<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
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
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.
 
                                       27