Harbinger Group Inc.
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SEC Filings

HRG GROUP, INC. filed this Form 10-K on 03/28/2002
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     - Risks associated with the personal holding company penalty tax. Section
       541 of the Internal Revenue Code of 1986, as amended (the "IRC"),
       subjects a corporation which is a "personal holding company," as defined
       in the IRC, to a 39.6% penalty tax on undistributed personal holding
       company income in addition to the corporation's normal income tax.
       Personal holding company income is comprised primarily of passive
       investment income plus, under certain circumstances, personal service
       income. Zapata could become subject to the penalty tax if (i) 60% or more
       of its adjusted ordinary gross income is personal holding company income
       and (ii) 50% or more of its outstanding common stock is owned, directly
       or indirectly, by five or fewer individuals at any time during the last
       half of the taxable year. As of the date of this report, the Company
       believes that five or fewer of its stockholders hold 50% or more of its
       outstanding common stock for purposes of IRC Section 541. Accordingly,
       the Company could become subject to this tax on its income tax return for
       the tax year ended September 30, 2002 to the extent it has undistributed
       personal holding company income for such year unless the ownership
       interest of its top five stockholders falls below 50% before April 1,
       2002. As of the date of this report, management believes that it is
       unlikely that the ownership interest of its top five stockholders will
       fall below this threshold before April 1, 2002. There can be no
       assurance, however, that Zapata can avoid this tax which may impact its
       cash flows, results of operations and financial condition.
     - Risk that our officers and directors exert substantial influence over
       Zapata. Members of our Board of Directors and our executive officers
       together with members of their families and entities that may be deemed
       affiliates of or related to such persons or entities, beneficially own
       approximately 47% of our outstanding common shares. Accordingly, these
       stockholders may be able to elect all members of our Board of Directors
       and determine the outcome of certain corporate actions requiring
       stockholder approval, such as any future issuances of common stock or
       other securities, merger and acquisition decisions, declaration of
       dividends, and the election of directors. This level of ownership may
       have a significant effect in delaying, deferring, or preventing a change
       in control of Zapata and may adversely affect the voting and other rights
       of other holders of our common shares.
     - Risks related to the costs of defending litigation and the risk of
       unanticipated material adverse outcomes in such litigation or any other
       unfavorable outcomes or settlements. There can be no assurance that
       Zapata will prevail in any pending litigation and to the extent that the
       Company sustains losses growing out of any pending litigation which are
       not presently reserved or otherwise provided for or insured against, its
       business, results of operation and financial condition could be adversely
     - Risks related to future changes in accounting and reporting practices of
       Zapata and any equity investments which it may make could adversely
       affect Zapata's results of operations, cash flows and financial
     - Risks associated with pursuing potential acquisitions. These acquisitions
       could be material in size and scope and since the Company has not yet
       identified any assets, property or business that it may acquire or
       develop potential investors in the Company will have virtually no
       substantive information about any such new business upon which to base a
       decision whether to invest in the Company. In any event depending upon
       the size and structure of the acquisitions, stockholders may not have the
       opportunity to vote on the transaction, or access to any information
       about any new business until such time as a transaction is completed and
       the Company files a report with the SEC disclosing the nature of such
       transaction and/or business. While the Company continues to search for
       appropriate acquisition opportunities, there is no assurance that it will
       be successful in identifying suitable acquisition opportunities. If the
       Company does identify any potential acquisition opportunity, there is no
       assurance that the acquisition will be consummated, and if the
       acquisition does occur, there is no assurance that it will be successful
       in enhancing the Company's business or will increase the Company's
       earnings. The Company faces significant competition for acquisition
       opportunities, which may inhibit its ability to complete suitable
       transactions or increase the cost that must be paid. Future acquisitions
       could also divert substantial management time, result in short term
       reductions in earnings or special transactions or other charges and may
       be difficult to integrate with existing operations or assets. The may, in
       the future, issue additional shares of common stock or other securities
       in connection with one or more acquisitions, which may dilute our

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