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                                     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
 
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