration Statement on Form S-1 (No. 33-68034)).
    10(w)*+ --Participation Agreement dated as of November 12, 1992 between
             Cimarron Gas Companies, Inc. and Robert W. Jackson (Exhibit 10(am)
             to Zapata's Registration Statement on Form S-1 (No. 33-68034)).
</TABLE>

 
                                       66

<PAGE>
 

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER           DESCRIPTION OF EXHIBIT
 -------          ----------------------
 <C>      <S>
    21    --Subsidiaries of the Registrant.
    23(a) --Consent of Huddleston & Co., Inc.
    23(b) --Consent of Coopers & Lybrand L.L.P.
    23(c) --Consent of Arthur Andersen LLP
    24    --Powers of attorney.
    27    --Financial Data Schedule
</TABLE>

- --------
+  Management contract or compensatory plan or arrangement required to be filed
   as an exhibit pursuant to the requirements of Item 14(c) of Form 10-K.
 
  (B) REPORTS ON FORM 8-K.
 
  Current Report of Form 8-K dated July 11, 1994 with respect to a press
release announcing the separation of Zapata Protein, Inc., the Company's
menhaden fishing and marine protein subsidiary; and the change in the
management of Zapata.
 
  Current Report on Form 8-K dated August 18, 1994 with respect to a press
release announcing the initiation of a stock repurchase plan for holders of
Zapata Common Stock with less than 100 shares.
 
  (C) FINANCIAL STATEMENT SCHEDULES.
 
  Filed herewith as financial statement schedules is the schedule supporting
Zapata's consolidated financial statements listed under paragraph (a) of this
Item, and the Independent Public Accountants' Report with respect thereto.
 
                                       67

<PAGE>
 

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To the Stockholders and Board of Directors,
Zapata Corporation:
 
  Our report on the consolidated financial statements of Zapata Corporation and
subsidiaries as of and for the year ended September 30, 1994, is included on
page 30 of this Form 10-K. In connection with our audit of such financial
statements, we have also audited the related financial statement schedule for
the year ended September 30, 1994 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,
present fairly, in all material respects, the information required to be
included therein.
 
                                          Coopers & Lybrand L.L.P.
 
Houston, Texas
December 16, 1994

 
                                       68

<PAGE>
 
                                                                    SCHEDULE III
 
                               ZAPATA CORPORATION
                             (PARENT COMPANY ONLY)
 
                            CONDENSED BALANCE SHEET
 

<TABLE>
<CAPTION>
                                                                   SEPTEMBER 30,
                                                                       1994
                                                                   -------------
                                                                        (IN
                                                                    THOUSANDS)
<S>                                                                <C>
Current assets:
  Cash and cash equivalents.......................................   $ 11,096
  Receivables.....................................................        700
  Prepaid expenses and other current assets.......................      1,918
                                                                     --------
    Total current assets..........................................     13,714
                                                                     --------
Investments and other assets:
  Investments in and advances to subsidiaries*....................    174,629
  Investment in equity securities.................................     14,471
  Other assets....................................................      6,026
                                                                     --------
    Total investments and other assets............................    195,126
                                                                     --------
Property and equipment:
  Cost............................................................      5,213
  Accumulated depreciation, depletion and amortization............     (3,316)
                                                                     --------
                                                                        1,897
                                                                     --------
    Total assets..................................................   $210,737
                                                                     ========
Current liabilities:
  Accrued liabilities.............................................   $  2,871
  Accrued interest................................................        533
  Income taxes payable............................................        268
                                                                     --------
    Total current liabilities.....................................      3,672
                                                                     --------
Long-term debt....................................................     43,363
                                                                     --------
Other liabilities.................................................      9,160
                                                                     --------
Stockholders' equity..............................................    154,542
                                                                     --------
    Total liabilities and stockholders' equity....................   $210,737
                                                                     ========
</TABLE>

- --------
*  Eliminated in consolidation.
 
        This condensed statement should be read in conjunction with the
 Consolidated Financial Statements and Notes thereto which are included in Item
                                   8 herein.
 
                                       69

<PAGE>
 
                                                                    SCHEDULE III
                                                                     (CONTINUED)
 
                               ZAPATA CORPORATION
                             (PARENT COMPANY ONLY)
 
                       CONDENSED STATEMENT OF OPERATIONS
 

<TABLE>
<CAPTION>
                                                                    YEAR ENDED
                                                                   SEPTEMBER 30,
                                                                       1994
                                                                   -------------
                                                                        (IN
                                                                    THOUSANDS)
<S>                                                                <C>
Expenses:
  Depreciation....................................................   $  2,321
  General and administrative......................................      4,127
                                                                     --------
                                                                        6,448
                                                                     --------
Operating loss....................................................     (6,448)
                                                                     --------
Other income (expense):
  Interest income.................................................        841
  Interest expense................................................     (5,714)
  Gain on sale of Tidewater common stock..........................     37,457
  Equity in loss of subsidiaries..................................    (29,452)
  Other...........................................................     (4,429)
                                                                     --------
                                                                       (1,297)
                                                                     --------
Loss before income taxes..........................................     (7,745)
Provision for income taxes........................................        574
                                                                     --------
Net loss..........................................................   $ (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.
 
                                       70

<PAGE>
 
                                                                    SCHEDULE III
                                                                     (CONTINUED)
 
                               ZAPATA CORPORATION
                             (PARENT COMPANY ONLY)
 
                       CONDENSED STATEMENT OF CASH FLOWS
 

<TABLE>
<CAPTION>
                                                                   YEAR ENDED
                                                                  SEPTEMBER 30,
                                                                      1994
                                                                  -------------
                                                                       (IN
                                                                   THOUSANDS)
<S>                                                               <C>
Cash flow used by operating activities:
  Net loss.......................................................   $ (8,319)
  Adjustments to reconcile net loss to net cash used by operating
   activities:
    Depreciation.................................................      2,321
    Gain on sale of assets.......................................    (37,457)
    Equity in loss of subsidiaries...............................     29,452
    Changes in assets and liabilities:
      Receivables................................................       (700)
      Accounts payable and accrued liabilities...................       (991)
      Deferred income taxes......................................     (4,137)
      Other assets and liabilities...............................      5,844
                                                                    --------
        Total adjustments........................................     (5,668)
                                                                    --------
        Net cash used by operating activities....................    (13,987)
                                                                    --------
Cash flow provided by investing activities:
  Proceeds from sale of Tidewater common stock...................     85,853
  Restricted cash investments....................................     74,083
  Advances from subsidiaries.....................................     17,582
  Business acquisitions, net of cash acquired....................    (73,222)
  Capital expenditures...........................................        (67)
                                                                    --------
        Net cash provided by investing activities................    104,229
                                                                    --------
Cash flow used by financing activities:
  Principal payments of long-term obligations....................    (85,524)
  Preferred stock redemption.....................................     (2,245)
  Dividend payments..............................................     (1,566)
                                                                    --------
        Net cash used by financing activities....................    (89,335)
                                                                    --------
Net increase in cash and cash equivalents........................        907
Cash and cash equivalents at beginning of year...................     10,189
                                                                    --------
Cash and cash equivalents at end of year.........................   $ 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.
 
                                       71

<PAGE>
 
                                                                    SCHEDULE III
                                                                     (CONCLUDED)
 
                               ZAPATA CORPORATION
                             (PARENT COMPANY ONLY)
 
                    NOTES TO CONDENSED FINANCIAL STATEMENTS
 
NOTE 1. LONG-TERM OBLIGATION
 
  Zapata Corporation leases office space in accordance with an agreement that
expires in August 2002. Annual payments are approximately $480,000 until August
31, 1997 and approximately $629,000 thereafter.
 
NOTE 2. ANNUAL MATURITIES OF LONG-TERM DEBT
 
  The annual maturities of long-term debt for the five years ending September
30, 1999 are as follows (in thousands):
 

<TABLE>
<CAPTION>
      1995             1996                      1997                     1998                   1999
      ----            -------                   -------                   ----                   ----
      <S>             <C>                       <C>                       <C>                    <C>
      $ --            $17,500                   $15,621                   $ --                   $ --
</TABLE>

 
 
        This condensed statement should be read in conjunction with the
 Consolidated Financial Statements and Notes thereto which are included in Item
                                   8 herein.
 
                                       72

<PAGE>
 

 
                                  SIGNATURES
 
  PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
 
                                                 ZAPATA CORPORATION
                                                        (Registrant)
 
 
 
                                         By:Lamar C. McIntyre
                                            ___________________________________
                                           (Lamar C. McIntyre, Vice President
                                              and Chief Financial Officer)
 
December 1, 1994
 
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
 

<TABLE>
<CAPTION>
             SIGNATURE                           TITLE                    DATE
             ---------                           -----                    ----
 
 
<S>                                  <C>                           <C>
         Malcolm I. Glazer*          Principal Executive Officer    December 1, 1994
____________________________________ and Director of the
        (Malcolm I. Glazer)          Registrant
 
 
         Lamar C. McIntyre           Principal Financial and        December 1, 1994
____________________________________ Accounting Officer of the
        (Lamar C. McIntyre)          Registrant
 
 
           Peter M. Holt*
____________________________________
          (Peter M. Holt)
 
 
          Avram A. Glazer*
____________________________________
         (Avram A. Glazer)
</TABLE>

 
 
 

<TABLE>
<S>                                  <C>                           <C>
        Ronald C. Lassiter *         Directors of the Registrant    December 1, 1994
____________________________________
        (Ronald C. Lassiter)
 
 
           Kristian Siem*
____________________________________
          (Kristian Siem)
 
 
    *By:   Lamar C. McIntyre
   (Lamar C. McIntyre, Attorney-in-
               Fact)
 
</TABLE>

 
 
                                       73





<PAGE>
                                                                    EXHIBIT 3(d)

                                        ADOPTED: July 29, 1969     
                                        AMENDED: December 15, 1969 
                                        AMENDED: December 7, 1970  
                                        AMENDED: January 11, 1971  
                                        AMENDED: May 3, 1971       
                                        AMENDED: December 27, 1971 
                                        AMENDED: April 22, 1975    
                                        AMENDED: January 14, 1976  
                                        AMENDED: December 17, 1976 
                                        AMENDED: December 14, 1978 
                                        AMENDED: June 25, 1979     
                                        AMENDED: December 19, 1979  
                                        AMENDED: February 18, 1981 
                                        AMENDED: October 7, 1981   
                                        AMENDED: December 15, 1982 
                                        AMENDED: February 16, 1983 
                                        AMENDED: May 18, 1983      
                                        AMENDED: February 17, 1984 
                                        AMENDED: December 31, 1985 
                                        AMENDED: April 2, 1987     
                                        AMENDED: July 10, 1987     
                                        AMENDED: February 10, 1988 
                                        AMENDED: March 20, 1992    
                                        AMENDED: February 26, 1993 
                                        AMENDED: July 1, 1993      
                                        AMENDED: January 20, 1994  
                                        AMENDED: February 23, 1994 
                                        AMENDED: August 17, 1994    

 

                          AMENDED AND RESTATED BY-LAWS

                                       OF

                               ZAPATA CORPORATION

                            (a Delaware corporation)

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

                                   ARTICLE I

                                    Offices
                                    -------


          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.

                                         

<PAGE>
 
                                   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, 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.

                                       2

<PAGE>
 
          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 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
constituting the whole Board of Directors shall be seven (7). Effective with the
Corporation's 1995 annual meeting of stockholders, the number of directors
constituting the Board of Directors shall be six (6).  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.

                                       3

<PAGE>
 
          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 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

                                       4

<PAGE>
 
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.

          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

                                       5

<PAGE>
 
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 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

                                       6

<PAGE>
 
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 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.

                                       7

<PAGE>
 
                                   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 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

                                       8


<PAGE>
 
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,  suit or 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.

          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

                                       9

<PAGE>
 
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 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

                                       10

<PAGE>
 
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
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

                                       11

<PAGE>
 
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 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

                                       12

<PAGE>
 
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 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>
                                                                   EXHIBIT 10(S)
 
                           NON-COMPETITION AGREEMENT


          THIS NON-COMPETITION AGREEMENT, dated as of November 9, 1993
("Agreement"), is entered into by and among Zapata Corporation, a Delaware
corporation ("Zapata"), and Peter M. Holt and Benjamin D. Holt, Jr.
(individually and collectively, the "Holts");

                             W I T N E S S E T H:

          WHEREAS, Zapata and the Holts are parties to the Merger, Purchase and
Sale Agreement dated as of August 5, 1993, as amended (as so amended, the
"Merger, Purchase and Sale Agreement") pursuant to which Zapata will merge with
and purchase, as of the date of this Agreement, the natural gas compression
business (the "Business") conducted by Energy Industries, Inc., Cormar Rental
Co., Cormar Industries Co. and ENERQUIP, Inc. (collectively, the "Companies")
which are owned by the Holts and certain other shareholders of the Companies;
and

          WHEREAS, it is a condition to the closing of the transactions
contemplated in the Merger, Purchase and Sale Agreement that the parties hereto
execute and deliver this Agreement; and

          NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the parties hereby agree as follows:

            1. Each of the Holts hereby covenants and agrees
 that, except as
      otherwise consented to in writing by Zapata, at any time for a period of
      three years following the date of this Agreement, the Holts will not,
      directly or indirectly, acting alone or as an officer, director, employee,
      consultant, representative, partner or equity security holder of any
      corporation, partnership or other business entity:

               (a) knowingly engage in any business in competition with the
                   Business as it is conducted on the date of this Agreement,
                   within the geographical borders of the states of Arkansas,
                   Louisiana, Kansas, New Mexico, Oklahoma and Texas (the
                   "Marketing Area");

               (b) knowingly request any present customer or supplier of the
                   Business to curtail or cancel its business with Zapata with
                   respect to the Business;

<PAGE>
 
                      (c) knowingly disclose to any person, firm or corporation
                          any substantial and material details of organization
                          or business affairs of Zapata, or any names of
                          past or present customers of Zapata; or
  
                      (d) induce or attempt to influence any present or
                          prospective employee of Zapata, as of the Closing Date
                          under the Merger, Purchase and Sale Agreement, to
                          terminate his employment.

                    Notwithstanding the foregoing, however, nothing contained in
              this Agreement shall prohibit the Holts from purchasing and
              holding as an investment not more than 5% of any class for the
              issued and outstanding and publicly traded (on a recognized
              national or regional securities exchange or in the over-the-
              counter market) security of any corporation, partnership or other
              business entity which conducts a business in competition with the
              Business.

                    2. Notwithstanding anything contained herein to the
              contrary, however, in the event that Zapata shall determine that
              the Holts have breached any of the covenants and agreements set
              forth in Paragraph 1 hereof, Zapata shall provide the Holts with
              written notice of such breach, including a description of the
              facts and nature thereof, and Zapata's demand that the Holts
              cease such activities, and the Holts shall, as soon as
              practicable thereafter but in any event not later than ninety
              (90) days from the date of such written notice, cure any such
              breach.

                    3. In consideration for the Holts' execution, delivery and
              performance of this Agreement, upon the execution and delivery of
              this agreement, Zapata will pay an aggregate amount of $4,572,369
              to Peter M. Holt and Benjamin D. Holt, Jr. as follows: Peter M.
              Holt will receive $3,886,514 and Benjamin D. Holt, Jr. will
              receive $685,855.

                    4. The Holts agree and acknowledge that Zapata does not have
              any adequate remedy at law for the breach by the Holts of the
              covenants and agreements set forth in paragraph 1, and that any
              breach by the Holts of the covenants and agreements set forth in
              paragraph 1 would result in irreparable injury to Zapata. The
              Holts further agree and acknowledge that Zapata may, in addition
              to the other remedies which may be available to Zapata, file a
              suit in equity to enjoin the Holts from such breach, and consent
              to the issuance of injunctive relief hereunder.

                    5. Notwithstanding anything contained in this Agreement to
              the contrary, the Holts shall have the right, but not the
              obligation, to apply to Zapata for a waiver letter in advance of
              Holts' contemplated action of engaging in any business or activity
              in the Marketing Area that may be construed as competitive with
              the Business. In such case, Holts shall submit to Zapata a letter
              containing a full and complete description of the contemplated
              business or activity in which the Holts intend to

                                       2

<PAGE>
 
     engage, a list of all other known participants in the Holts' proposed
     activity or business, a description of the role of the Holts and the
     geographical location where the contemplated business or activity will be
     operated or engaged in. Zapata shall be obligated to make a good faith
     determination with respect to such contemplated business or activity and to
     respond to the Holts affirmatively or negatively by written letter within
     thirty (30) days of the receipt of such written notice, as hereinafter
     defined. In such response letter Zapata shall advise the Holts of whether
     it considers that such described activity would or would not be in
     violation of the covenant not to compete hereinabove set forth. Upon the
     failure by Zapata to respond to the Holts within thirty (30) days of
     receipt of written notice from the Holts, the proposed activity or business
     as set forth in the Holts' letter shall be deemed to be approved by Zapata
     and not in violation of this Agreement.

           6. This Agreement shall be governed by, and interpreted and enforced
     in accordance with, the laws of the State of Texas, without regard to
     principles of conflicts of law.

           7. In the event that any provision contained in this Agreement shall,
     for any reason, be judicially declared to be invalid, illegal,
     unenforceable or void in any respect, such declaration shall not have the
     effect of invalidating or voiding the remainder of this Agreement and the
     parties hereto agree that the part or parts of this Agreement so declared
     to be invalid, illegal, unenforceable or void in any respect will be deemed
     to have been stricken herefrom and the remainder will have the same force
     and effectiveness as if such part had never been included herein. In the
     event that the length of time or the scope of the covenants set forth in
     Section 1 hereof is deemed too restrictive in any court proceedings, the
     court may reduce such restrictions to those it deems reasonable under the
     circumstances.

           8. This Agreement shall not be assigned by a party without the
     consent of the other parties hereto.

           9. Any notice, request, demand, waiver, consent, approval or other
     communication which is required or permitted hereunder shall be in writing
     and shall be deemed given only if delivered personally or sent by facsimile
     transmission or by registered or certified mail, postage prepaid, return
     receipt requested, as follows:

               If to the Holts, then to:

                   Holt Companies
                   c/o B. D. Holt Co., d/b/a
                   Holt Company of Texas
                   S.W.W. White at Holt Avenue
                   San Antonio, Texas 78220
                   Facsimile Number: 210/648-0079

                                       3

<PAGE>
 
                   with a copy (which shall not constitute notice) to:

                   Gresham, Davis, Gregory, Worth & Moore
                   A Professional Corporation
                   112 East Pecan Street
                   Suite 900
                   San Antonio, Texas 78205-1204
                   Facsimile Number: 210/226-5154
                   Attention: Marshall B. Miller, Jr.

               If to Zapata Corporation then to:

                   Zapata Corporation
                   One Riverway, Suite 2200
                   777 South Post Oak Lane
                   Houston, Texas 77056
                   Facsimile Number: 713/940-6111
                   Attention: Corporate Secretary

                   with a copy (which shall not
                   constitute notice) to:

                   Baker & Botts, L.L.P.
                   3000 One Shell Plaza
                   Houston, Texas 77002
                   Facsimile Number: 713/229-1522
                   Attention: Roy L Nolen

     or to such other address as the addressee may have specified in a notice
     duly given to the sender as provided herein. Such notice, request, demand,
     waiver, consent, approval or other communication will be deemed to have
     been given as of the date so delivered or electronically transmitted or
     sent after mailing thereof.

           10. This Agreement represents the entire understanding of the parties
     hereto relating to the subject matter hereof, supersedes any prior
     agreements between the parties and the terms and provisions of this
     Agreement may not be modified or amended, except in writing. Any failure or
     delay on the part of either party in exercising any power or right
     hereunder shall not operate as a waiver thereof, nor shall any single or
     partial exercise of any such right or power preclude any other or further
     exercise thereof or the exercise of any other right or power hereunder.

                                       4

<PAGE>
 
           IN WITNESS WHEREOF, the parties hereto have duly executed this
 Agreement as of the date first written above.

                             ZAPATA CORPORATION



                             By: /s/ THOMAS H. BOWERSOX
                                 -----------------------------
                                     Thomas H. Bowersox
                                     Executive Vice President


                             Benjamin D. Holt. Jr.
                             ---------------------------------

                             By: /s/ KENNETH R. KAMP
                                 -----------------------------
                                     Kenneth R. Kamp
                                     Attorney-In-Fact


                             /s/ PETER M. HOLT
                             --------------------------------
                                 Peter M. Holt
                                 
                                       5



<PAGE>
                                                                   EXHIBIT 10(t)
 
                             CONSULTING AGREEMENT


          THIS CONSULTING AGREEMENT is made and entered into this 9th day of
November, 1993 ("Agreement") between ZAPATA CORPORATION, a Delaware corporation
(the "Company") and PETER M. HOLT (the "Consultant");

                             W I T N E S S E T H:

          WHEREAS, pursuant to a Merger, Purchase and Sale Agreement dated as of
August 5, 1993, the Company haS purchased the natural gas compression business
(the "Business") of Energy Industries, Inc., Cormar Rental Co., Cormar
Industries Co. and ENERQUIP, Inc., companies in which the Consultant was a major
equity owner and of which the Consultant was President and Chief Executive
Officer; and

          WHEREAS, the Company desires to secure for itself, upon the terms and
conditions set forth herein, the benefits of the Consultant's broad experience
in and knowledge of the Business by obtaining Consultant's services, on the
terms herein set forth; and

          WHEREAS, the Consultant is willing to enter into this Agreement upon
the terms and conditions set forth herein;

          NOW, THEREFORE, in consideration of the mutual promises and
agreements set forth herein, the parties hereto agree as follows:

          1. Consulting Services. (a) During the Consultant's "Term of
Services" (as hereinafter deemed), the Consultant shall,
 to the extent so
requested by the Company, provide the Company with his services as a consultant
in connection with the Business. Consultant shall have such powers and duties as
may from time to time be determined by the Chief Executive Officer of the
Company.

          (b) During the first eighteen months of the Term of Services, the
Consultant shall serve the Company in the capacity as Chairman and Chief
Executive Officer of the divisions or subsidiaries of the Company engaged in the
Business, and shall have the title of "Chairman-CEO", provided, however, that,
during such eighteen-month period, at the written request of the Chief Executive
Officer of the Company, Consultant shall no longer serve as the Chief Executive
Officer of such division and subsidiaries and shall relinquish the title of
Chief Executive Officer, but shall continue to serve in the capacity as
"Chairman" of such divisions or subsidiaries and shall continue to have the
title of "Chairman."


<PAGE>
 
          (c) During the second eighteen months of the Term of Services, the
Consultant shall serve in the capacity as Chairman of such divisions or
subsidiaries and shall have the title of "Chairman".

          (d) The provision of services by the Consultant under the Agreement
shall not make the Consultant an employee of the Company or the Company's
divisions or subsidiaries engaged in the Business.

          2. Term of Services. The Consultant's "Term of Services", as used
herein, shall begin on the date hereof and shall end on the third anniversary of
such date.

          3. Compensation. For all services performed by the Consultant
pursuant hereto, the Company shall pay the Consultant $200,000 per year for the
first year of this Agreement, $150,000 per year for the second year of this
Agreement and $130,000 per year for the third year of this Agreement, payable in
accordance with the Company's usual payroll disbursement schedule for its
employees. Such compensation shall be in addition to any compensation that the
Consultant shall receive as a director of the Company.

          4. Reimbursement of Expenses. The Consultant shall be entitled to
reimbursement of all out-of-pocket expenses actually and reasonably incurred by
the Consultant in connection with his performance of services hereunder
("Expenses"), including but not limited to, reasonable travel expenses.
Requests for reimbursement of Expenses shall be submitted in such form as is
approved by the Company and shall be accompanied by receipts or similar
documentation evidencing the Expenses incurred.

          5. Duties and Responsibilities of the Consultant. During the Term of
Services, the Consultant shall perform his services hereunder in the capacities
determined by the Chief Executive Officer of the Company to the best of his
ability and with reasonable diligence. In determining the services to be
performed by the Consultant, the Chief Executive Officer of the Company shall
act in good faith and shall not assign duties and responsibilities to the
Consultant that are not appropriate or customary with respect to the position of
the Consultant hereunder. There shall be no limitations arising from this
Agreement on the other business and investment activities of Consultant.

          6. Intellectual Property. Any inventions arising out of the
performance of the services rendered by the Consultant pursuant to this
Agreement shall be the sole and absolute property of the Company. In
consideration for the benefits received under this Agreement and the Merger,
Purchase and Sale Agreement, the Consultant shall promptly and fully disclose to
the Company any and all inventions, improvements, or discoveries conceived,
developed or reduced to practice by the Consultant in connection with, or as a
result of, his services for the Company hereunder. The Consultant agrees to
assign to the Company or its nominee without further consideration, his entire
right, title, and interest, or such lesser interest as the Company may designate
in and to each and all of such inventions, improvements, or discoveries. The
Consultant further agrees to sign all

                                       2

<PAGE>
 
applications for patents, domestic and foreign, assignments and other papers
and rights related to any and all of the inventions, improvements, or
discoveries assignable to the Company and to perform all acts necessary or
desirable to make this Agreement effective as to the provisions set forth in
this Section 6. The Consultant acknowledges that all applications for patents,
both domestic and foreign, on the inventions, improvements, or discoveries
assignable to the Company shall be filed and prosecuted by an attorney selected
by the Company and at the expense of the Company. The Consultant acknowledges
that the Company would be irreparably injured by a violation of this Section 6
and that the Company would have no adequate remedy at law in the event of such
violation. Therefore, the Consultant acknowledges and agrees that injunctive
relief, specific performance or any other appropriate equitable remedy are
appropriate remedies to enforce compliance by the Company with this Section 6.

          7. Confidential Information. The Consultant agrees that he will not,
except as permitted by the Company in writing, in any manner, at any time,
directly or indirectly, disclose to non-affiliates of the Company any
Confidential Information. As used in this Agreement, the term "Confidential
Information" means any and all information concerning the Business, the
Company, or any affiliate, or that is disclosed to the Consultant or known by or
acquired by the Consultant as a consequence of or through his performance of
services for the Company; or any affiliate, or that was acquired during his
performance of services for the Company or an affiliate thereof, that is not
known in the oil and gas or the oil and gas services industries, or to the
general public. The Consultant shall, at the end of the Term of Services or any
Renewal Term, promptly return or deliver to the Company all tangible forms of
Confidential Information in his possession.

          8. Income Tax Withholding. The Company may, but shall not be required
to, withhold from any amounts payable under this Agreement all federal, state,
city or other taxes that shall be required pursuant to any law or governmental
regulation or ruling ("Taxes"). Where the Company chooses not to withhold Taxes,
the Consultant shall pay all Taxes directly and shall hold the Company
harmless from any and all liability arising as a result of any failure to do so.

          9. Indemnification. To the extent permissible under the Company's By-
laws, the Company shall indemnify the Consultant and hold him harmless for all
acts or decisions made by him in good faith while performing services for the
Company. The Company shall pay all expenses including attorneys' fees, actually
and necessarily incurred by the Consultant in connection with the defense of
such act, suit or proceeding and in connection with any related appeal including
the costs of court settlements.

          10. Assignability; Attachment and Effect. Neither this Agreement nor
any right or interest hereunder shall be assignable by the Consultant, his
beneficiaries, or legal representatives without the prior written consent of the
Company; provided, however, that this Agreement shall not preclude (i) the
Consultant from designating a beneficiary to receive any amount payable
hereunder or upon his death, or (ii) the executors,

                                       3

<PAGE>
 
administrators, or other legal representatives of the Consultant or his estate
from assigning any rights hereunder to the person or persons entitled thereto.
Except as required by law, no right to receive payments under this Agreement
shall be subject to anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge, hypothecation, execution, attachment, levy, or
similar process or assignment by operation of law, and any attempt, voluntary or
involuntary, to effect such action shall be null, void and of no effect. This
Agreement shall be binding upon and inure to the benefit of the Company, its
successors and assigns.

                 11. Assignment and Binding Effect. This Agreement may not be
assigned by any party hereto without the prior written consent of the other
party. Subject to the foregoing, all of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of, and be enforceable
by, the successors and assigns of the Consultant and the Company.

                 12. Termination. This Agreement and the benefits payable to
Consultant hereunder shall be terminable by the Company only for "Cause." For
purposes of this Agreement, "Cause" shall be termination resulting from

                     (i)  an act or acts of fraud, theft or embezzlement on the
                          part of Consultant or other criminal act which
                          adversely affects the Company or its business
                          reputation; or

                     (ii) a breach by the Consultant during the Term of this
                          Agreement of the provisions of Sections 6, 7 or 8
                          hereof.

                 13. Renewal. This Agreement may be renewed for any number of
 additional terms upon such terms and conditions as may be mutually agreed to
 by the parties hereto or their respective successors and assigns.

                 14. Waiver, Severability and Amendment of Agreement. This
Agreement may not be modified or amended except by an instrument in writing
signed by the parties hereto. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be an estoppel against the
enforcement of any provision of this Agreement, except by written instrument of
the party charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each such
waiver shall operate only as to the specific term or condition waived and shall
not constitute a waiver of such term or condition for the future or as to any
act other than that specifically waived. If, for any reason, any provision of
this Agreement is held invalid, such invalidity shall not affect any other
provision of this Agreement not held so invalid, and each such other provision
shall to the full extent consistent with law continue in full force and effect.
If any provision of this Agreement shall be held invalid in part, such
invalidity shall in no way effect the rest of such provision not held so
invalid, and the rest of such provision, together with all provisions of this
Agreement, shall to the full extent consistent with law

                                       4

<PAGE>
 
continue in full force and effect. If this Agreement or any portion thereof
conflicts with any law or regulation governing the activities of the Company,
the Agreement or appropriate portion thereof shall be deemed invalid and of no
force or effect.

                15. Headings; Governing Law. The headings of paragraphs herein
are included solely for convenience and reference and shall not control the
meaning or interpretation of any of the provisions of this Agreement. This
agreement has been executed and delivered in the state of Texas, and its
validity, interpretation, performance, and enforcement shall be governed by the
laws of Texas.

                IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by the undersigned duly authorized officer, and the Consultant has
signed this Agreement, all as of the day first above written.

                                  ZAPATA CORPORATION



                                  By /s/ THOMAS H. BOWERSOX
                                     -----------------------------
                                         Thomas H. Bowersox
                                         Executive Vice President


                                     /s/ PETER M HOLT
                                  --------------------------------
                                         Peter M. Holt
                      

                                       5



<PAGE>
                                                                   EXHIBIT 10(V)

                             EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of the
1st day of October, 1994, by and between ZAPATA CORPORATION (the "Company") and
LAMAR C. McINTYRE (the "Executive").

                                  WITNESSETH:

WHEREAS, the Company wishes to secure the Services (as defined in Paragraph 4)
of the Executive subject to the terms and conditions hereinafter set forth; and

WHEREAS, the Executive is willing to enter into this Agreement upon the terms
and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual promises and agreements set forth
herein, the parties agree as follows:

1. Employment. During the Executive's Term of Employment (as defined in
Paragraph 2) the Company shall employ the Executive, and the Executive shall
serve, as Vice President, Treasurer and Chief Financial Officer of the Company
and in such other capacities as shall be prescribed by the Board of Directors of
the Company.

2. Term of Employment. The Executive's Term of Employment shall commence on
October 1, 1994 and shall extend until December 17, 1998, unless the Executive
voluntarily elects to terminate his employment hereunder.

3. Compensation and Benefits.

a. The Company shall pay or cause to
 be paid to the Executive during his Term of
   Employment an annual base salary of One Hundred Thirty Thousand and No/100
   Dollars ($130,000.00), payable in equal semi-monthly installments. The
   Executive's base salary shall be subject to annual review and may be
   increased, depending upon the performance of the Company and the Executive,
   upon the recommendation of the Chief Operating Officer of the Company and
   approval by the Compensation Committee of the Board of Directors of the
   Company. In the event that the Company relocates the Executive, Company will
   pay all reasonable relocation expenses incurred by the Executive relating to
   a change in the Executive's principal residence in connection with such
   relocation, and the Company shall adjust Executive's annual base salary to
   reflect any increased costs of living due to relocation.

b. During the Term of Employment, the Executive shall be entitled to participate
   and shall be included in any pension, profit-sharing, stock option, deferred
   compensation, or similar plan or program of the Company established by the
   Company, pursuant to

<PAGE>
 
       the terms and conditions thereof. The Executive also shall be entitled
       to participate in any group insurance, hospitalization, medical health
       and accident, disability or similar plan or program established by the
       Company, pursuant to the terms and conditions thereof.

   c.  The Executive shall participate in such stock plans as the Company may 
       have and shall be eligible to participate in other long-term incentive
       compensation plans which are extended by the Company during the Term of
       Employment to executives of the Company exercising comparable
       responsibilities and receiving comparable compensation.

4. Duties and Responsibilities of the Executive. During the Term of Employment,
   the Executive shall devote his efforts full time to the business of the
   Company and its subsidiaries and perform the duties and responsibilities
   assigned to him by the Chief Operating Officer and the Board of Directors to
   the best of his ability and with reasonable diligence. In determining the
   Executive's duties and responsibilities, the Chief Operating Officer and the
   Board of Directors shall act in good faith and shall not assign duties and
   responsibilities to the Executive that are not appropriate or customary with
   respect to the position of the Executive hereunder. Such duties and
   responsibilities collectively are referred to as "Services."

5. Termination of Employment.

    a. Termination by the Company.

       i. Without Cause. If, for any reason other than a "Non-Salary Event" (as 
          defined herein), (a) the Executive's employment hereunder is
          terminated by the Company, (b) the Executive's annual base salary is
          reduced below his base salary as of October 1, 1994, or (c) the
          Executive's title and responsibilities are diminished during the Term
          of Employment and before October 1, 1995, the Executive shall be
          entitled to receive, and the Company shall be obligated to pay, his
          base salary in effect at the time of the termination until October 1,
          1995; thereafter, Executive shall be entitled to receive, and the
          Company shall be obligated to pay, his base salary in effect on
          September 30, 1994, for the remaining Term of Employment, as if there
          had been no termination.

          If, for any reason other than a Non-Salary Event (a) the Executive's
          employment hereunder is terminated by the Company, (b) the Executive's
          annual base salary is reduced below his base salary as of October 1,
          1994, or (c) the Executive's title and responsibilities are diminished
          during the Term of Employment and on or after October 1, 1995, the
          Executive shall be entitled to receive, and the Company shall be
          obligated to pay, his base salary

                                       2

<PAGE>
 
               in effect on September 30, 1994, for the remaining Term of
               Employment, as if there had been no termination.

               All payments due to the Executive under this paragraph 5(a)(i),
               shall be made in regular installments in accordance with the
               general payroll practices of the Company unless the Board of
               Directors, in its sole discretion, elects to pay in lieu thereof
               a single lump sum payment. Any such lump sum payment shall equal
               the present value as of the date of distribution of the base
               salary to which he would be entitled for the remaining of Term of
               Employment if there had been no termination, as determined by
               using the interest rate assumption of ten percent (10%).
               Notwithstanding the foregoing, for purposes of Paragraph 10,
               payment in form of a lump sum shall not be deemed to accelerate
               the end of the period for which payment is received.

               During the remaining Term of Employment after the Executive's
               employment is terminated by the Company, the Executive shall
               provide such Services to the Company as are mutually agreeable to
               the Company and Executive.

               If, for any reason other than a Non-salary event, the Executive's
               Services hereunder shall be terminated by the Company during the
               Term of Employment, then the Company shall make arrangements to
               include Executive in Company's benefit plans through December 17,
               1998.

               As used herein, a "Non-Salary Event" shall mean termination for
               "Cause" (as defined in Paragraph 5(a)(iii)), death or "Total and
               Permanent Disability" (as defined in Paragraph 6).

           ii. For Cause. The Company may terminate the Executive's employment 
               for "Cause," as defined in Paragraph 5(a)(iii). In such event,
               all payments of compensation under this Agreement shall cease 
               immediately upon termination and the Executive thereafter shall
               be entitled to only that compensation described in Paragraph 3
               hereof, or through the date Executive is terminated for Cause.

          iii. Definition of Cause. The term "Cause" as used herein, means a 
               termination resulting from:

               A. the continuing and material failure by the Executive to 
                  fulfill his obligations under this Agreement or willful
                  misconduct or gross neglect in the performance of such duties,
                  in either such instances so as to cause material harm to the
                  Company, all of such facts to be determined in good faith by
                  the Board of Directors of the Company;

                                       3

<PAGE>
 
          B. the Executive's committing fraud, misappropriation or embezzlement
             in the performance of his duties as an employee of the Company; or

          C. the Executive's commission of any felony for which he is convicted
             and which, as determined in good faith by the Board of Directors of
             the Company, constitutes a crime involving moral turpitude.

  b. Termination by Executive. If the Executive voluntarily resigns or otherwise
     terminates his employment with the Company, Executive shall be entitled to
     receive only such Compensation as he has earned up to and including the
     date of his termination and shall not be entitled to receive any additional
     amounts otherwise payable under the terms of this Agreement.

  c. Voluntary Termination Subsequent to Change of Control. If a "Change of
     Control" (as hereinafter defined) of the Company shall occur at any time on
     or after October 1, 1994, and the Executive shall elect to terminate his
     employment hereunder for "Good Reason" (as hereinafter defined) within the
     two-year period commencing on the date of the Change of Control, then the
     Executive shall be entitled to receive, and the Company shall be obligated
     to pay, the salary then being paid to him for the remaining Term of
     Employment as if there had been no termination and no automatic extension
     of the Term of Employment occurring after termination. An election by the
     Executive to terminate his employment under this Paragraph 5.c shall not be
     a breach of this Agreement. If a Change of Control occurs and the Executive
     does not terminate his employment for Good Reason within the two-year
     period commencing on the date of the Change of Control, then the provisions
     of Paragraph 5.a shall be applicable.

     i. A "Change of Control" shall be deemed to have occurred if any "Person,"
        including a "group" as determined in accordance with Section 13(d)(3)
        of the Securities Exchange Act of 1934, becomes the beneficial owner,
        directly or indirectly, of securities of the Company representing 30%
        or more of the combined voting power of the then outstanding securities
        of the Company.

    ii. A termination of employment is for "Good Reason" if it in any way 
        follows or results from:

         A. the assignment to the Executive of any duties materially 
            inconsistent with the Executives' duties immediately prior to the
            Change of Control or a substantial change in the Executive's
            reporting responsibilities as in effect immediately prior to the
            Change of Control, without the Executive's express written consent;
            or any removal of the Executive from or any failure to re-elect the
            Executive

                                       4

<PAGE>
 
               to the positions described in paragraph 1 hereof, except in
               connection with promotions to higher office;

            B. a reduction in the Executive's base salary from that in effect 
               immediately prior to the Change of Control;

            C. the failure of the Company substantially to maintain and to 
               continue the Executive's relative level of participation in the
               same or substantially comparable benefit plans as provided
               immediately prior to the Change of Control;

            D. The Company's requiring the Executive to be based anywhere 
               other than in or within 35 miles of the Executive's principal
               place of employment at the time of the Change in Control, except
               for required travel on the Company's business to an extent
               substantially consistent with the Executive's prior business
               travel obligations or, in the event the Executive consents to
               relocation, the failure of the Company to pay (or reimburse the
               Executive for) all reasonable moving expenses incurred by the
               Executive relating to a change in the Executive's principal
               residence in connection with such relocation, and to indemnify
               the Executive against any loss realized in the sale of the
               Executive's principal residence in connection with any such
               change of residence;

            E. the failure of the Company to provide the Executive with a 
               reasonable number of paid vacation days at least equal to the
               number of paid vacation days to which the Executive was entitled
               immediately prior to the Change of Control; or

            F. the failure of the Company to obtain the assumption of this 
               Agreement by any successor as contemplated by Paragraph 12 below.

  d. Death or Disability. If the Executive dies during his Term of Employment, 
     his base salary shall cease as of the end of the month in which his death
     occurs. If the Executive incurs a Total and Permanent Disability during
     this Term of Employment, his base salary shall cease as of the end of the
     month in which such event occurs; provided, however, that nothing in this
     Agreement shall preclude the Executive from participating in any long-term
     disability plan maintained by the Company for which he otherwise is
     eligible.

  e. Notice of Termination. Any termination by the Company or the Executive 
     shall be communicated by written notice of termination to the other party
     hereto except for automatic termination as a result of events described in
     5(a)(i), (b) and (c).

                                       5

<PAGE>
 
   f. Section 280G Limitations. Notwithstanding any provisions of this Agreement
      to the contrary, if, in the opinion of the Board of Directors of the
      Company, payments under this Agreement are to be made under conditions
      which may give rise to a liability under (S) 4999 or (S) 280G of the
      Internal Revenue Code, as amended, the aggregate present value of all
      parachute payments payable to or for the benefit of Executive, whether
      payable pursuant to this Agreement or otherwise, shall be limited to three
      (3) times the Executive's base amount, less one dollar ($1) in order that
      the limitations of (S) 280G not be exceeded. For purpose of this Paragraph
      5(e), the terms "parachute payment", "base amount" and "present value"
      shall have the meanings assigned thereto under (S) 280G of the Code. It is
      the intention of this Paragraph to avoid excise taxes on the Executive
      under (S) 4999 of the Code or the disallowance of a deduction to the
      Company pursuant to (S) 280G of the Code.

6. Disability. For purposes hereof, "Total and Permanent Disability" means
   inability to perform the Services required hereunder due to physical or
   mental disability which continues for one hundred eighty (180) consecutive
   days or more, or for an aggregate of one hundred eighty (180) days in any
   period of twelve (12) months. Evidence of such disability shall be certified
   by a physician acceptable to both the Company and the Executive.

7. Reimbursement of Expenses. During the Executive's Term of Employment with the
   Company, the Company shall pay or reimburse the Executive for all reasonable
   travel, entertainment or other reasonable expenses paid or incurred by the
   Executive in performing his obligations hereunder. 

8. Assistance with Litigation. While employed with the Company, while receiving
   any compensation under this Agreement, and for a period of one (1) year after
   the last date for which the Executive shall receive any compensation under
   this Agreement (or the last date for which compensation would have been paid
   absent the payment of a lump sum), the Executive shall furnish such
   information and proper assistance as may be reasonably necessary in
   connection with any litigation in which the Company is, has been or may
   become involved. The Company agrees to reimburse Executive for all expenses
   reasonably incurred in furnishing such assistance. If a breach of the
   provisions of this Paragraph occurs after the Executive has been terminated
   for any reason, the Company shall be entitled to cease payment under the
   terms of this Agreement and pursue any legal remedy available to it. 

9. Source of Payment. All payments provided in this Agreement shall, unless the
   plan or program pursuant to which they are made provides otherwise or unless
   the Company establishes a non-qualified trust, be paid in cash from the
   general funds of the Company. The Executive shall have no right, title or
   interest whatsoever in or to any investment which the Company may make to aid
   the Company in meeting its obligations hereunder. Nothing contained in this
   Agreement, and no action taken pursuant to this provision, shall create or be
   construed to create a trust of any kind or a fiduciary relationship between
   the Company

                                       6

<PAGE>
 
    and the Executive or any other person. To the 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.

10. Income Tax Withholding. The Company may withhold from any benefits payable
    under this Agreement all federal, state, city or other taxes that shall be
    required pursuant to any law or governmental regulation or ruling.

11. Effect of Prior Agreement. This Agreement contains the entire understanding
    between the parties hereto and supersedes any prior employment agreement
    between the Executive and the Company, except that this Agreement shall not
    affect or operate to reduce any benefit or compensation inuring to the
    Employee of a kind elsewhere provided and not expressly provided in this
    Agreement. Executive agrees to release, protect, defend, indemnify and hold
    harmless Company, its officers, directors, insurers, employees and
    representatives, from and against any and all claims, demands and causes of
    action, including reasonable attorneys' fees, arising in connection with any
    previous employment contract between the Executive and the Company in favor
    of Executive or his estate representatives, independent administrators or
    survivors.

12. Consolidation, Merger or Sale of Assets. Nothing in this Agreement shall
    preclude the Company from consolidating or merging into or with, or from
    transferring all or substantially all of its assets to, another corporation
    which assumes this Agreement and all obligations and undertakings of the
    Company hereunder; provided, that no such action shall diminish the
    Executive's rights hereunder. Upon such consolidation, merger, or transfer
    of assets, or any assumption of the Company, the term the "Company" as used
    herein, shall mean such other corporation.

13. General Provisions.

    a. Assignability; Attachment and Effect. Neither this Agreement nor any 
       right or interest hereunder shall be assignable by the Executive, his
       beneficiaries or legal representatives without prior written consent of
       the Company; provided, however, that this shall not preclude (i) the
       Executive from designating a beneficiary to receive any benefit payable
       hereunder or upon his death, or (ii) the executors, administrators or
       legal representatives of the Executive or his estate from assigning any
       rights hereunder to the person or persons entitled thereto. Except as
       required by law, no right to receive payments under this Agreement shall
       be subject to anticipation, commutation, alienation, assignment,
       encumbrance, charge, pledge, hypothecation, execution, attachment, levy
       or similar process or assignment by operation of law, and any attempt,
       voluntary or involuntary, to effect such action shall be null, void and
       of no effect. This Agreement shall be binding upon and inure to the
       benefit of the Company and its successors and assigns.

                                       7

<PAGE>
 
  b. Waiver, Severability and Amendment. This Agreement may not be modified or
     amended except by an instrument in writing signed by the parties hereto. No
     term or condition of this Agreement shall be deemed to have been waived,
     nor shall there be an estoppel against the enforcement of any provision of
     this Agreement, except by written instrument of the party charged with such
     waiver or estoppel. No such written waiver shall be deemed a continuing
     waiver unless specifically stated therein, and each such waiver shall
     operate only as to the specific term or condition waived and shall not
     constitute a waiver of such term or condition for the future or as to any
     act other than that specifically waived. If, for any reason, any provision
     of this Agreement is held invalid, such invalidity shall not affect any
     other provision of this Agreement not so held invalid, and each such other
     provision shall to the full extent consistent with law continue in full
     force and effect. If any provision of this Agreement shall be held invalid
     in part, such invalidity shall in no way affect the rest of such provision,
     together with all provisions of this Agreement, shall to the full extent
     consistent with law continue in full force and effect. If this Agreement or
     any portion thereof conflicts with any law or regulation governing the
     activities of the Company, the Agreement or appropriate portion thereof, as
     the case may be, shall be deemed invalid and of no force or effect.

  c. Headings; Governing Law. The headings of paragraphs herein are included
     solely for convenience and reference and shall not control the meaning or
     interpretation of any of the provisions hereof. This Agreement has been
     executed and delivered in the State of Texas; its validity, interpretation,
     performance and enforcement shall be governed by the laws of such State.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and the
Executive has signed this Agreement, all effective October 1, 1994.

                                    ZAPATA CORPORATION


  
                                    By: /s/ Joseph L. von Rosenberg III
                                        ---------------------------------
                                        Joseph L. von Rosenberg III
                                        Vice President, General Counsel
                                        and Secretary



                                    /s/ Lamar C. McIntyre
                                    --------------------------------------
                                    Lamar C. McIntyre

                                       8



<PAGE>

                                                                   EXHIBIT 10(W)

                              CONSULTING AGREEMENT

This Consulting Agreement (this "Agreement") is entered into as of July 1, 1994,
by and between ZAPATA CORPORATION, a Delaware corporation (the "Company") having
its principal place of business at One Riverway, Houston, Texas 77056, and
THOMAS H. BOWERSOX, an individual, having his principal residence at 7510 Pine
Wind Ct., Humble, Texas 77346 ("Consultant"). In consideration of Company's
agreeing to enter into this Agreement, Consultant and Company agree that the
Employment Agreement made and entered into as of the 15th day of March, 1991 by
and between the Company and Consultant shall terminate effective July 1, 1994.

The parties hereto further agree as follows:

1. ENGAGEMENT. Company hereby engages Consultant and Consultant hereby agrees to
   hold himself available to render, at the request of Company, litigation
   consulting services for Company and its affiliates and subsidiaries upon the
   terms and conditions hereinafter set forth.

2. TERM. The term of this Agreement shall begin as of July 1, 1994, and shall
   terminate on June 30, 1997. Company's obligations to make all payments due
   under this Agreement, and its obligation to provide benefits as described in
   Section 3 are unconditional
 and must be met, even in the event of the death,
   disability or other incapacity of Consultant.

3. COMPENSATION. As compensation for the services rendered by Consultant under
   this Agreement, Company shall pay Consultant an annual fee of One Hundred
   Eighty-Five Thousand Four Hundred and No/100 Dollars ($ 185,400.00). Such
   annual payments shall be paid in semi-monthly installments, beginning on July
   15, 1994, less such taxes as Company is required by law to deduct. Consultant
   shall be entitled to participate in the Company's group health and dental
   insurance plans pursuant to the terms and conditions of those plans, as they
   presently exist or as they may be revised during the term of this Agreement;
   provided, however, that Consultant shall pay and Company shall deduct from
   payments made to Consultant such amounts as employee participants in the
   plans pay for such plans. Notwithstanding any other provision contained in
   this Agreement, Consultant's rights in and to Company other benefit plans in
   which Consultant already is a vested participant shall not be adversely
   affected by this Agreement.

4. DUTIES. Consultant shall hold himself available to render, and shall render
   at the request of Company from time to time, litigation consulting services
   for the Company through its General Counsel. Consultant shall render such
   services conscientiously and shall devote his best efforts and abilities
   thereto at such times during the term hereof and in such manner as Company
   and Consultant shall mutually agree, it being acknowledged that Consultant's
   services shall be non-exclusive and performed at such places and at such
   times as are reasonably convenient to Consultant.

                                       1

<PAGE>
 
5.  EXPENSES. Consultant shall be reimbursed by Company for all reasonable
    business expenses that are incurred by Consultant during the performance of
    his services hereunder. Company's obligation to reimburse Consultant
    pursuant to this subparagraph shall be subject to the presentation to
    Company by Consultant of an itemized account of such expenditures, together
    with supporting vouchers, in accordance with Company's policies as in effect
    from time to time.

6.  INDEPENDENT CONTRACTOR. It is expressly agreed that Consultant is acting as
    an independent contractor in performing his services hereunder, and not as
    an employee or agent of Company.

7.  DISCLOSURE OF INFORMATION. Consultant shall not disclose nor appropriate for
    his own use, or for the use of any third party, at any time during or
    subsequent to the term of this Agreement, any secret or confidential
    information of Company or any of Company's affiliates or subsidiaries of
    which Consultant has been or hereafter becomes informed, whether or not
    developed by Consultant, including, but not limited to, information
    pertaining to customer lists, services, methods, processes, prices, profits,
    contract terms or operating procedures, except as required in connection
    with Consultant's performance of this Agreement, or as required by a
    governmental authority.

8.  ASSIGNMENT. This Agreement is a personal one, being entered into in reliance
    upon and in consideration of the singular personal skills and qualifications
    of Consultant. Consultant shall therefore not voluntarily or by operation of
    law assign or otherwise transfer the obligations incurred on his part
    without the prior written consent of Company.

9.  MODIFICATION OF AGREEMENT. This Agreement may be modified by the parties
    hereto only by a written supplemental agreement executed by both parties.

10. Notice. Any notice required or permitted to be given hereunder shall be
    sufficient if in writing, and if sent by registered or certified mail,
    postage prepaid, addressed as follows:

          If to Company:

              Zapata Corporation
              One Riverway, Suite 2200
              Houston, Texas 77056
              Attention: Chairman and Chief Executive Officer

          If to Consultant:

              Mr. Thomas H. Bowersox
              7510 Pine Wind Ct.

                                       2

<PAGE>
 
               Humble, Texas 77346

    or to such other addresses as the parties hereto may specify in writing from
    time to time.

11. WAIVER OF BREACH. The waiver by either party of any breach of any provision
    of this Agreement shall not operate or be construed as a waiver of any
    subsequent breach.

12. TITLES. The titles of the sections herein are for convenience of reference
    only and are not to be considered in construing this Agreement.

13. GOVERNING LAW. This Agreement has been executed and delivered in the State
    of Texas, and its interpretation, validity and performance shall be
    construed and enforced in accordance with the laws of the State of Texas.

14. ENTIRE AGREEMENT. This Agreement contains the entire contract of the parties
    with respect to the subject matter hereof and supersedes all agreements and
    understandings between the parties concerning the subject matter hereof.

EXECUTED as of the date first above written.



                                     ZAPATA CORPORATION


                                         /s/ R. C. LASSITER
                                     By: ------------------------------------
                                         R. C. Lassiter
                                         Chairman and Chief Executive Officer

                                    

                                         THOMAS H. BOWERSOX

                                         /s/ THOMAS H. BOWERSOX
                                         ------------------------------------

                                       3



<PAGE>
 
                                                            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%
    Energy Industries Financial Services, Inc.  Delaware                      100%
Pesquera Zapata, S.A. de C.V.                   Mexico                         49%
Tanker Leasing Corporation                      Delaware                      100%
Williams-McWilliams Co., Inc.                   Delaware                      100%
Zapata Automotive Leasing Corp.                 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 Financial Services, Inc.                 Delaware                      100%
Zapata Fishing, Inc.                            Delaware                      100%
  *Nicole K. Fishing, Inc.                      Puerto Rico                    19%
  *Pacifico Fishing, Ltd.                       Cayman Islands                 19%
Zapata Minerals, Inc.                           Delaware                      100%
Zapata Ocean Resources, Inc.                    Puerto Rico                   100%
Zapata Off-Shore Company                        Delaware                      100%
   Zapata Drilling, Inc.                        Delaware                      100%
   Zapata North Sea, Inc.                       Panama                        100%
     *On-Shore Services (Nigeria) Limited       Nigeria                       100%
Zapata Overseas
 Capital Corporation             Delaware                      100%
   Zapata Canada Inc.                           British Columbia              100%
Zapata Protein, Inc.                            Delaware                      100%
   Amigo Feeds, Inc.                            Bermuda                        50%
   Venture Milling Company                      Delaware                       60%
   Zapata Protein (USA), Inc.                   Virginia                      100%
      Zapata Haynie International, Inc.         Virginia                      100%
Zapata Rentals, Inc.                            Delaware                      100%
Zapata Services Corporation                     Delaware                      100%
Zapata Tankships, Inc.                          Delaware                      100%
   Zapata Ocean Carriers, Inc.                  Delaware                      100%
   Zapata Sea Services, Inc.                    Delaware                      100%
 
</TABLE>


*Companies inactive.



                                                       December 22, 1994



<PAGE>
 
                                                                   EXHIBIT 23(A)

              [LETTERHEAD OF HUDDLESTON & CO., INC. APPEARS HERE]
 
                               December 27, 1994
 
Zapata Exploration Company
P.O. Box 4250
Houston, Texas 77210
 
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, and 1994. 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, 1994.
 
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 Forms
S-3 and S-8's covering certain of the shares of the Company's common stock
subject to stock options granted to employees of the Company and covering
interests in a pension plan made available to the employees of one of the
Company's subsidiaries. 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:M. Drayton Prator, P.E.
                                             ----------------------------------
                                             M. Drayton Prator, P.E.
                                             Vice-President
MDP:ek




<PAGE>
 
                                                                   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 report dated December 16, 1994, on our audit 
of the consolidated financial statements and financial statement schedules of 
Zapata Corporation as of September 30, 1994 and for the year then ended, which 
report is included in this Annual Report on Form 10-K.



                                         COOPERS & LYBRAND L.L.P.

Houston, Texas
December 27, 1994
     





<PAGE>
 
                                                                   EXHIBIT 23(c)

                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation by 
reference of our report dated December 17, 1993, included in this Form 10-K, 
into the Company's previously filed Registration Statement File Nos. 33-19085, 
33-45251 and 33-68034.


ARTHUR ANDERSEN LLP

Houston, Texas
December 28, 1994






<PAGE>
 
                                                                      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, 1994 (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 Lamar C. McIntyre and Joseph L. von Rosenberg III, 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 1st day of December, 1994.


                                         [SIGNATURE OF KRISTIAN SIEM 
                                           APPEARS HERE]
                                         ------------------------
                                         KRISTIAN SIEM

<PAGE>
 
                               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, 1994 (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
Lamar C. McIntyre and Joseph L. von Rosenberg III, 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 1st day of December, 1994.

                                         [SIGNATURE OF R.C. LASSITER
                                           APPEARS HERE]
                                         -----------------------
                                         R. C. LASSITER

<PAGE>
 
                               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, 1994 (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
Lamar C. McIntyre and Joseph L. von Rosenberg III, 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 1st day of December, 1994.

                                         [SIGNATURE OF PETER M. HOLT
                                           APPEARS HERE]
                                         -----------------------
                                         PETER M. HOLT

<PAGE>
 
                               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, 1994 (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
Lamar C. McIntyre and Joseph L. von Rosenberg III, 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 1st day of December, 1994.

                                         [SIGNATURE OF AVRAM A. GLAZER
                                           APPEARS HERE]
                                         -----------------------
                                         AVRAM A. GLAZER

<PAGE>
 
                               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, 1994 (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
Lamar C. McIntyre and Joseph L. von Rosenberg III, 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 1st day of December, 1994.

                                         [SIGNATURE OF MALCOLM I. GLAZER
                                           APPEARS HERE]
                                         -----------------------
                                         MALCOLM I. GLAZER



<TABLE> <S> <C>


<PAGE>
 
<ARTICLE> 5
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          SEP-30-1994
<PERIOD-START>                             OCT-01-1993
<PERIOD-END>                               SEP-30-1994
<CASH>                                          15,165
<SECURITIES>                                         0
<RECEIVABLES>                                   27,591
<ALLOWANCES>                                         0
<INVENTORY>                                     18,043
<CURRENT-ASSETS>                               117,848
<PP&E>                                         157,335
<DEPRECIATION>                                  70,252
<TOTAL-ASSETS>                                 258,874
<CURRENT-LIABILITIES>                           29,736
<BONDS>                                         59,860
<COMMON>                                         7,930
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                      2,258
<OTHER-SE>                                     144,354
<TOTAL-LIABILITY-AND-EQUITY>                   258,874
<SALES>                                        241,212
<TOTAL-REVENUES>                               241,212
<CGS>                                          212,450
<TOTAL-COSTS>                                  271,357
<OTHER-EXPENSES>                               (35,094)
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                               6,138
<INCOME-PRETAX>                                 (1,189)
<INCOME-TAX>                                      (494)
<INCOME-CONTINUING>                               (695)
<DISCONTINUED>                                  (7,624)
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    (8,319)
<EPS-PRIMARY>                                     (.28)
<EPS-DILUTED>                                     (.28)
        

</TABLE>




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