<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary proxy statement
[X] Definitive proxy statement
[_] Definitive additional materials
[_] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
ZAPATA CORPORATION
(Name of Registrant as Specified in its Charter)
ZAPATA CORPORATION
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
<TABLE>
<C> <S> <C>
1) Title of each class of securities to which transaction applies:..... N/A
2) Aggregate number of securities to which transaction applies:........ N/A
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11*:...................... N/A
4) Proposed maximum aggregate value of transaction:.................... N/A
5) Total fee paid:..................................................... N/A
</TABLE>
- --------
*Set forth the amount on which the filing fee is calculated and state how it
was determined.
[X] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form of Schedule and the date of its filing.
<TABLE>
<C> <S> <C>
1) Amount previously paid:.............................. $26,000
2) Form, Schedule or Registration Statement No.:........ Schedule 14A
3) Filing party:........................................ Zapata Corporation
4) Date filed:.......................................... September 29, 1995
</TABLE>
<PAGE>
(LOGO OF ZAPATA CORPORATION APPEARS HERE)
November 13, 1995
To Our Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders of
Zapata Corporation (the "Company") to be held on December 15, 1995, at 10:00
a.m., local time, at the Omni Hotel, 4 Riverway, Houston, Texas, 77056.
At the Special Meeting, stockholders will be asked to consider and vote upon
the approval of the sale of the Company's natural gas compression business
conducted by its wholly owned subsidiaries, Energy Industries, Inc. and Zapata
Energy Industries, L.P., to Weatherford Enterra, Inc., all as more fully
described in the accompanying Proxy Statement.
A description of the proposed sale transaction and other important
information is included in the accompanying Proxy Statement.
The proposed sale transaction is an important component of the Company's
strategic plan to exit the energy business and transform the Company into a
food services company. THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR THE SALE PROPOSAL.
Whether or not you plan to attend the Special Meeting, we ask that you
indicate the manner in which you wish your shares to be voted and sign and
return your proxy as promptly as possible in the enclosed envelope so that your
vote may be recorded. You may vote your shares in person if you attend the
Special Meeting, even if you send in your proxy.
I appreciate your continued interest in the Company.
Sincerely,
/s/ Avram A. Glazer
Avram A. Glazer
President and Chief Executive
Officer
<PAGE>
ZAPATA CORPORATION
1717 St. James Place, Suite 550
Houston, Texas 77056
(713) 941-6100
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 15, 1995
To the Stockholders of
Zapata Corporation:
Notice is hereby given that a special meeting (the "Special Meeting") of
stockholders of Zapata Corporation will be held at the Omni Hotel, 4 Riverway,
Houston, Texas, 77056 on December 15, 1995, at 10:00 a.m. local time, for the
following purposes:
1. To consider and vote upon the sale of the Company's natural gas
compression business conducted by its wholly owned subsidiaries, Energy
Industries, Inc. and Zapata Energy Industries, L.P. (the "Energy Industries
Sale Proposal"), to Weatherford Enterra, Inc., all as more fully described
in the accompanying Proxy Statement.
2. To transact such other business incidental to the conduct of the
Special Meeting or any adjournment(s) or postponement(s) thereof.
The Board of Directors has fixed the close of business on November 3, 1995 as
the record date for the determination of stockholders entitled to receive
notice of, and to vote at, the Special Meeting and any adjournment(s) or
postponement(s) thereof, and only stockholders of record at said time and on
said date are entitled to notice of, and to vote at, the Special Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE ENERGY
INDUSTRIES SALE PROPOSAL.
Stockholders are cordially invited to attend the Special Meeting in person.
Those who will not attend and who wish their shares voted are requested to
sign, date and mail promptly the enclosed proxy, for which a return envelope is
provided.
By Order of the Board of Directors,
/s/ JOSEPH L. VON ROSENBERG, III
JOSEPH L. VON ROSENBERG, III
Vice President, General Counsel
and Corporate Secretary
Houston, Texas
N
ovember 13, 1995
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING, YOU ARE URGED
TO PROMPTLY COMPLETE, SIGN AND MAIL THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION................................................................ 1
General................................................................... 1
Purpose Of The Special Meeting............................................ 1
Record Date, Voting Securities And Quorum................................. 1
Vote Required............................................................. 2
No Appraisal Rights....................................................... 2
Proxy Information......................................................... 2
THE ENERGY INDUSTRIES SALE PROPOSAL......................................... 3
Background of the Energy Industries Sale Proposal......................... 3
Fairness Opinion of Financial Advisor..................................... 6
Recommendation of the Company's Board of Directors........................ 9
Terms of the Energy Industries Sale....................................... 11
Voting Agreement of Major Stockholder..................................... 13
Stockholder Approval...................................................... 13
No Rights of Appraisal.................................................... 13
Resolutions Proposed For Adoption By Stockholders......................... 14
Fees And Expenses......................................................... 14
Certain Federal Income Tax Consequences................................... 14
Financial Information..................................................... 14
Accounting Treatment...................................................... 15
Regulatory Approvals...................................................... 15
Relation To The Proposed Sale of Cimarron................................. 15
Certain Information Concerning Weatherford Enterra........................ 15
Business of Energy Industries............................................. 15
SELECTED FINANCIAL DATA..................................................... 19
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS....................... 20
ENERGY INDUSTRIES UNAUDITED FINANCIAL STATEMENTS............................ 26
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............. 37
MARKET PRICES OF COMMON STOCK............................................... 38
INDEPENDENT ACCOUNTANTS..................................................... 38
OTHER MATTERS............................................................... 38
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. 38
</TABLE>
APPENDICES
Appendix A--Purchase Agreement
Appendix B--Opinion of Schroder Wertheim & Co.
Appendix C--Annual Report on Form 10-K, as amended, of the Company for the
fiscal year ended September 30, 1994
Appendix D--Proxy Statement of the Company dated June 26, 1995
Appendix E--Quarterly Report on Form 10-Q, as amended, of the Company for the
quarter ended June 30, 1995
Appendix F--Form 8-K of the Company dated November 13, 1995
i
<PAGE>
ZAPATA CORPORATION
1717 ST. JAMES PLACE, SUITE 550
HOUSTON, TEXAS 77056
(713) 941-6100
-----------------
PROXY STATEMENT
-----------------
INTRODUCTION
GENERAL
This Proxy Statement, the accompanying Notice of Special Meeting of
Stockholders and proxy card and the other materials enclosed herewith are
furnished by Zapata Corporation, a Delaware corporation (the "Company"), in
connection with the solicitation of proxies by the Company's Board of Directors
(the "Board of Directors") for use at the Special Meeting of Stockholders or
any adjournments or postponements thereof (the "Special Meeting"), to be held
at the time and place set forth in the accompanying Notice of Special Meeting.
This Proxy Statement, the accompanying Notice of Special Meeting of
Stockholders, the enclosed form of proxy and the other materials enclosed
herewith are first being mailed to stockholders of the Company on or about
November 13, 1995.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, stockholders will be asked to consider and vote to
approve the sale (the "Energy Industries Sale") of the Company's natural gas
compression business which is currently conducted by two wholly owned
subsidiaries of the Company, Energy Industries, Inc. and Zapata Energy
Industries, L.P. (collectively, "Energy Industries") to Weatherford Enterra,
Inc., and its wholly owned subsidiary, Enterra Compression Company
(collectively, "Weatherford Enterra"). The Energy Industries Sale will be
consummated in accordance with the terms and conditions of an Agreement dated
as of September 20, 1995 (the "Purchase Agreement") by and among the Company,
Energy Industries, Enterra Compression Company and Enterra Corporation. (On
October 5, 1995, Enterra Corporation merged with and into Weatherford
International Incorporated and that company changed its name to Weatherford
Enterra, Inc. Accordingly, all references in this Proxy Statement to
Weatherford Enterra prior to October 5, 1995 refer to Enterra Corporation and
its wholly owned subsidiary, Enterra Compression Company.) The proposal to sell
the Company's natural gas compression business is referred to herein as the
"Energy Industries Sale Proposal". Pursuant to the Purchase Agreement, subject
to stockholder approval, Weatherford Enterra will purchase from the Company all
of the assets of Energy Industries, for a purchase price (the "Purchase Price")
of $130 million, and assume certain liabilities of Energy Industries, subject
to certain adjustments based on the net asset value of Energy Industries on the
closing date, as described in "The Energy Industries Sale Proposal--Terms of
the Energy Industries Sale--Purchase Price".
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE ENERGY
INDUSTRIES SALE PROPOSAL.
At the date of this Proxy Statement, the Company does not know of any
business to be presented at the Special Meeting other than those matters that
are set forth in the Notice accompanying this Proxy Statement.
RECORD DATE, VOTING SECURITIES AND QUORUM
The Board of Directors has fixed the close of business on November 3, 1995
(the "Record Date") as the record date for the determination of holders of
outstanding shares of the Company's outstanding shares of common stock, $.25
par value ("Common Stock"), and the Company's outstanding shares of $2
Noncumulative Convertible Preference Stock, $1.00 par value ("$2 Preference
Stock"), entitled to notice of,
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and to vote at, the Special Meeting and any adjournment or postponement
thereof. Only holders of record of Common Stock and $2 Preference Stock at the
close of business on the Record Date will be entitled to vote at the Special
Meeting. On the Record Date, the Company had outstanding and entitled to vote
29,548,407 shares of Common Stock and 2,627 shares of $2 Preference Stock. Each
holder of Common Stock and $2 Preference Stock as of the Record Date will be
entitled to one vote, exercisable in person or by proxy, for each share of
Common Stock or share of $2 Preference Stock held of record by such holder on
the Record Date. Holders of $2 Preference Stock are entitled to vote together
with the holders of Common Stock as a single class on all matters to be voted
on by stockholders of the Company. The presence at the Special Meeting in
person or by proxy of the holders of a majority of the combined votes of the
outstanding shares of Common Stock and $2 Preference Stock entitled to vote,
voting together as a single class, is necessary to constitute a quorum.
VOTE REQUIRED
Under the Delaware General Corporation Law ("DGCL") and the Company's
Certificate of Incorporation, the approval of the Energy Industries Sale
Proposal requires the affirmative vote of a majority of the combined votes of
the outstanding shares of Common Stock and $2 Preference Stock entitled to
vote, voting together as a single class, which are present either in person or
by proxy at the Special Meeting at which a quorum is present.
Abstentions, broker non-votes (i.e., shares held by brokers or nominees as to
which instructions have not been received from the beneficial owners or persons
entitled to vote and for which the broker or nominee does not have
discretionary power to vote on a particular matter) and withheld votes are
counted for purposes of determining the presence or absence of a quorum for the
transaction of business. However, they are not counted for purposes of
determining whether the Energy Industries Sale Proposal has been approved and
will have the effect of votes against the Energy Industries Sale Proposal.
In connection with the Energy Industries Sale, The Malcolm I. Glazer Trust, a
stockholder of the Company which beneficially owns approximately 35.5% of the
Company's outstanding Common Stock, agreed in a letter dated September 20, 1995
(the "Glazer Letter") on behalf of itself, and any affiliates of such Trust or
Malcolm I. Glazer, the Chairman of the Board of the Company, that the Trust and
such affiliates will vote all shares of Common Stock owned by them in
accordance with the recommendation of the Board of Directors of the Company
with respect to the approval of the Energy Industries Sale Proposal by the
Company's stockholders. The Board of Directors has recommended that the
stockholders of the Company vote "FOR" the Energy Industries Sale Proposal. See
"The Energy Industries Sale Proposal--Voting Agreement with Major
Stockholder."
NO APPRAISAL RIGHTS
Stockholders are not entitled to appraisal rights under the DGCL with respect
to the Energy Industries Sale Proposal. See "The Energy Industries Sale
Proposal--No Rights of Appraisal."
PROXY INFORMATION
Proxies in the accompanying form are solicited on behalf of and at the
direction of the Board of Directors. All shares of Common Stock and $2
Preference Stock represented by properly executed proxies will be voted at the
Special Meeting in accordance with the direction indicated on the proxies
unless such proxies have previously been revoked. If authority to vote a proxy
has not been withheld and no direction is indicated, the shares will be voted
FOR approval of the Energy Industries Sale Proposal. THE BOARD OF DIRECTORS
RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ENERGY INDUSTRIES SALE PROPOSAL. See
"The Energy Industries Sale Proposal--Recommendation of the Company's Board of
Directors." If any other matters are properly presented at the Special Meeting
for action, including a question of adjourning the meeting from time to time,
the persons named in the proxies and acting thereunder will have discretion to
vote on such matters in accordance with their best judgment.
2
<PAGE>
A stockholder executing and returning a proxy has the power to revoke it at
any time before it is exercised. A stockholder who wishes to revoke a proxy can
do so by executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of the Company prior to the vote at the Special
Meeting, by giving written notice of revocation to the Secretary prior to the
vote at the Special Meeting or by appearing in person at the Special Meeting
and voting in person the shares to which the proxy relates. Any written notice
revoking a proxy should be sent to the Company, Attention: Joseph L. von
Rosenberg, III, Corporate Secretary. The Company's executive offices are
located at 1717 St. James Place, Suite 550, Houston, Texas 77056.
In addition to the use of the mail, proxies may be solicited by personal
interview and telephone, telegraph or telecopy by the directors, officers and
regular employees of the Company. Such persons will receive no additional
compensation for such services. Arrangements also will be made with certain
brokerage firms and certain other custodians, nominees and fiduciaries for the
forwarding of solicitation materials to the beneficial owners of Common Stock
and $2 Preference Stock held of record by such persons, and such brokers,
custodians, nominees and fiduciaries will be reimbursed by the Company for
reasonable out-of-pocket expenses incurred by them in connection therewith. The
Company has also engaged Georgeson & Company, Inc. ("Georgeson") to assist in
the solicitation of proxies and will pay Georgeson a fee of $7,500 for such
services. The Company will also reimburse Georgeson for out-of-pocket costs and
expenses incurred in connection with its services.
PROPOSAL NO. 1
THE ENERGY INDUSTRIES SALE PROPOSAL
BACKGROUND OF THE ENERGY INDUSTRIES SALE PROPOSAL
General. The Company is a Delaware corporation which was organized in 1954
and which historically has operated within the energy industry. The Company was
previously engaged in the operation of offshore drilling rigs, marine service
and supply vessels and oil and gas operations. All of these operations have
been divested in the last few years, with the exception of the Company's
remaining interest in a Bolivian oil and gas operation.
In fiscal 1993, the Company began to narrow the focus of its operations to
the natural gas services market. In connection with that strategy, the Company
acquired Cimarron Gas Holding Company ("Cimarron") in November 1992. Cimarron
is engaged in the business of gathering and processing natural gas and its
constituent products, as well as marketing and trading natural gas liquids. In
September 1993, Cimarron purchased additional gathering and processing assets
and expanded its operations through the acquisition of Stellar Energy
Corporation and three affiliated companies. In November 1993, the Company
acquired the natural gas compression business of Energy Industries. 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. See "--Business of Energy Industries".
In late 1994 and early 1995, the Board of Directors and senior management of
the Company began to develop a strategic plan for the Company which involves
repositioning the Company in the food packaging, food and food service
equipment and supply businesses (collectively, "food services") and exiting the
energy business in which the Company has historically operated. Specifically,
the strategic plan called for the divestiture of the Company's remaining energy
operations, Energy Industries, Cimarron and the Company's remaining domestic
oil and gas assets, and the acquisition of, or joint ventures with, selected
companies in the food services industry. In connection with the development of
such strategic plan, certain members of senior management and certain members
of the Board of Directors reviewed various publicly available
3
<PAGE>
materials regarding the food services industry, including information on
overall market size, susceptibility of the industry to consolidation, general
revenue and earnings history and trends and other relevant information. As a
result of such evaluations and informal exchanges of information, a consensus
developed among such senior management and Board members that the food services
industry might provide better opportunities to increase the earnings and
revenues of the Company as compared to the businesses in which the Company had
historically operated. The Company publicly announced its decision to exit the
energy business in April 1995. Certain members of senior management and certain
Board members continued to evaluate information of the food services industry
and the Board of Directors formally ratified the Company's strategic plan at a
May 31, 1995 Board meeting.
In March 1995, the Company executed an agreement to sell its marine protein
operations to an investor group. However, that agreement was terminated in
April 1995 due to the investor group's failure to obtain sufficient financing.
The Board of Directors has since decided to retain the Company's marine protein
operations in connection with the Company's focus on the food services
industry.
In April 1995, the Company engaged Schroder Wertheim & Co. Incorporated
("Schroder Wertheim"), an investment banking firm, as its financial advisor to
assist in the potential divestiture of Energy Industries and Cimarron. In
selecting Schroder Wertheim, the Board of Directors took into account Schroder
Wertheim's expertise, reputation and familiarity with the natural gas industry.
The Board of Directors had also engaged Schroder Wertheim in connection with
the Envirodyne transaction described below. Schroder Wertheim, as a customary
part of its investment banking business, is engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, private placements and valuations for estate,
corporate and other purposes. In connection with the Energy Industries
divestiture, Schroder Wertheim initiated contacts with a significant number of
prospective purchasers which are described below under "--The Energy Industries
Sale Proposal."
A meeting of the Company's Board of Directors was held on May 5, 1995 to
review and discuss the status of the sale of Energy Industries and Cimarron. At
that meeting, the Board ratified the engagement of Schroder Wertheim and
authorized the appropriate officers of the Company to negotiate terms and
conditions of sale with viable bidders for each of Energy Industries and
Cimarron, subject to formal approval by the Board of Directors. The authorized
officers were the Chairman of the Board, the President, the General Counsel and
the Chief Financial Officer of the Company. These officers were selected based
on their positions and history with the Company and their collective
operational, legal and financial expertise. Schroder Wertheim also was granted
authority to negotiate terms on behalf of the Company, and participated in
negotiations in consultation with the President, General Counsel and Chief
Financial Officer of the Company, subject to final approval by the Board of
Directors.
In June 1995, the Company sold a portion of its natural gas reserves in the
Gulf of Mexico. In August 1995, the Company sold its remaining domestic oil and
gas operations, including its interests in five offshore federal leases in the
Gulf of Mexico.
In August 1995, the Company purchased 31% of the common stock of Envirodyne
Industries, Inc. ("Envirodyne") for $18.8 million from Malcolm Glazer, Chairman
of the Board of the Company and, through his beneficial ownership of a trust, a
major stockholder of the Company. Mr. Glazer is also a director of Envirodyne.
Such shares represented all of Mr. Glazer's interest in Envirodyne. The Company
paid the purchase price by issuing a subordinated promissory note bearing
interest at the prime rate and maturing in August 1997. This transaction was
approved by an independent special committee composed of disinterested members
of the Company's Board of Directors, and Schroder Wertheim provided a fairness
opinion to the Board of Directors regarding the fairness, from a financial
point of view, of the transaction. Envirodyne is a major supplier of food
packaging products and food service supplies and Envirodyne is a leading
worldwide producer of cellulosic casings used in the preparation and packaging
of processed meat products and the world's second largest producer of heat
shrinkable plastic bags and specialty films for packaging and
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preserving fresh and processed meat products, poultry and cheeses. Envirodyne
is also a leading domestic producer of disposable plastic cutlery, drinking
straws, custom dining kits and related products. In addition, Envirodyne is a
leading domestic producer of thermo-formed and injection-molded plastic
containers and horticultural trays and inserts. The Company may continue to
evaluate the acquisition of additional shares of Envirodyne common stock or
proposing a merger with, or acquisition of, Envirodyne in the future, although
the Company currently has no plans or proposals to do so.
The Energy Industries Sale Proposal. In connection with the Energy Industries
Sale, Schroder Wertheim initiated contact with approximately 37 companies.
Those companies were selected on the basis of their potential strategic
interest in Energy Industries or their potential interest in adding natural gas
compression operations to their existing operations or energy investment
portfolios. As a result of such contacts, 21 of the prospective purchasers
signed confidentiality agreements and received confidential information
regarding Energy Industries. The information sent to the 21 prospective
purchasers included a confidential memorandum which provided a description of
Energy Industries' operations and a summary of its historical financial and
operating performance and management projections of future financial results.
In addition to the confidential memorandum, prospective purchasers received a
cover letter which set forth bidding procedures and which included a deadline
for submission of non-binding indications of interest to Schroder Wertheim.
Schroder Wertheim received six non-binding indications of interest ranging in
value from $87 million to $115 million. Five of such offers were for all cash
and one offer was for cash and securities. Of the six bidders, four were
invited to perform due diligence at Energy Industries' headquarters in Corpus
Christi, Texas where tours of the physical facilities were given by management
and a data room was set up to afford the invitees the ability to perform
detailed financial and operational due diligence. Such bidders were also
afforded access to Energy Industries' management during the course of their due
diligence investigations.
Prior to the established deadline for submission of binding acquisition
proposals, Weatherford Enterra approached Schroder Wertheim and expressed a
desire to make a pre-emptive bid for Energy Industries. The Weatherford Enterra
offer was for $130 million in cash and the assumption of certain current
liabilities of Energy Industries. Schroder Wertheim had been engaged in similar
discussions with other bidders but none of them expressed a desire to make a
bid which was comparable to the Weatherford Enterra offer. Because the
Weatherford Enterra proposal represented the highest offer in terms of total
value and form of consideration, possessed a high degree of certainty with
respect to the ultimate realization of the sales proceeds and contained fewer
conditions than the other indications of interest received which generally
contained financing and due diligence conditions, it was determined to be the
most attractive offer to the Company.
The Company entered into a letter agreement with Weatherford Enterra on June
29, 1995 (the "June 29 agreement") which set forth the purchase price of $130
million and certain additional material terms and conditions of the sale.
Subsequent to the execution of the June 29 agreement, a dispute arose between
the Company and Weatherford Enterra, principally regarding the issue of to what
extent the June 29 agreement provided that Weatherford Enterra would assume
certain liabilities of Energy Industries in connection with the sale.
Weatherford Enterra threatened to institute litigation against the Company,
through service of process on the Company of a complaint which Weatherford
Enterra had filed in a Texas state court, if the Company did not uphold what
Weatherford Enterra asserted to be terms of the June 29 agreement. However, as
a result of several subsequent meetings between representatives of the Company
and Weatherford Enterra, the parties resolved their dispute and agreed upon the
terms and conditions of the Energy Industries Sale which are set forth in the
Purchase Agreement. The Company believes that the terms and conditions in the
Purchase Agreement are no less favorable to the Company than the terms and
conditions in the June 29 agreement. In connection with the execution and
delivery of the Purchase Agreement, Weatherford Enterra and the Company also
executed and delivered a mutual release of any liability in connection with the
dispute. Weatherford Enterra also withdrew its filed complaint with
prejudice.
A Company Board of Directors meeting was held on September 20, 1995 to review
the status of the sale of Energy Industries and the proposed terms and
conditions of the Purchase Agreement. At that meeting, Schroder Wertheim orally
delivered its opinion, which was subsequently confirmed in writing, to the
Board
5
<PAGE>
of Directors, that the consideration to be received by the Company pursuant to
the Purchase Agreement was fair, from a financial point of view, to the
Company. See "--Fairness Opinion of Financial Advisor". In its review of the
Energy Industries Sale Proposal, the Board of Directors determined that the
Energy Industries Sale Proposal was expedient and fair to, and in the best
interests of the Company and its stockholders. See "--Recommendation of the
Company's Board of Directors". In light of the Company's overall strategic plan
of exiting the energy services business, the Board did not consider other
alternatives to the sale of Energy Industries such as its continuing operation,
growth of Energy Industries through potential acquisitions, or strategic
alliances or joint ventures of Energy Industries with other third parties.
At that Board meeting the Board of Directors approved the Energy Industries
Sale Proposal pursuant to the terms and conditions of the Purchase Agreement in
the form presented to the Board with such changes as might be approved by the
appropriate Company officers, and directed that the Energy Industries Sale
Proposal be submitted to stockholders of the Company for approval. All Board
members except one were present at the meeting and the vote to approve the
Energy Industries Sale Proposal at that meeting was unanimous. The Company and
Weatherford Enterra executed the Purchase Agreement on September 20, 1995.
FAIRNESS OPINION OF FINANCIAL ADVISOR
General. In connection with Schroder Wertheim's engagement as financial
advisor with respect to the Energy Industries Sale, Schroder Wertheim assisted
the Company in identifying, soliciting and evaluating proposals from potential
acquirers of Energy Industries. Pursuant to this engagement, Schroder Wertheim
was requested by the Company to render an opinion as to the fairness, from a
financial point of view, of the consideration to be received by the Company in
connection with the Energy Industries Sale. In connection with Schroder
Wertheim's engagement, the Company has agreed to pay Schroder Wertheim a
transaction fee of approximately $890,000, contingent upon and payable only
upon the closing of the Energy Industries Sale, and has also agreed to
reimburse Schroder Wertheim for reasonable expenses and to indemnify Schroder
Wertheim against certain liabilities, including liabilities under the federal
securities laws. Schroder Wertheim did not and will not receive a separate fee
for rendering its opinion.
Schroder Wertheim, as a customary part of its investment banking business, is
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, private placements and
valuations for estate, corporate and other purposes. Schroder Wertheim
regularly publishes research reports relating to the natural gas industry and
businesses and securities of publicly owned companies in that industry. In
selecting Schroder Wertheim, the Board of Directors took into account Schroder
Wertheim's expertise, reputation, and familiarity with the natural gas
industry. The Company had not engaged Schroder Wertheim to render services for
the Company prior to its engagement for the Envirodyne transaction. No
limitations were placed on Schroder Wertheim by the Board of Directors of the
Company with respect to the investigation made or the procedures or analyses
followed in preparing and rendering its opinion.
Schroder Wertheim is a full service securities firm and in the course of its
normal trading activities may from time to time effect transactions and hold
positions in securities of the Company and Weatherford Enterra. Schroder
Wertheim has also been engaged by the Company as financial advisor in
connection with the proposed sale of Cimarron for which Schroder Wertheim will
be entitled to a transaction fee equal to 1% of the aggregate consideration for
the sale of Cimarron up to $25 million and 1.5% of the aggregate consideration
greater than $25 million, contingent upon and payable only upon the closing of
that sale. Schroder Wertheim also rendered a fairness opinion to the Company in
connection with the Envirodyne transaction for which Schroder Wertheim received
a fee of $100,000. See "--Background of the Energy Industries Sale Proposal--
General" for a description of the Envirodyne transaction.
In connection with its opinion, Schroder Wertheim reviewed a draft of the
Purchase Agreement and the Glazer Letter. Schroder Wertheim also reviewed
certain historical, pro forma and projected financial
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information concerning Energy Industries prepared by management of the Company.
Schroder Wertheim also held discussions with members of management of the
Company and Energy Industries regarding the historical and pro forma financial
information reviewed by Schroder Wertheim and management's projections for
future periods, as well as the current financial condition and prospects of
Energy Industries. In addition, Schroder Wertheim (i) compared certain
financial data for Energy Industries under the terms of the Energy Industries
Sale Proposal with that of certain publicly traded companies which Schroder
Wertheim deemed to be reasonably comparable to Energy Industries, (ii) compared
the financial terms, to the extent publicly available, of certain recent
acquisition transactions which were deemed to be reasonably comparable to the
Energy Industries Sale Proposal, and (iii) performed such other financial
studies, analyses, inquiries and investigations as Schroder Wertheim deemed
appropriate.
Schroder Wertheim did not assume any responsibility for independently
verifying the information described above and assumed the accuracy and
completeness of all information made available or obtained by it. The Board of
Directors believes that Schroder Wertheim's reliance on such information is
reasonable and is consistent with the Company's management's understanding of
such information which related to the Company and Energy Industries, based on
its historical familiarity and day-to-day utilization of such information. With
respect to projections and financial forecasts of Energy Industries, Schroder
Wertheim assumed that such information was reasonably prepared and reflected
the best currently available estimates and judgments as to the expected future
financial performance of Energy Industries. In addition, Schroder Wertheim did
not undertake an independent appraisal of the assets of Energy Industries, nor
was Schroder Wertheim furnished with any such appraisal. Schroder Wertheim's
opinion was based on financial, economic, market, and other conditions as they
existed as of the date of its opinion. Schroder Wertheim was not asked to
express, and did not express, any opinion as to the appropriateness of the
Energy Industries Sale for the Company from a business or operational point of
view.
Schroder Wertheim's analyses set forth in the following paragraphs were
selected by Schroder Wertheim based on its experience in the valuation of
business and their securities. Such analyses and other procedures followed in
preparing and rendering Schroder Wertheim's opinion did not reflect any
direction from the Company. The Board of Directors requested Schroder Wertheim
to determine whether the Energy Industries Sale to Weatherford Enterra was
fair, from a financial point of view, to the Company. No limitations were
placed on Schroder Wertheim by the Board with respect to the investigation made
or the procedures or analyses followed in preparing and rendering its opinion.
Schroder Wertheim has informed the Company that its analyses must be considered
as a whole and that selecting portions of Schroder Wertheim's analyses and
other factors considered by Schroder Wertheim, without considering all factors
and analyses, could create a misleading view of the processes underlying its
opinion. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In Schroder
Wertheim's analyses, numerous assumptions were made with respect to industry
and Energy Industries' performance, general business, regulatory and economic
conditions and other factors, many of which are beyond the control of the
Company and Schroder Wertheim. Any estimates contained therein are not
necessarily indicative of future results or actual values, which may be
significantly more or less favorable than such estimates. Estimates of values,
companies or assets do not purport to be appraisals or necessarily reflect the
prices at which companies or assets may actually be sold. Because such
estimates are inherently subject to uncertainty, neither the Company, Schroder
Wertheim nor any other person assumes responsibility for their accuracy.
Although Schroder Wertheim did not attribute any particular weight to any
analysis or factor considered by it, Schroder Wertheim gave substantial weight
to the fact that bids were solicited from a significant number of prospective
purchases and the Weatherford Enterra offer represented the highest and most
attractive offer to the Company (see "--Background of the Energy Industries
Sale Proposal").
Schroder Wertheim, in conjunction with the President, General Counsel and
Chief Financial Officer of the Company, conducted the negotiations on behalf of
the Company with Weatherford Enterra regarding the terms and conditions of the
proposed sale. The Board of Directors did not participate in those
negotiations, although as described under "--Background of the Energy
Industries Sale Proposal," the sale proposal was
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subject to approval by the Board of Directors of the Company. Schroder Wertheim
did not recommend to the Company or Weatherford Enterra the consideration to be
paid by Weatherford Enterra.
The full text of the written opinion of Schroder Wertheim dated September 20,
1995, which sets forth the assumptions made, factors considered and limitations
on the review undertaken by Schroder Wertheim, is included as Appendix B to
this Proxy Statement. The following is a summary of the analysis conducted by
Schroder Wertheim as the basis for its fairness opinion which was presented
orally to the Company's Board of Directors on September 20, 1995, and
subsequently confirmed in writing, to the effect that, as of such date, the
consideration to be received by the Company pursuant to the Purchase Agreement,
is fair, from a financial point of view, to the Company. This summary does not
purport to be a complete description of the analyses performed by Schroder
Wertheim in this regard but does provide an overview of the material analyses
conducted by Schroder Wertheim. Schroder Wertheim's opinion is directed only to
the consideration to be received by the Company pursuant to the Purchase
Agreement and does not constitute a recommendation to any stockholder of the
Company as to how such stockholder should vote regarding the Energy Industries
Sale Proposal. The summary is qualified in its entirety by reference to the
full text of such opinion. Stockholders are encouraged to read the opinion in
its entirety.
Schroder Wertheim is not obligated to update the fairness opinion and the
Company does not currently intend to request Schroder Wertheim to do so.
Review of Energy Industries' Recent and Pro Forma Projected Financial
Information. Schroder Wertheim reviewed the historical and pro forma financial
information of Energy Industries for various periods and management's projected
financial performance for the fiscal years ended September 30, 1995 and 1996.
In its review, Schroder Wertheim noted that results for the eleven months and
latest twelve months ("LTM") ended August 31, 1995 and the projected results
for the fiscal year ended September 30, 1995 reflect actual and expected
declines in financial performance as compared to comparable prior year periods.
Schroder Wertheim further noted that Energy Industries reported earnings before
interest, taxes, depreciation and amortization ("EBITDA") of $13.2 million for
the fiscal year ended September 30, 1994, $12.7 million for the LTM ended
August 31, 1995 and projected EBITDA of $12.2 million and $14.3 million for the
fiscal years ended September 30, 1995 and 1996, respectively.
Analysis of Comparable Recent Acquisition Transactions. Schroder Wertheim
reviewed the financial terms, to the extent publicly available, of certain
recent acquisition transactions which Schroder Wertheim deemed to be reasonably
comparable to the proposed Energy Industries Sale. In performing its analysis,
Schroder Wertheim compared selected financial data, including Adjusted Purchase
Price (the equity cost plus latest reported total debt, capitalized leases,
preferred stock and minority interests, minus total cash and cash equivalents)
or asset purchase price, as appropriate, as a multiple of LTM earnings before
interest and taxes ("EBIT"), EBITDA and tangible book value of assets for
selected recent natural gas compression industry sale transactions involving
the sale of businesses which were direct comparables to Energy Industries based
on similar operations. The selected transactions included all of the five
significant sales transactions which have occurred since late 1993 for which
information was available: (i) the Company's purchase of Energy Industries,
(ii) Enterra Corporation's acquisition of Total Energy Services Company, (iii)
Tidewater Inc.'s acquisition of Brazos Gas Compressing Company, (iv) Tidewater
Inc.'s acquisition of Haliburton Compression Services, and (v) Global
Compression Services, Inc.'s acquisition of Total Compression, Inc. Schroder
Wertheim's analysis indicated estimated mean LTM EBIT and LTM EBITDA multiples
for the comparable transactions of approximately 13.8x and 8.5x, respectively,
versus approximately 18.5x and 9.9x, respectively, for Energy Industries under
the proposed terms of the Energy Industries Sale Proposal. Schroder Wertheim
noted that the multiple of tangible book value of assets was below the range;
however, this fact was determined to be attributable to (i) the relatively high
book value of Energy Industries' fixed assets due to the step-up in book value
of Energy Industries pursuant to the purchase accounting relating to the
Company's acquisition of Energy Industries in November 1993, and (ii) Energy
Industries' management's strategy of maintaining relatively large inventory
balances.
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Comparison with Comparable Publicly Traded Companies. Schroder Wertheim
compared selected financial data of Energy Industries with certain data
relating to selected publicly traded companies engaged in businesses which
Schroder Wertheim deemed to be reasonably comparable to that of Energy
Industries (the "Public Comparables"). Specifically, Schroder Wertheim included
in its review BJ Services Company, Dreco Energy Services, Ltd., Enerflex
Systems, Ltd., Energy Ventures, Inc., EnServ Corporation, Production Operators
Corporation, Tidewater Inc. and Weatherford International Incorporated (pro
forma for its acquisition of Enterra Corporation). Such financial information
included market valuation, operating performance and implied trading multiples
based on the ratio of the Adjusted Market Value (equity market value plus
latest reported total debt, capitalized leases, preferred stock and minority
interest, minus cash and cash equivalents) as a multiple of revenue, operating
income (or EBIT) and EBITDA. Schroder Wertheim compared the LTM and projected
operating statistics and implied trading multiples of the Public Comparables
(based upon reported financial results and available research estimates) to the
LTM and projected operating statistics (based on management's estimates) and
implied trading multiples for Energy Industries based on the terms of the
Energy Industries Sale Proposal. In this review, Schroder Wertheim noted that
the proposed purchase price implies multiples of LTM and projected EBIT and
EBITDA which exceed comparable mean implied multiples for the Public
Comparables. Such analysis showed that on the basis of multiples of LTM EBIT
and EBITDA, the proposed purchase price implied multiples of 18.5x and 9.9x,
respectively, for Energy Industries versus an average of 13.3x and 7.9x,
respectively, for the Public Comparables. On the basis of projected fiscal 1995
EBIT and EBITDA, the proposed purchase price implied multiples of 18.6x and
10.1x, respectively, for Energy Industries versus an average of 14.6x and 8.5x,
respectively, for the Public Comparables.
Leveraged Buyout Analysis. A leveraged buyout ("LBO") analysis is a valuation
methodology used to derive a theoretical maximum valuation of an enterprise to
a purchaser which seeks to optimize the expected financial returns of an
acquisition through the use of a high percentage of debt in the capital
structure. The LBO analysis was generated based upon operating, capital
expenditure, and balance sheet assumptions for future fiscal periods provided
by or developed with the assistance of Energy Industries management. As the LBO
analysis generated value based only on Energy Industries' projected results of
operations on a stand-alone basis, the analysis would not necessarily reflect
the value which a strategic buyer would place on the enterprise. The analysis
indicated a LBO valuation for Energy Industries which was significantly below
the proposed sale price. The theoretical LBO valuation was reasonably
consistent with one of the bids received by the Company for Energy Industries
in a proposed LBO involving the current Energy Industries management team and a
large energy company.
Discounted Cash Flow Analysis. A discounted cash flow analysis is a
traditional valuation methodology used to derive a valuation of a corporate
entity by capitalizing the estimated future earnings and calculating the
estimated future free cash flows of such corporate entity and discounting such
aggregated results back to the present. Schroder Wertheim performed a
discounted cash flow analysis of Energy Industries based on operating, capital
expenditure and balance sheet assumptions for future periods provided by or
developed with the assistance of Energy Industries management. Using such
information, Schroder Wertheim calculated such estimated "free cash flow" based
on projected unleveraged net income (earnings before interest and after taxes;
"EBIAT") adjusted for: (i) certain projected non-cash items (i.e. depreciation
and amortization); (ii) projected capital expenditures; and (iii) projected
changes in non-cash working capital investment. Schroder Wertheim discounted
the stream of free cash flows provided in such projections back to the present
using discount rates ranging from 12.0% to 16.0%. To estimate the terminal
value of Energy Industries at the end of the forecast period, Schroder Wertheim
applied a range of terminal multiples from 7.0x to 9.0x to the projected fiscal
2002 EBITDA and discounted such value estimates back to the present using
discount rates ranging from 12.0% to 16.0%. Schroder Wertheim then summed the
present values of the free cash flows and the present values of the terminal
values to derive a range of implied enterprise values for Energy Industries of
approximately $89.0 million to $136.8 million, after adjusting for total cash
and cash equivalents.
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE
"
FOR" THE ENERGY INDUSTRIES SALE PROPOSAL.
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As discussed previously under "--Background of the Energy Industries Sale
Proposal", the Board of Directors determined that the Energy Industries Sale
Proposal was expedient and fair to, and in the best interests of, the Company
and its stockholders. In making this determination, the following factors were
considered and evaluated:
(i) The Board's consideration that the focus of the Company's business
strategy had shifted from the energy business toward the food processing
business. The Board therefore elected to begin the exit of the energy
business through the sale of Energy Industries and the other energy related
operations discussed under "--Background of the Energy Industries Sale
Proposal";
(ii) The Board's review of presentations from, and discussions of the
terms and conditions of the Energy Industries Sale Proposal with, senior
executive officers of the Company and Energy Industries;
(iii) The Board's consideration of, among other things, information with
respect to the financial condition, results of operations and business of
the Company and Energy Industries, on both a historical and a prospective
basis;
(iv) The fact that five other formal offers to purchase Energy Industries
were received by the Company and that those offers were inferior to the
Weatherford Enterra offer with respect to price and other material terms;
and
(v) The Board's consideration of Schroder Wertheim's oral opinion, which
was to be subsequently confirmed in writing, as to the fairness to the
Company from a financial point of view, of the consideration to be received
by the Company pursuant to the Weatherford Enterra offer. In connection
with its evaluation of this factor, the Board was aware of the fact that
Schroder Wertheim did not assume any responsibility for independently
verifying the information that it reviewed in connection with the rendering
of its opinion and that Schroder Wertheim assumed the accuracy and
completeness of all information made available or obtained by it. However,
the Board believed that reliance by Schroder Wertheim was reasonable and
was consistent with the Company's management's understanding of such
information which related to the Company and Energy Industries, based on
management's historical familiarity and day-to-day utilization of such
information.
The Board did not assign relative weights to the factors discussed above.
In light of the Company's overall strategic plan of exiting the energy
services business, the Board did not consider other alternatives to the sale of
Energy Industries such as its continuing operation, growth of Energy Industries
through potential acquisitions, or strategic alliances or joint ventures of
Energy Industries with other third parties.
The Energy Industries Sale is a major step in the Company's transition from
an energy company to a food services company. The Company intends to use the
net proceeds from the Energy Industries Sale for general corporate purposes,
which may include repayment of debt, and for future acquisitions or joint
ventures which are expected to be in the food services industry. While the
Company is actively seeking acquisitions and joint venture opportunities, there
can be no assurances that the Company will succeed in identifying or
consummating any such opportunities or that acquisitions or joint ventures, if
consummated, will be successful. The Company does not have any current plans or
proposals to use the proceeds of the Energy Industries Sale for specific
acquisitions or joint ventures. Other than the seeking of such proposed
acquisitions and joint ventures and the Company's consideration of possible
future transactions involving Envirodyne as described under "Background of the
Energy Industries Sale Proposal--General", the Company currently has no plans
or developments to advance its internal or external expansion in the food
services industry. In addition, while the Company currently intends to focus on
the food service industry, the Company may effect acquisitions in other
industries if the Board determines that it is in the interests of the Company
and stockholders to do so. While the Board of Directors believes that the
consummation of the Energy Industry Sales Proposal is expedient and fair to,
and in the best interests of, the Company and its stockholders, there can be no
assurance that the Energy Industries Sale, or the Company's entry into the food
services business, will result in an improvement in the Company's results of
operations or financial condition.
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TERMS OF THE ENERGY INDUSTRIES SALE
General. The material terms and provisions of the Purchase Agreement are
summarized below. However, such description does not purport to be complete and
is qualified by reference to the Purchase Agreement, a copy of which is
attached hereto as Appendix A. Reference is made to the Purchase Agreement for
the complete terms and provisions thereof as well as for other provisions that
are not summarized below.
Purchase Agreement. The Purchase Agreement provides for the sale of
substantially all of the assets of Energy Industries. Under the Purchase
Agreement, Weatherford Enterra will also assume the following liabilities of
Energy Industries (the "Assumed Liabilities"): (i) certain liabilities of
Energy Industries set forth on its May 31, 1995 balance sheet which have not
been discharged prior to the closing date, (ii) certain liabilities of Energy
Industries that have arisen in the ordinary course of Energy Industries'
Business, consistent with past practice, since May 31, 1995 which would be
described on a balance sheet prepared in accordance with generally accepted
accounting principles which have not been discharged prior to the closing date,
(iii) certain contracts, commitments and arrangements of Energy Industries, and
(iv) liabilities of Energy Industries with respect to warranty claims by
customers.
Purchase Price. At the Closing, Weatherford Enterra will, subject to the
terms and conditions of the Purchase Agreement, purchase from the Company all
of the Assets and assume the Assumed Liabilities. The Purchase Price of $130
million is payable to the Company in immediately available funds on the Closing
Date, increased or decreased, as the case may be, by the amount that the net
asset value of Energy Industries on the Closing Date is greater than, or less
than, as the case may be, $106,623,968, the amount of Energy Industries' net
asset value, as agreed to by the parties, on May 31, 1995. Under the terms of
the Purchase Agreement, within 30 days after the Closing Date, Weatherford
Enterra will deliver to the Company its own calculation of the net asset value
of Energy Industries on the Closing Date and the Company must notify
Weatherford Enterra of its agreement or disagreement with such calculation. If
the parties cannot resolve any disagreement on the net asset value calculation,
then such calculation will be finally determined by two independent public
accounting firms chosen by the Company and Weatherford Enterra. Once the post-
closing reconciliation of the net asset value is determined, Weatherford
Enterra or the Company, as the case may be, must pay to the other within three
days such reconciliation amount. The Company does not expect that such net
asset value adjustment will materially vary the purchase price upward or
downward.
Representations and Warranties. In the Purchase Agreement, the Company makes
representations and warranties regarding Energy Industries, including, without
limitation, representations and warranties regarding Energy Industries'
financial condition, liabilities, agreements, title to assets, litigation,
environmental matters and compliance with laws and regulations. The Company
considers such representations to be normal and customary in a transaction of
this type. Weatherford Enterra has also made certain normal and customary
representations and warranties to the Company in the Purchase Agreement.
The representations and warranties set forth in the Purchase Agreement will,
subject to certain exceptions, terminate one year after the Closing Date.
Conditions to Closing. The obligations of Weatherford Enterra to consummate
the Energy Industries Sale are conditioned upon the: (a) truth and correctness
in all material respects of all representations and warranties of the Company
made in the Purchase Agreement on the date of the Purchase Agreement and on the
closing date, (b) performance in all material respects by the Company of all
obligations and compliance with all covenants and conditions in the Purchase
Agreement, (c) delivery of proper instruments for the transfer of the Assets,
(d) receipt by Weatherford Enterra of evidence of required third party consents
(generally consisting of assignments to Weatherford Enterra of material
contracts by customers) and governmental authorizations, and (e) receipt of
customary closing certificates and legal opinions.
The obligations of the Company to consummate the Energy Industries Sale are
conditioned upon the: (a) truth and correctness in all material respects of all
representations and warranties of Weatherford Enterra
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in the Purchase Agreement on the date of the Purchase Agreement and on the
closing date, (b) performance in all material respects by Weatherford Enterra
of all obligations and compliance with all covenants and conditions in the
Purchase Agreement, (c) receipt of the Purchase Price, (d) execution and
delivery of instruments for the assumption of the Assumed Liabilities, and (e)
receipt of customary closing certificates and legal opinions.
The obligation of each of Weatherford Enterra and the Company to consummate
the Energy Industries Sale are conditioned upon: (a) receipt of all required
regulatory approvals, (b) no violation by the closing of the Energy Industries
Sale of any order of any court or other governmental authority, and (c) receipt
of approval of the Energy Industries Sale by the stockholders of the
Company.
Indemnification. The Company has agreed to indemnify Weatherford Enterra and
its and its affiliates after the Closing Date, from and against each claim
paid, imposed or incurred by such persons: (a) resulting from any inaccuracy in
any representations or warranties of the Company under the Purchase Agreement
or any certificate delivered by the Company thereunder, (b) to the extent
caused by a breach of any covenant in the Purchase Agreement by the Company,
(c) which is a liability of the Company or Energy Industries other than an
Assumed Liability, (d) to the extent caused by any violation of any bulk sales
law or other similar state laws in respect of the transactions contemplated by
the Purchase Agreement, (e) with the exception of those matters governed by the
following clause (f), because of, resulting from or arising out of the
business, operations or assets of Energy Industries prior to the closing date
(excluding any Assumed Liabilities), or (f) to the extent caused by an
environmental claim or related liability which is caused by matters existing
prior to the closing date, subject to reduction to the extent the liability has
been exacerbated by Weatherford Enterra after the closing date or to the extent
Weatherford Enterra failed to use reasonable efforts to mitigate such liability
after the closing date, if Weatherford Enterra actually knew of such liability.
There is a $250,000 deductible, subject to exceptions in certain cases, and a
maximum aggregate liability of $4 million for claims described in clauses (a),
(b), (d), (e) and (f).
Weatherford Enterra has agreed to indemnify and hold harmless the Company and
its affiliates after the Closing Date from and against each claim paid, imposed
on or incurred by such persons: (a) resulting from any inaccuracy in any
representation or warranty of Weatherford Enterra under the Purchase Agreement
or any agreement or certificate delivered by Weatherford Enterra thereunder,
(b) to the extent caused by a breach of any covenant in the Purchase Agreement
by Weatherford Enterra, (c) which is an Assumed Liability, or (d) because of,
resulting from or arising out of the operation of the natural gas compression
business after the closing date. There is a $250,000 deductible, subject to
exceptions in certain cases, and a maximum aggregate liability of $4 million
for claims described in clauses (a), (b) and (d).
Non-Competition Covenant by the Company. In connection with the Energy
Industries Sale, the Company agreed, and the Purchase Agreement so provides,
that, except for certain immaterial exceptions, for a period of three years
after the closing date, the Company will not manage, operate or control, or be
connected or a principal, agent, representative, consultant, investor, owner,
partner, manager or joint venturer with, any business or enterprise engaged in
any aspect of the natural gas compression business.
Termination. Even if the Energy Industries Sale Proposal is approved by the
Company's stockholders, the Purchase Agreement may be terminated by (a) mutual
written consent of the Company and Weatherford Enterra; (b) by Weatherford
Enterra if any of the conditions to Closing to be performed by the Company
shall not have been complied with or performed at the time required for such
compliance or performance; (c) by the Company if any of the conditions to
Closing to be performed by Weatherford Enterra shall not have been complied
with or performed at the time required for such compliance or performance; (d)
by Weatherford Enterra or the Company if the Closing Date shall not have
occurred on or before December 20, 1995 or such later date mutually agreed to
by the parties; and (e) by Weatherford Enterra or the Company if any court or
other governmental body shall have issued an order or taken any other action
prohibiting the transactions contemplated in the Purchase Agreement which has
become final and nonappealable.
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In the event that no transaction is consummated with Weatherford Enterra, the
Company intends to seek opportunities to sell Energy Industries to another
purchaser, and, if such transaction were required by the DGCL to be approved by
stockholders, to seek stockholder approval of such transaction. No significant
negotiations have been conducted by the Company regarding the sale of Energy
Industries with persons other than Weatherford Enterra and there can be
assurances that such an alternate sale would be on terms as favorable to the
Company as the terms of the proposed sale to Weatherford Enterra.
VOTING AGREEMENT OF MAJOR STOCKHOLDER
In connection with the Energy Industries Sale, The Malcolm I. Glazer Trust, a
stockholder of the Company which beneficially owns approximately 35.3% of the
Company's outstanding Common Stock, agreed pursuant to the Glazer Letter on
behalf of itself, and any affiliates of such Trust or Malcolm I. Glazer, the
Chairman of the Board of the Company, that the Trust and such affiliates will
vote all shares of common stock owned by them in accordance with the
recommendation of the Board of Directors of the Company with respect to the
approval of the Energy Industries Sale Proposal by the Company's stockholders.
As noted under "--Recommendation of the Company's Board of Directors", the
Board of Directors has recommended that the stockholders of the Company vote
"FOR" the Energy Industries Sale Proposal.
STOCKHOLDER APPROVAL
Under Section 271 of the DGCL, stockholder approval is required for a
Delaware corporation to sell all or substantially all of its assets. Because of
the uncertainty regarding the precise point at which asset sales will be deemed
to be substantially all of a company's assets, the Board of Directors of the
Company is seeking stockholder approval of the Energy Industries Sale, and the
Company and Weatherford Enterra have agreed to make such approval a condition
to each party's obligation to consummate the Energy Industries Sale, so as to
remove any uncertainty that the transaction was properly authorized. Even if
Delaware law does not require stockholder approval of the Energy Industries
Sale Proposal, the Company believes that the Company's seeking of stockholder
approval will have the advantage of keeping its stockholders informed about the
Company's new direction and exit from the energy business, and that stockholder
approval may provide the Company, its Board of Directors and management with
possible defenses against stockholder claims in connection with the Energy
Industries Sale Proposal. See "--No Rights of Appraisal."
In the event that the Energy Industries Sale Proposal is not approved by the
stockholders, the Company will not proceed with the sale of Energy Industries
to Weatherford Enterra. In that event, the Company may consider and consummate
a transaction or transactions for the disposition of Energy Industries, to
Weatherford Enterra or other purchasers, which do not require stockholder
approval or which, if such transaction or transactions do require stockholder
approval, are preceded by another solicitation of proxies by the Company to its
stockholders seeking such approval.
NO RIGHTS OF APPRAISAL
Under Section 262 of the DGCL, no holder of Common Stock or $2 Preference
Stock is entitled to rights of appraisal in connection with the Energy
Industries Sale. In addition, stockholders voting in favor of the Energy
Industries Sale Proposal may be precluded from later seeking redress against
the Company, its Board of Directors and management under the DGCL with respect
to the Energy Industries Sale Proposal, and the Company intends to assert that
a stockholder's vote for or signed proxy with no choice indicated would
preclude such stockholder from seeking redress against the Company, its Board
of Directors and management in such cases.
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RESOLUTIONS PROPOSED FOR ADOPTION BY STOCKHOLDERS
Resolutions in substantially the following form will be proposed at the
Special Meeting for consideration of the Company's stockholders:
"RESOLVED, that the Asset Purchase Agreement dated as of September 20,
1995 ("Purchase Agreement") by and among Zapata Corporation, Energy
Industries, Inc., Zapata Energy Industries, L.P., Enterra Corporation
(predecessor of Weatherford Enterra, Inc.) and Enterra Compression Company,
in substantially the form attached as Appendix A to the Proxy Statement for
the Special Meeting of Stockholders, and the transactions contemplated in
such agreement, are hereby approved, with such changes and additions as the
Board of Directors or the officers of Zapata Corporation in their sole
discretion deem necessary or appropriate, and the directors and officers of
Zapata Corporation are hereby authorized in their discretion to take such
steps as are in their sole judgment necessary or appropriate to effectuate
such Purchase Agreement; and further
RESOLVED, that the officers of Zapata Corporation are hereby authorized
in their discretion to execute such documents in the name and on behalf of
the corporation and to take other actions as are in their sole judgment
necessary or appropriate to effectuate the purpose of the foregoing
resolution; and further
RESOLVED, that all acts and deeds previously performed by the officers
and directors of Zapata Corporation prior to the date of this resolution
that are within the authority conferred by the foregoing resolutions are
hereby ratified, confirmed and approved as authorized deeds of Zapata
Corporation."
The affirmative vote of a majority of the outstanding shares of Common Stock
and $2 Preference Stock entitled to vote thereon, voting together as a single
class, is required to adopt the above resolutions. THE COMPANY'S BOARD OF
DIRECTORS RECOMMENDS APPROVAL OF THE ABOVE RESOLUTIONS.
FEES AND EXPENSES
Each of Weatherford Enterra and the Company will pay its own expenses in
connection with the transactions contemplated by the Purchase Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
This section is a summary of the material federal income tax consequences
which the Company expects to result from the Energy Industries Sale. The
summary is based upon the Internal Revenue Code, judicial decisions, United
States Treasury Department regulations promulgated thereunder and
administrative rulings of the United States Treasury Department and existing
interpretations thereof, any of which could be changed at any time. No rulings
have been requested from the Internal Revenue Service with respect to any
consequences resulting from the Energy Industries Sale.
The Energy Industries Sale will have no federal income tax consequences to
stockholders of the Company in their capacity as stockholders. The Company
believes that the total amount of taxable gain that the Company will recognize
as a result of the Energy Industries Sale will be approximately $47.7 million
for tax purposes. The Company estimates that the recognition of such gain will
increase the Company's United States federal and state income and franchise tax
liability by approximately $14.0 million.
FINANCIAL INFORMATION
For selected financial data of the Company and unaudited pro forma
consolidated financial statements showing the effect of the consummation of the
Energy Industries Sale, see "Selected Financial Data" and "Unaudited Pro Forma
Consolidated Financial Statements".
For selected historical data of Energy Industries, see "Energy Industries
Unaudited Financial Statements."
14
<PAGE>
ACCOUNTING TREATMENT
The Energy Industries Sale will be subject to purchase accounting treatment.
REGULATORY APPROVALS
The Energy Industries Sale was reportable under, and subject to the waiting
period requirements of, the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended ("HSR Act"), by the Company and Weatherford Enterra. The
Company and Weatherford Enterra each filed with the Federal Trade Commission
and the Department of Justice a Notification and Report Form under the HSR Act
with respect to the Energy Industries Sale on September 28, 1995. The required
waiting period under the HSR Act for the Energy Industries Sale expired on
October 28, 1995. The Company is not aware of any other material federal or
state regulatory approvals that must be obtained in order to consummate the
Energy Industries Sale.
RELATION TO THE PROPOSED SALE OF CIMARRON
Neither the Energy Industries Sale Proposal nor the proposed sale of Cimarron
is conditioned on the other. The Company believes that stockholder approval is
not required under the DGCL for its proposed sale of Cimarron and the Company
does not intend to seek such approval.
CERTAIN INFORMATION CONCERNING WEATHERFORD ENTERRA
Weatherford Enterra is a diversified international energy service and
manufacturing company that provides products and services around the world to
the oil and gas exploration, production and transmission industries. Its
principal executive offices are located at 1360 Post Oak Boulevard, Suite 1000,
Houston, Texas 77056, telephone number (713) 439-9400.
For a summary of the negotiations between Weatherford Enterra and the Company
relating to the Energy Industries Sale Proposal, see "The Energy Industries
Sale Proposal--Background of the Energy Industries Sale Proposal".
BUSINESS OF ENERGY INDUSTRIES
General. In November 1993, the Company purchased the natural gas compression
business of Energy Industries. Total consideration paid for the purchase of
Energy Industries' natural gas compression business and for two related
noncompetition agreements was $90.2 million. The purchase price consisted of
$74.5 million in cash and approximately 2.7 million shares of Common Stock
valued at $15.7 million, or $5.80 per share, which approximated the average
trading price of the Common Stock prior to closing of the acquisition.
Operations. Energy Industries generally does business under the name "Energy
Industries, Inc." Energy Industries is engaged in the business of renting,
fabricating, selling, installing and servicing natural gas compressor packages.
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.
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.
15
<PAGE>
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 the twelve months ended September 30, 1993 and 1994
and the nine months ended June 30, 1995. Because the Company acquired Energy
Industries in November 1993, the Company's consolidated financial results for
its fiscal year ended September 30, 1994 include only eleven months of Energy
Industries' operations. For comparative purposes, however, the fiscal 1994
revenues presented in the following table are for the twelve months ended
September 30, 1994 and include Energy Industries' revenue information for an
additional month when Energy Industries was not owned by the Company. The
Company did not own Energy Industries in fiscal 1993 and that period is
presented for comparison purposes only.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
NINE MONTHS SEPTEMBER 30,
ENDED -------------------
JUNE 30, 1995 1994 1993
------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Compressor rentals...................... $12,978 $ 17,575 $ 15,256
Fabrication and sales................... 21,879 29,842 22,020
Parts and service....................... 14,919 21,138 16,662
Other................................... 3,310 9,981 9,334
------- --------- ---------
Total............................... $53,086 $ 78,536 $ 63,272
======= ========= =========
</TABLE>
Natural Gas Compressor Package Rentals. Energy Industries maintains a fleet
of approximately 770 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 gas compressor package rental is generally between one
and 36 months and thereafter continues on a month-to-month basis. Customers
typically 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 at
September 30, 1993 and 1994 and at June 30, 1995. The Company did not own
Energy Industries prior to November 1993.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
AS OF --------------------
JUNE 30, 1995 1994 1993
------------- --------- ---------
<S> <C> <C> <C>
FLEET UTILIZATION:
Horsepower............................. 81.5% 82.6% 74.4%
MONTHLY RENTAL RATE, BASED ON:
Horsepower............................. $15.54 $16.61 $17.25
FLEET SIZE:
Number of Units........................ 771 706 681
Horsepower............................. 129,467 113,786 106,175
</TABLE>
16
<PAGE>
Utilization of compressor packages increased from 1993 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
has resulted from the acquisitions of 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 Energy Industries' natural gas compressor
package sales and cost of sales for the twelve months ended September 30, 1993
and 1994 and the nine months ended June 30, 1995. Because the Company acquired
Energy Industries in November 1993, the Company's consolidated financial
results for its fiscal year ended September 30, 1994 include only eleven months
of Energy Industries' operations. For comparative purposes, however, the fiscal
1994 sales and cost of sales presented in the following table are for the
twelve months ended September 30, 1994 and include Energy Industries' sales and
cost of sales information for an additional month when Energy Industries was
not owned by the Company. The Company did not own Energy Industries prior to
November 1993.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
NINE MONTHS SEPTEMBER 30,
ENDED --------------------
JUNE 30, 1995 1994 1993
------------- --------- ---------
(IN THOUSANDS, EXCEPT % AMOUNTS)
<S> <C> <C> <C>
Compressor package sales.............. $21,879 $ 29,842 $ 22,020
Cost of sales......................... 18,149 24,596 16,867
------- --------- ---------
Gross margin.......................... $ 3,730 $ 5,246 $ 5,153
======= ========= =========
Gross margin/percentage............... 17.0% 17.6% 23.4%
======= ========= =========
</TABLE>
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 includes 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
17
<PAGE>
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 sales for the twelve months ended December 31, 1993
and 1994 and the nine months ended June 30, 1995. Because the Company acquired
Energy Industries in November 1993, the Company's consolidated financial
results for its fiscal year ended September 30, 1994 include only eleven months
of Energy Industries' operations. For comparative purposes, however, the fiscal
1994 sales presented in the following table are for the twelve months ended
September 30, 1994 and include Energy Industries' sales information for an
additional month when Energy Industries was not owned by the Company. The
Company did not own Energy Industries prior to November 1993.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
NINE MONTHS SEPTEMBER 30,
ENDED --------------------
JUNE 30, 1995 1994 1993
------------- --------- ---------
(IN THOUSANDS, EXCEPT % AMOUNTS)
<S> <C> <C> <C>
CUSTOMER PACKAGE SALES:
Domestic............................ $18,277 $ 21,397 $ 16,727
International....................... 3,602 8,445 5,293
------- --------- ---------
Total............................. $21,879 $ 29,842 $ 22,020
======= ========= =========
PERCENT OF TOTAL SALES:
Domestic............................ 83.5% 71.7% 76.0%
International....................... 16.5% 28.3% 24.0%
</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 is subject to
automatic annual renewal unless notice is given of a party's desire to
terminate the relationship.
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.
18
<PAGE>
Facilities and Real Estate. Energy Industries owns 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.
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 the Company's Form 10-K for the fiscal year ended
September 30, 1994. The selected financial information contained herein has
been restated to reflect the Company's marine protein operations as a continued
operation as a result of the Company's decision to retain these operations. The
Company's Form 10-K for the fiscal year ended September 30, 1994 reflected the
marine protein operations as a discontinued operation. In connection with a
restructuring consummated in 1990 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.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
JUNE 30, FISCAL YEAR ENDED SEPTEMBER 30,
--------------------- ---------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- ------- --------------
BEFORE
QUASI-
AFTER QUASI-REORGANIZATION REORGANIZATION
------------------------------------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............... $179,708 $241,924 $337,826 (3) $265,045(3) $106,413 $93,410 $ 91,781
Operating income
(loss)................ (6,701)(1) (12,601)(2) (24,700)(4) 3,006 10,901 3,063 (8,111)
Income (loss) from
continuing operations. (3,463) 10,026 (5) 578 (5) 9,373 (6) 2,431 2,087 (34,383)
Per common share income
(loss) from continuing
operations............ (0.11) 0.31 0.01 0.33 0.08 0.07 (5.38)
Cash dividends paid.... 1,153 404 1,566 2,933 -- -- --
Common Stock dividends
declared, per share... -- 0.035 0.07 -- -- -- --
CASH FLOW DATA:
Capital expenditures... 18,339 20,049 28,251 4,569 11,595 8,730 5,341
</TABLE>
- --------
(1) Includes a $12.6 million provision for asset impairment of the Company's
marine protein assets.
(2) Includes an $18.8 million oil and gas valuation provision.
(3) Includes $156.1 million and $186.3 million 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.)
(4) Includes a $29.2 million oil and gas valuation provision.
(5) Includes a $37.5 million pretax gain from the sale of 4.1 million shares of
common stock of Tidewater Inc. and expenses of $7.4 million related to the
prepayment of indebtedness due to Norex America, Inc.
(6) Includes a $32.9 million pretax gain from the sale of 3.5 million shares of
Tidewater Inc. common stock, a $6.4 million prepayment penalty in
connection with a senior debt refinancing and a $5.7 million pretax loss
resulting from the disposition of the Company's investment in Arethusa
(Offshore) Limited.
19
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, FISCAL YEAR ENDED SEPTEMBER 30,
----------------- -------------------------------------- OCT. 1, SEPT. 30,
1995 1994 1994 1993 1992 1991 1990 1990
-------- -------- -------- -------- -------- -------- -------- --------------
(UNAUDITED, IN THOUSANDS)
BEFORE QUASI-
AFTER QUASI-ORGANIZATION REORGANIZATION
----------------------------------------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........ $ 48,664 $ 65,829 $ 60,584 $119,077(7) $ 30,281 $ 48,054 $ 60,217 $(389,673)
Property and equipment,
net................... 123,898 138,275 117,610 100,237 97,768 101,156 107,259 120,469
Net assets of
discontinued
operations............ -- -- -- -- -- -- 290,300 290,300
Total assets........... 269,586 314,098 291,039 345,117 304,339 318,021 580,830 615,830
Current maturities of
long-term debt........ 8,866 2,997 3,009 2,714 19,652 10,671 200,909(8) 639,544
Long-term debt......... 61,948 70,323 69,078 139,646 120,298 139,951 147,513 9,759
Stockholders' equity... 143,151 183,508 154,542 146,264 124,880 122,853 112,525 (174,557)
</TABLE>
- --------
(7) Includes $75.1 million of restricted cash primarily generated from the sale
of Tidewater Inc. common stock in June 1993 which was subsequently used to
fund the cash portion of the purchase price of the acquisition of Energy
Industries.
(8) 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.
UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements reflect the
financial position of the Company as of June 30, 1995 and the results of its
operations for the fiscal year ended September 30, 1994 and the nine months
ended June 30, 1995 and 1994, both historically and on a pro forma basis,
giving effect to the Energy Industries Sale as if it had been consummated as of
June 30, 1995, in the case of the balance sheet, and November 1, 1993, the
effective date of the Energy Industries acquisition by the Company, in the case
of the income statements. The unaudited pro forma condensed financial
statements also give effect to (a) the Company's decision to retain its marine
protein operations as a continuing operation, (b) the sale of the Company's
remaining domestic oil and gas operations which were sold in August 1995 and
(c) the proposed sale of Cimarron. These unaudited pro forma condensed
financial statements should be read in conjunction with the historical
consolidated financial statements of the Company and related notes and
"Management's Discussion and Analysis of Results of Operations and Financial
Conditions" contained in the Company's Annual Report on Form 10-K for the year
ended September 30, 1994 and the Company's reclassified consolidated financial
statements for fiscal years ended September 30, 1992, 1993 and 1994 to reflect
the marine protein operations as continuing operations for those periods
contained in the Company's Form 8-K dated November 13, 1995. The unaudited pro
forma condensed financial statements set forth below are not necessarily
indicative of what the actual results of operations would have been had these
events occurred as of the dates indicated and is not intended to be a
projection of future results.
The unaudited pro forma condensed consolidated financial statements are
intended to present information regarding the Company's results of operations
and financial position for purposes of evaluating the impact of the Energy
Industries Sale.
20
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ADJUSTMENTS ADJUSTMENTS
------------------------------- -----------
MARINE DOMESTIC PRO FORMA TOTAL ENERGY
PROTEIN OIL & GAS CIMARRON BEFORE ENERGY INDUSTRIES PRO FORMA
HISTORICAL RETAINED(1) SALE(2) SALE(3) INDUSTRIES SALE SALE(5) TOTAL
---------- ----------- --------- --------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $241,212 $96,614 $(8,432) $(156,141) $173,253 $(72,522) $100,731
-------- ------- ------- --------- -------- -------- --------
Expenses:
Operating.............. 212,450 81,880 (5,750) (153,414) 135,166 (52,768) 82,398
Provision for oil and
gas property
valuation............. 29,152 (29,152)
Depreciation, depletion
and amortization...... 13,661 4,535 (4,563) (1,855) 11,778 (4,867) 6,911
Selling, general and
administrative........ 16,094 4,754 (796) (1,935) 18,117 (6,917) 11,200
-------- ------- ------- --------- -------- -------- --------
271,357 91,169 (40,261) (157,204) 165,061 (64,552) 100,509
-------- ------- ------- --------- -------- -------- --------
Operating income (loss). (30,145) 5,445 31,829 1,063 8,192 (7,970) 222
-------- ------- ------- --------- -------- -------- --------
Other income (expense):
Interest income........ 2,043 (121) 1,922 (269) 1,653
Interest expense....... (6,138) (3,218) 1,327 (4) (8,029) 3,393 (4) (4,636)
Gain on sales of
Tidewater common
stock................. 37,457 37,457 37,457
Other.................. (4,406) 114 (4) (4,296) (4,296)
-------- ------- ------- --------- -------- -------- --------
28,956 (3,104) 1,202 27,054 3,124 30,178
-------- ------- ------- --------- -------- -------- --------
Income (loss) from
continuing operations
before taxes........... (1,189) 2,341 31,829 2,265 35,246 (4,846) 30,400
Provision (benefit) for
income taxes........... (494) 1,068 11,140 793 12,507 (2,049) 10,458
-------- ------- ------- --------- -------- -------- --------
Income (loss) from
continuing operations.. $ (695) $ 1,273 $20,689 $ 1,472 $ 22,739 $ (2,797) $ 19,942
======== ======= ======= ========= ======== ======== ========
Per common share income
(loss) from continuing
operations............. (0.04) 0.05 0.65 0.05 0.71 (0.09) 0.62
Common stock dividends
declared, per share.... 0.07 -- -- -- 0.07 -- 0.07
</TABLE>
The following notes set forth the explanations and assumptions used in
preparing the unaudited pro forma condensed statement of income for the fiscal
year ended September 30, 1994 (amounts in thousands).
(1) The historical income statement has been adjusted to reflect the Company's
marine protein operations as a continued operation as a result of the
Company's decision to retain these operations. The Company's Form 10-K for
the fiscal year ended September 30, 1994 reflected the marine protein
operation as a discontinued operation.
(2) In August 1995, the Company completed the sale of its remaining U.S.
offshore oil and gas properties. The Company received cash, a production
payment entitling the Company to a share of future revenues derived from
the properties and other contract consideration. No gain or loss was
recognized from the sale.
(3) The Company has also announced its intention to sell Cimarron. Although the
stockholders are not being asked to approve such sale, should such sale
occur as intended, the financial results would be restated to reflect
Cimarron as a discontinued operation.
(4) The pro forma adjustments include allocations of interest expense on
general corporate debt of $3.4 million to Energy Industries and $932,000 to
Cimarron.
(5) The Company's consolidated financial results for its fiscal year ended
September 30, 1994 include only eleven months of Energy Industries'
operations because the Company acquired Energy Industries in November 1993.
21
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
------------------ -----------
DOMESTIC PRO FORMA TOTAL ENERGY
OIL & GAS CIMARRON BEFORE ENERGY INDUSTRIES PRO FORMA
HISTORICAL SALES(1) SALE(2) INDUSTRIES SALE SALE TOTAL
---------- --------- -------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $179,708 $(5,390) $(57,829) $116,489 $(53,086) $63,403
-------- ------- -------- -------- -------- -------
Expenses:
Operating.............. 152,823 (3,156) (56,211) 93,456 (40,221) 53,235
Provision for asset
write-down............ 12,607 12,607 12,607
Depreciation, depletion
and amortization...... 10,775 (2,663) (1,475) 6,637 (4,322) 2,315
Selling, general and
administrative........ 10,204 (254) (625) 9,325 (3,742) 5,583
-------- ------- -------- -------- -------- -------
186,409 (6,073) (58,311) 122,025 (48,285) 73,740
-------- ------- -------- -------- -------- -------
Operating income (loss). (6,701) 683 482 (5,536) (4,801) (10,337)
-------- ------- -------- -------- -------- -------
Other income (expense):
Interest income........ 1,055 (84) 971 (215) 756
Interest expense....... (4,872) 579 (3) (4,293) 2,423 (3) (1,870)
Gain on sales of
Tidewater common
stock................. 4,811 4,811 4,811
Other.................. 928 928 (474) 454
-------- ------- -------- -------- -------- -------
1,922 495 2,417 1,734 4,151
-------- ------- -------- -------- -------- -------
Income (loss) from
continuing operations
before taxes........... (4,779) 683 977 (3,119) (3,067) (6,186)
Provision (benefit) for
income taxes........... (1,316) 239 342 (735) (1,354) (2,089)
-------- ------- -------- -------- -------- -------
Income (loss) from
continuing operations.. $ (3,463) $ 444 $ 635 $ (2,384) $ (1,713) $(4,097)
======== ======= ======== ======== ======== =======
Per common share income
(loss) from continuing
operations............. (0.11) 0.01 0.02 (0.08) (0.06) (0.14)
Common stock dividends
declared, per share.... -- -- -- -- -- --
</TABLE>
The following notes set forth the explanations and assumptions used in
preparing the unaudited pro forma condensed statement of income for the nine
months ended June 30, 1995 (amounts in thousands).
(1) In August 1995, the Company completed the sale of its remaining U.S.
offshore oil and gas properties. The Company received cash, a production
payment entitling the Company to a share of future revenues derived from
the properties and other considerations. No gain or loss was recognized
from the sale.
(2) The Company has also announced its intention to sell Cimarron. Although the
stockholders are not being asked to approve such sale, should such sale
occur as intended, the financial results would be restated to reflect
Cimarron as a discontinued operation.
(3) The pro forma adjustments include allocations of interest expense on
general corporate debt of $1.2 million to Energy Industries and $370,000 to
Cimarron.
22
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JUNE 30, 1994
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
----------- -----------
PRO FORMA TOTAL ENERGY
CIMARRON BEFORE ENERGY INDUSTRIES PRO FORMA
HISTORICAL SALE(1) INDUSTRIES SALE SALE TOTAL
---------- ----------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................ $241,924 $(120,456) $121,468 $(49,874) $71,594
-------- --------- -------- -------- -------
Expenses:
Operating.............. 209,215 (118,274) 90,941 (36,480) 54,461
Provisions for oil and
gas property
valuation............. 18,810 18,810 18,810
Depreciation, depletion
and amortization...... 11,969 (1,338) 10,631 (3,600) 7,031
Selling, general and
administrative........ 14,531 (1,540) 12,991 (4,952) 8,039
-------- --------- -------- -------- -------
254,525 (121,152) 133,373 (45,032) 88,341
-------- --------- -------- -------- -------
Operating income (loss). (12,601) 696 (11,905) (4,842) (16,747)
-------- --------- -------- -------- -------
Operating income
(expense):
Interest income........ 1,628 (84) 1,544 (180) 1,364
Interest expense....... (7,482) 826 (2) (6,656) 2,729 (2) (3,927)
Gain on sales of
Tidewater common
stock................. 37,457 37,457 37,457
Other.................. (2,859) (4) (2,863) (2,863)
-------- --------- -------- -------- -------
28,744 738 29,482 2,549 32,031
-------- --------- -------- -------- -------
Income (loss) from
continuing operations
before taxes.......... 16,143 1,434 17,577 (2,293) 15,284
Provision (benefit) for
income taxes.......... 6,117 502 6,619 (941) 5,678
-------- --------- -------- -------- -------
Income (loss) from
continuing operations. $ 10,026 $ 932 $ 10,958 $ (1,352) $ 9,606
======== ========= ======== ======== =======
Per common share income
(loss) from continuing
operations............ 0.31 0.03 0.34 (0.04) 0.30
Common stock dividends
declared, per share... 0.035 -- 0.035 -- 0.035
</TABLE>
The following notes set forth the explanations and assumptions used in
preparing the unaudited pro forma condensed statement of income for the nine
months ended June 30, 1994 (amounts in thousands).
(1) The Company has also announced its intention to sell Cimarron. Although the
stockholders are not being asked to approve such sale, should such sale
occur as intended, the financial results would be restated to reflect
Cimarron as a discontinued operation.
(2) The pro forma adjustments include allocations of interest expense on
general corporate debt of $2.7 million to Energy Industries and $517,000 to
Cimarron.
23
<PAGE>
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF JUNE 30, 1995
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
------------------- -----------
DOMESTIC PRO FORMA TOTAL ENERGY
OIL & GAS CIMARRON BEFORE ENERGY INDUSTRIES PRO FORMA
HISTORICAL SALE(1) SALE(2) INDUSTRIES SALE SALE(3) TOTAL
---------- --------- -------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Current assets
Cash................... $ 4,158 $ 3,365 $22,159 $ 28,171 $131,460 $115,629
(761) (2,202)
(750) (26,800)
(14,000)
(1,000)
Receivables............ 31,228 (633) (6,688) 23,907 (10,197) 13,710
Inventories............ 54,131 (656) 53,475 (24,174) 29,301
Other current assets... 4,269 (141) 4,128 4,128
--------- -------- ------- -------- -------- --------
Total current assets. 93,786 2,732 13,163 109,681 53,087 162,768
--------- -------- ------- -------- -------- --------
Investments and other
assets................. 51,902 8,834 (6,769) 54,717 (7,771) 40,930
750 (20,016)
14,000
--------- -------- ------- -------- -------- --------
Property and equipment.. 232,870 (74,536) (19,916) 138,418 (67,307) 71,111
Accumulated
depreciation........... (108,972) 63,377 2,976 (42,619) 7,810 (34,809)
--------- -------- ------- -------- -------- --------
123,898 (11,159) (16,940) 95,799 (59,497) 36,302
--------- -------- ------- -------- -------- --------
Total assets......... $ 269,586 $ 407 $(9,796) $260,197 $(20,197) $240,000
========= ======== ======= ======== ======== ========
Current liabilities
Current maturities of
long-term debt........ $ 8,866 $ $(1,987) $ 6,879 $ (429) $ 6,450
Other current
liabilities........... 36,256 407 (7,809) 28,854 (6,638) 22,216
--------- -------- ------- -------- -------- --------
Total current
liabilities........... 45,122 407 (9,796) 35,733 (7,067) 28,666
--------- -------- ------- -------- -------- --------
Long-term debt.......... 61,948 61,948 (27,563) 34,385
--------- -------- -------- --------
Other liabilities....... 19,365 19,365 19,365
--------- -------- --------
Stockholders' equity:
Preferred stock........ 3 3 3
Common stock........... 7,376 7,376 7,376
Capital in excess of
par value............. 129,344 129,344 129,344
Reinvested earnings.... 7,168 7,168 14,433 21,601
Investment unrealized
loss, net of tax...... (740) (740) (740)
--------- -------- ------- -------- -------- --------
143,151 -- -- 143,151 14,433 157,584
--------- -------- ------- -------- -------- --------
Total liabilities and
stockholders' equity.. $ 269,586 $ 407 $(9,796) $260,197 $(20,197) $240,000
========= ======== ======= ======== ======== ========
Book value per share.... $ 4.84 $ -- $ -- $ 4.84 $ 0.49 $ 5.33
</TABLE>
The following notes set forth the explanations and assumptions used in
preparing the unaudited pro forma condensed balance sheet as of June 30, 1995
(amounts in thousands).
(1) In August 1995, the Company completed the sale of its remaining U.S.
offshore oil and gas properties. The Company received cash, a production
payment entitling the Company to a share of future revenues derived from
the properties and other contract consideration. No gain or loss was
recognized from the sale.
(2) The Company has also announced its intention to sell Cimarron. Although the
stockholders are not being asked to approve such sale, should such sale
occur as intended, the financial position would be restated to reflect
Cimarron as a discontinued operation. Although the sale price has not been
determined, the Company estimates that, based on preliminary indications of
interest from potential purchasers, the
24
<PAGE>
minimum sales price should be at least book value. Therefore, the pro forma
adjustments assume that the sale price will be the recorded net book value
of Cimarron as of June 30, 1995. The estimated net proceeds to the Company
of $21,409 are comprised of estimated sales proceeds of $22,159 less
$750,000 for estimated federal and state income taxes.
(3) To record the sale of Energy Industries, which is estimated will result in
net proceeds to the Company of $89,660, comprised of gross proceeds of
$131,460 (purchase price of $130,000 plus a net asset value adjustment as
of June 30, 1995 of $1,460) less: $26,800 repayment of debt, $14,000 in
estimated federal and state income taxes and $1,000 in estimated
commissions and fees. As of June 30, 1995, the after-tax book gain would be
$14,433. The after-tax book gain of $14,433 is based on sales proceeds of
$131,460 less: $108,256 for the book value of the assets to be sold and
write-off of the remaining unamortized goodwill and deferred cost balances,
$1,000 for estimated commissions and fees and a $7,771 book tax provision.
At closing the actual amount of cash proceeds will be increased or
decreased, as the case may be, to the extent that the Net Asset Value is
greater than or less than $106,624.
25
<PAGE>
ENERGY INDUSTRIES UNAUDITED
FINANCIAL STATEMENTS
The following unaudited financial statements reflect the financial position
of Energy Industries at June 30, 1995 and September 30, 1994, and the results
of operations and cash flows of Energy Industries for the nine months ended
June 30, 1995, the eight months ended June 30, 1994 and the eleven months ended
September 30, 1994. The latter two periods are eight months and eleven months,
respectively, rather than nine months and twelve months, respectively, because
the Company did not own Energy Industries prior to November 1993 and therefore
information for the one month, October 1993, is not included.
ENERGY INDUSTRIES
COMBINED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1995 1994
-------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................. $ 2,202 $ 1,678
Receivables........................................... 10,198 11,389
Inventories........................................... 24,173 17,629
-------- --------
Total current assets................................ 36,573 30,696
-------- --------
Other assets............................................ 20,016 19,434
-------- --------
Property and equipment.................................. 67,307 56,661
Accumulated depreciation................................ (7,810) (4,165)
-------- --------
59,497 52,496
-------- --------
Total assets........................................ $116,086 $102,626
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.................. $ 429 $ 94
Accounts payable...................................... 3,558 2,745
Accrued liabilities................................... 4,743 3,995
-------- --------
Total current liabilities........................... 8,730 6,834
-------- --------
Long-term debt.......................................... 27,563 15,106
-------- --------
Deferred income taxes................................... 1,651 1,422
-------- --------
Due to parent........................................... 52,842 55,677
-------- --------
Stockholder's equity:
Common stock ($1.00 par value) authorized, issued
and outstanding: 3,000 shares........................ 3 3
Capital in excess of par value........................ 20,787 20,787
Reinvested earnings................................... 4,510 2,797
-------- --------
25,300 23,587
-------- --------
Total liabilities and stockholder's equity............ $116,086 $102,626
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
ENERGY INDUSTRIES
COMBINED INCOME STATEMENTS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS EIGHT MONTHS ELEVEN MONTHS
ENDED ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994 SEPTEMBER 30, 1994
------------- ------------- ------------------
<S> <C> <C> <C>
Revenues........................ $53,086 $49,874 $72,522
------- ------- -------
Expenses:
Operating expenses............ 40,221 36,480 52,768
Depreciation and amortization. 4,322 3,600 4.867
Selling, general and
administrative............... 3,742 4,952 6,917
------- ------- -------
48,285 45,032 64,552
------- ------- -------
Operating income................ 4,801 4,842 7,970
Interest expense, net........... (2,208) (2,549) (3,124)
Other income.................... 474 -- --
------- ------- -------
Income before income taxes...... 3,067 2,293 4,846
Provision for income taxes...... 1,354 941 2,049
------- ------- -------
Net income...................... $ 1,713 $ 1,352 $ 2,797
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
ENERGY INDUSTRIES
COMBINED STATEMENT OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS EIGHT MONTHS ELEVEN MONTHS
ENDED ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994 SEPTEMBER 30, 1994
------------- ------------- ------------------
<S> <C> <C> <C>
Cash flow provided (used) by
operating activities:
Net income.................... $ 1,713 $ 1,352 $ 2,797
-------- -------- --------
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization............... 4,322 3,600 4,867
Deferred taxes.............. 229 941 1,363
Changes in other assets and
liabilities:
Receivables............... 1,191 (964) (2,064)
Inventories............... (6,544) (2,341) 175
Accounts payable and
accrued liabilities...... 1,509 (883) 1,026
Other assets and
liabilities.............. (358) (874) (313)
-------- -------- --------
Total adjustments....... 349 (521) 5,054
-------- -------- --------
Net cash provided
operating activities..... 2,062 831 7,851
-------- -------- --------
Cash flow used by investing
activities:
Business acquisitions, net of
cash acquired................ (73,222) (73,222)
Capital expenditures.......... (11,495) (4,995) (8,638)
-------- -------- --------
Net cash used by investing
activities............... (11,495) (78,217) (81,860)
-------- -------- --------
Cash flow provided by financing
activities:
Borrowings.................... 12,864 15,000
Principal payments of long-
term obligations............. (72) (98) (120)
Proceeds from issuance of
common stock to Parent....... 20,790 20,790
Repayments to Parent.......... (2,835) (20,795)
Advances from Parent.......... 60,812 60,812
-------- -------- --------
Net cash provided by
financing activities..... 9,957 81,504 75,687
-------- -------- --------
Net increase in cash and cash
equivalents.................... 524 4,118 1,678
Cash and cash equivalents at
beginning of period............ 1,678
-------- -------- --------
Cash and cash equivalents at end
of period...................... $ 2,202 $ 4,118 $ 1,678
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
ENERGY INDUSTRIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The combined financial statements of Energy Industries ("Energy Industries")
are comprised of Zapata Rentals, Inc. (sole general partner of Zapata Energy
Industries L.P.), Zapata Compression Investments, Inc. (sole limited partner of
Zapata Energy Industries L.P.) and Energy Industries, Inc., three wholly-owned
subsidiaries of Zapata Corporation (the "Company"). The financial statements
are presented on a combined basis because their business activities are
performed as one entity. Energy Industries is engaged in the business of
renting, fabricating, selling, and servicing natural gas compressor packages
used in the oil and gas industry. Energy Industries is headquartered in Corpus
Christi, Texas and maintains a network of fifteen sales and service offices in
the surrounding four state area. In 1993, Energy Industries was formed and
acquired certain natural gas compression businesses (See Note 2).
Basis of Presentation
The combined financial statements of Energy Industries include the results
for the nine months ended June 30, 1995, the eight months ended June 30, 1994
and the eleven months ended September 30, 1994. All significant intercompany
transactions and account balances have been eliminated.
Property and Equipment
Depreciation of property and equipment is provided using the straight-line
method over the estimated useful lives of the assets. Estimated useful lives of
assets, determined as of the date of acquisition, are as follows:
<TABLE>
<CAPTION>
USEFUL LIVES
(YEARS)
------------
<S> <C>
Natural gas compressors...................................... 15
Building and leasehold improvements.......................... 20
Furniture, machinery and compressor casting molds............ 7
Computers and transportation equipment....................... 5
</TABLE>
Repairs and maintenance are charged to expense as incurred and major renewals
and betterments are capitalized. Upon the sale or retirement of equipment, the
cost of the equipment disposed and the related accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in
results from operations.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the moving average method for parts inventories. The cost of major
component inventories is determined by using specific identification.
Goodwill
Goodwill represents the excess of the cost of an acquisition over fair value
of net assets acquired. Goodwill is evaluated annually for impairment based
upon undiscounted cash flows and reduced to net realizable value if necessary.
Goodwill is amortized using the straight-line method over the estimated benefit
period of 40 years.
29
<PAGE>
ENERGY INDUSTRIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Equipment Under Operating Leases and Held for Lease
Energy Industries leases certain equipment to customers under agreements that
contain an option to purchase the equipment at any time. The option amount is
computed based on the original purchase price, less payments received, plus
interest and insurance during the period from the inception of the lease to the
date the option is exercised. The lease payments are generally computed to pay-
out the original purchase price plus interest over approximately 36 months.
Leases with noncancelable lease terms greater than 18 months are considered
sales-type leases because by the end of the original lease term, the option
price is expected to be lower than the equipment's fair market value. Equipment
leased under agreements with noncancelable lease terms of less than 18 months
and those which do not include a purchase option are accounted for as operating
leases and included in the rental fleet in property and equipment. Rental
equipment is depreciated over its estimated useful life.
Concentrations of Credit Risk
Energy Industries sells, leases, and rents gas compressors to customers in
the oil and gas industry. Energy Industries generally does not require
collateral. However, cash prepayments and security deposits are required for
accounts with indicated credit risks. Energy Industries also bills for progress
payments from time to time on large long-term construction projects. Energy
Industries maintains reserves for potential losses, and credit losses have been
within management's expectations.
At June 30, 1995 and September 30, 1994, Energy Industries had cash deposits
concentrated primarily in one bank.
Revenue
Revenues are recognized as services are performed, or as parts or equipment
deliveries are made. In some cases, revenue is recognized on large compressor
equipment construction when the project is completed, but before the equipment
is actually shipped. This practice occurs when a customer agrees to take
delivery and pay for the equipment, but is not yet ready to take possession of
the equipment. Energy Industries provides a limited warranty on certain
equipment and services. The warranty period varies depending on the equipment
sold or service performed. A liability for performance under warranty
obligations is accrued based upon the nature of the warranty and historical
experience.
Revenues are recognized on rental contracts as rental equipment is provided.
Most rental contracts have an initial contract term of six to twelve months and
then continue on a month-to-month basis.
Income Taxes
Energy Industries is included in the Company's consolidated U.S. federal
income tax return; however, income tax effects are reflected on a separate
company basis for financial reporting purposes. Energy Industries's method of
accounting for income taxes recognizes deferred tax liabilities and assets
based on the expected future tax consequences of events that have been included
in the financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the
financial statement carrying amounts and the tax basis of assets and
liabilities using currently enacted tax rates.
30
<PAGE>
ENERGY INDUSTRIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. ACQUISITION
In November 1993, the Company purchased the natural gas compression business
of Energy Industries, Inc. and Zapata Energy Industries L.P. (the
"Acquisition"). Total consideration paid was $90.2 million consisting of $74.5
million in cash and 2.7 million shares of the Company's Common Stock.
Additionally, Energy Industries incurred approximately $2.0 million in fees
associated with the Acquisition. Energy Industries accounted for the
Acquisition using the purchase method of accounting and recorded $19.3 million
of goodwill in connection therewith.
The following assets and liabilities were acquired in connection with the
Acquisition effective November 1, 1993 (in millions):
<TABLE>
<S> <C>
Cash............................................................... $ 3.5
Receivables........................................................ 9.3
Inventory.......................................................... 16.2
-----
29.0
Goodwill and other assets.......................................... 19.7
Property and equipment, net........................................ 49.6
-----
$98.3
=====
Current liabilities................................................ $ 5.8
Long-term debt..................................................... .2
-----
$ 6.0
=====
</TABLE>
NOTE 3. INVENTORIES
Energy Industries maintains inventories to support package fabrication in the
Corpus Christi, Texas headquarters, as well as repair and maintenance
operations in the branch offices. Inventories as of June 30, 1995 and September
30, 1994, respectively, are comprised of the following components (in
thousands):
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1995 1994
-------- -------------
<S> <C> <C>
Major fabrication components....................... $ 9,480 $ 3,908
Parts to support fabrication....................... 6,164 7,422
Parts to support field service..................... 5,808 4,291
Used parts and equipment........................... 2,680 1,809
Labor in process................................... 41 199
------- -------
$24,173 $17,629
======= =======
</TABLE>
31
<PAGE>
ENERGY INDUSTRIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Upon the Acquisition, Energy Industries increased the net book value of
property, plant and equipment by $22.5 million to reflect the estimated fair
market value of the rental fleet and land and facilities at the date of the
Acquisition. Property, plant and equipment as of September 30, 1994 are
comprised as follows (in thousands):
<TABLE>
<S> <C>
Rental fleet..................................................... $49,760
Patterns and forms............................................... 145
Leasehold improvements........................................... 899
Furniture and fixtures........................................... 212
Computer equipment............................................... 942
Machinery and equipment.......................................... 1,303
Buildings........................................................ 2,376
Land............................................................. 1,024
-------
56,661
Less accumulated depreciation.................................... (4,165)
-------
$52,496
=======
</TABLE>
Depreciation expense for the eleven months ended September 30, 1994 was
$4,201,000.
NOTE 5. GOODWILL
Goodwill as of September 30, 1994 is summarized as follows (in thousands):
<TABLE>
<S> <C>
Goodwill......................................................... $19,328
Accumulated amortization......................................... (443)
-------
$18,885
=======
</TABLE>
Amortization expense for goodwill totalled $443,000 for the eleven months
ended September 30, 1994.
NOTE 6. ACCRUED LIABILITIES
Accrued liabilities as of September 30, 1994 are summarized as follows (in
thousands):
<TABLE>
<S> <C>
State Income Taxes................................................. $ 425
Accrued Payroll.................................................... 1,279
Ad Valorem Taxes................................................... 375
Accrued Warranty................................................... 250
Other Accrued Liabilities.......................................... 1,666
------
$3,995
======
</TABLE>
32
<PAGE>
ENERGY INDUSTRIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. DEBT
Energy Industries debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1995 1995
-------- -------------
<S> <C> <C>
Texas Commerce Bank revolving/term credit
facility, 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............................. $26,800 $15,000
Other debt at approximately 8%.................. 1,192 200
------- -------
Total debt.................................... 27,992 15,200
Less current maturities......................... 429 94
------- -------
Long-term debt................................ $27,563 $15,106
======= =======
</TABLE>
At September 30, 1994, Energy Industries maintained a line of credit with
Texas Commerce Bank. This credit agreement provides Energy Industries with a
$30 million revolving credit facility that converts after two years to a three
year amortizing term loan. The debt bears interest at a variable rate, adjusted
periodically based on prime or Eurodollar interest rate.
Pursuant to the credit 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 the Company was limited to $5.0
million at September 30, 1994.
The estimated fair value of total long-term debt at June 30, 1995 and
September 30, 1994 approximates book value.
Annual Maturities
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>
$94 $105 $5,001 $5,000 $5,000
</TABLE>
NOTE 8. CASH FLOW INFORMATION
For purposes of the statement of cash flows, all highly liquid investments
with an original maturity of three months or less are considered to be cash
equivalents.
Net cash provided by operating activities reflects cash payments of interest
and income taxes.
Cash paid during the eleven months ended September 30, 1994 for interest was
$70,000.
NOTE 9. INCOME TAXES
Energy Industries' method of accounting for income taxes recognizes deferred
tax assets and liabilities based on 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.
33
<PAGE>
ENERGY INDUSTRIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Energy Industries' provision for income tax expense for the eleven months
ended September 30, 1994, computed on a separate company basis, consisted of
the following (in thousands):
<TABLE>
<S> <C>
Current
State.................................... $ 375
U.S...................................... 311
Deferred...................................
U.S...................................... 1,363
------
$2,049
======
</TABLE>
The provision for deferred taxes results from temporary differences in the
recognition of revenues and expenses for tax and financial reporting purposes.
The sources and income tax effects of these differences for the eleven months
ended September 30, 1994 were as follows (in thousands):
<TABLE>
<S> <C>
Book depreciation less than tax depreciation...................... $1,545
Book reserves not deductible for tax purposes..................... (24)
Changes to tax carryforwards and other............................ (158)
------
$1,363
======
</TABLE>
The following table reconciles the income tax provisions computed using the
U.S. statutory rate of 34% to the provisions reflected in the financial
statements (in thousands):
<TABLE>
<S> <C>
Taxes at statutory rate............................................ $1,647
State taxes, net of federal benefit................................ 247
Other.............................................................. 155
------
$2,049
======
</TABLE>
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 (in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Book reserves not yet deductible............................... $ 215
Other.......................................................... 97
-------
Total deferred tax assets.................................... 312
-------
Deferred tax liabilities:
Property and equipment......................................... (1,601)
Other.......................................................... (133)
-------
Total deferred tax liabilities............................... (1,734)
-------
Net deferred tax liability................................... $(1,422)
=======
</TABLE>
NOTE 10. COMMITMENTS AND CONTINGENCIES
Sales-Type Lease Receivables
Energy Industries provides a capital lease financing option to its customers.
Future minimum lease payments receivable under sales-type leases are due as
follows: $3,769,000 in 1995, $241,000 in 1996 and $77,000 in 1997; deferred
interest totalling $51,000 is included in these amounts. Energy Industries
periodically sells a portion of its lease receivables to third party
financiers. Certain of these 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 receivables was
$1.7 million. During the eleven
34
<PAGE>
ENERGY INDUSTRIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
months ended September 30, 1994, Energy Industries sold a total of $8.3 million
on these receivables. To date, Energy Industries has not experienced any
significant recourse losses.
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
noncancelable 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
Energy Industries leases certain buildings and equipment under noncancelable
operating leases. Future minimum payments under these operating lease
obligations aggregate $1.3 million, and for the four years ending September 30,
1998 are:
<TABLE>
<CAPTION>
1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Lease obligations........................................... $487 $414 $309 $102
</TABLE>
Rental expenses for operating leases were $533,000 for the eleven months
ending September 30, 1994.
Claims and Litigation
Energy Industries is defending various claims and litigation arising from
operations. In the opinion of management, uninsured losses, if any, resulting
from theses matters will not have a material adverse effect on Energy
Industries' results of operations or financial position.
Foreign Representation
Energy Industries entered into a contract with Atlas Copco to represent
Energy Industries in countries and markets where Energy Industries did not have
sales contracts or convenient access. Atlas Copco receives a commission on
sales that Energy Industries makes internationally, whether they made the
initial contact or not. The contract specifically excludes sales to Canada or
Mexico. The contract is in effect until July 15, 1998 and renews automatically
for successive one year terms unless terminated by one of the parties in
advance.
Energy Industries is also under contract with a former affiliate company,
Energy Industries LTD, located in Calgary, Alberta, Canada. Pursuant to this
agreement, Energy Industries is required to supply Energy Industries LTD with
proprietary compressor components used in the fabrication of gas compressor
packages. Also, according to this agreement, Energy Industries LTD cannot buy
similar components from other manufacturers. The companies also are bound by
non-compete agreements in each other's respective country. This agreement
remains in effect through 1996, after which time, Energy Industries will be
obligated to sell compressor components to Energy Industries LTD until 2002,
but not on an exclusive basis in Canada. In addition, after 1996 either company
may compete in the other's country for sales of new compressor packages or any
other product or service.
NOTE. 11. RELATED PARTY TRANSACTIONS
Energy Industries purchases Caterpillar engines and parts from Holt Company
of Texas, a corporation owned by the CEO of Energy Industries, and a major
stockholder and a director of the Company. During 1994, Energy Industries
purchased $7.3 million of parts and engines from Holt Company of Texas. At
September 30, 1994, Energy Industries owed the Holt Company $663,000 related to
these purchases.
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<PAGE>
ENERGY INDUSTRIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Energy Industries interest expense includes an allocation of interest expense
from the Company totalling $1,243,000 for the nine months ended June 30, 1995,
$2,709,000 for the eight months ended June 30, 1994 and $3,364,000 for the
eleven months ended September 30, 1994. Interest expense of the Company that
was not directly attributable to or related to other operations of the Company
was allocated to Energy Industries based on net assets. Additionally, the
Company performs certain administrative functions for Energy Industries
including insurance policy placement, income tax and legal support. These costs
are charged to Energy Industries based upon costs incurred in support of these
activities.
NOTE 12. PROFIT SHARING PLAN
All qualified employees of Energy Industries are covered under the Energy
Industries, Inc. Profit Sharing Plan. Energy Industries matches an employee's
voluntary contribution on a dollar-for-dollar basis, up to 2% of the employee's
gross payroll. Energy Industries can also elect to make an annual contribution
to the plan based on profits. These contributions are allocated to the
participants based on gross payroll. Contributions of $163,512 were made under
this discretionary profit sharing feature of the plan for the eleven months
ended September 30, 1994.
NOTE. 13. SUBSEQUENT EVENTS
In January 1995, Energy Industries sold its heat exchanger division, located
in Garland, Texas. The heat exchanger division manufactured one of the integral
components of the gas compressor package, the "cooler" or "heat exchanger".
Energy Industries received $1,470,000, and entered into an alliance agreement
structured to provide Energy Industries with the heat exchangers necessary to
perform its fabrication operations. As part of the consideration of the sale,
Energy Industries received a $725,000 credit to be used against future
purchases over the next five years at a rate of 10% off of normal invoice
price. Approximately $5.5 million in revenues and approximately $471,000 in
operating income, included in Energy Industries results for the eleven months
ended September 30, 1994, was attributable to the heat exchanger division.
During February 1995, Energy Industries acquired the rental fleet of J-Brex
Company for $725,000. Fourteen active rental units were acquired in this
transaction, and Energy Industries entered into a three-year agreement which
affords Energy Industries the right of first refusal on these and any future
compressors J-Brex may need.
In April 1995, Energy Industries acquired the forty-four unit rental fleet of
Mountain Front Pipeline Company, Inc. Energy Industries purchased these units
for $2.7 million, and entered into an agreement with Mountain Front, which
affords Energy Industries exclusive rights for these and any future compressors
for a period of up to thirty months.
On June 30, 1995, the Company announced that it had entered into an agreement
to sell the assets of Energy Industries for $130 million to Enterra
Corporation. The agreement is subject to stockholder approval and certain
government approvals.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Set forth below is certain information with respect to beneficial ownership
of the Company's voting securities as of September 30, 1995 by each director,
certain executive officers, by the directors and executive officers of the
Company as a group and the holders of the Company's voting securities known to
the Company on September 30, 1995 to own beneficially 5% or more of any class
of the Company's voting securities. For the purposes of this Proxy Statement,
beneficial ownership of securities is defined in accordance with the rules of
the Securities and Exchange Commission (the "Commission") to mean generally the
power to vote or dispose of securities, regardless of any economic interest
therein. Stockholders whose addresses are not listed below have the Company's
address at 1717 St. James Place, Suite 550, Houston, Texas 77056.
<TABLE>
<CAPTION>
PERCENT
TITLE OF CLASS OF SHARES OWNED OF
SECURITY NAME AND ADDRESS BENEFICIALLY(1) CLASS
----------------- ---------------- --------------- -------
<C> <S> <C> <C>
Common Stock The Malcolm I. Glazer Trust..... 10,408,717(2) 35.3%
and Malcolm I. Glazer
1482 South Ocean Boulevard
Palm Beach, Florida 33480
Peter M. Holt................... 2,817,622(3) 9.6%
c/o Holt Company of Texas
S.W.W. White at Holt Avenue
San Antonio, Texas 78222
Avram A. Glazer................. 13,333 *
R.C. Lassiter................... 78,477 *
Robert V. Leffler, Jr. ......... 0 *
W. George Loar.................. 0 *
Robert W. Jackson............... 350,436(4) 1.2%
Joseph B. Mokry................. 0 *
Lamar C. McIntyre............... 42,026 *
Joseph L. von Rosenberg, III.... 13,333 *
Directors and executive officers
as a group (10 persons)......... 13,723,944 46.5%
$2 Preference Stock Larry A. Reiten................. 150 5.7%
Route 1, Box 297
Bayfield, Wisconsin 54814-9701
</TABLE>
- --------
*Less than 1%.
(1) Except as otherwise noted, individuals listed in the table have sole voting
and investment power with respect to the indicated shares. Investment power
with respect to certain shares held by certain officers of the Company
under the Company's Profit Sharing Plan is limited; such shares amount to
less than 1% of the total number of shares of Common Stock held by all
officers and directors as a group. Included in the amounts indicated are
shares subject to stock options exercisable within 60 days of September 30,
1995. Such number of shares are 42,000 for Mr. McIntyre, 13,333 for each of
Messrs. A. Glazer, M. Glazer and von Rosenberg, and 6,666 for Mr. Holt; and
91,665 shares for the directors and executive officers as a group.
(2) Based on information contained in a Schedule 13D, which was filed with the
Commission by The Malcolm I. Glazer Trust and Mr. Glazer. The Schedule 13D
states that Mr. Glazer contributed all of his shares of Common Stock to
such trust and that, as trustee and beneficiary of such trust, Mr. Glazer
is a beneficial owner of the shares of Common Stock held by such trust. The
amount in the table also includes 13,333 shares of Common Stock which Mr.
Glazer has the right to acquire within 60 days of September 30, 1995
through the exercise of stock options.
(3) Based on (i) information contained in a Schedule 13D, which was filed with
the Commission by Mr. Holt and (ii) additional information provided to the
Company by Mr. Holt. The Schedule 13D and the
37
<PAGE>
additional information indicates ownership as follows: 1,021,967 shares held
by Mr. Holt, individually; 115,960 shares held by the Peter M. Holt Grantor
Trust; 28,032 shares held by the Hawn-Holt Trust; 220,478 shares held by the
S Stock GST Trust for Peter M. Holt; 55,478 shares held by the S Stock GST
Trust for Benjamin D. Holt III; 120,478 shares held by the S Stock GST Trust
for Anne Holt; 207,581 shares held by the Holt Corporate Stock Marital
Trust--1985; 200,885 shares held by the Holt Corporate Stock Life Trust--
1985 and 840,097 shares held by Benjamin D. Holt, Jr. Mr. Holt disclaims
beneficial ownership as to all of the shares held by the S Stock GST Trust
for Benjamin D. Holt III and the S Stock GST Trust for Anne Holt. The amount
in the table also includes 6,666 shares of Common Stock, which Mr. Holt has
the right to acquire within 60 days of September 30, 1995 through the
exercise of nonqualified stock options.
(4)All such shares are owned by the Robert W. Jackson Trust.
MARKET PRICES OF COMMON STOCK
The Common Stock is listed on the New York Stock Exchange (the "NYSE"). On
June 29, 1995, the day prior to the first public announcement by the Company of
the proposed Energy Industries Sale, the closing sales price of Common Stock on
the NYSE was approximately $2.625 per share, and the high and low prices of the
Common Stock for such day were approximately $2.875 per share and $2.625 per
share, respectively.
INDEPENDENT ACCOUNTANTS
Representatives of Coopers & Lybrand, L.L.P., the Company's independent
accountants, will be present at the Special Meeting with the opportunity to
make a statement if they desire and to respond to appropriate questions of
stockholders.
OTHER MATTERS
The Board of Directors does not intend to bring any other matter before the
Special Meeting and is not informed of any other business which others may
bring before the meeting. However, if any other matters should properly come
before the meeting, or any adjournment thereof, it is the intention of the
persons named in the accompanying Proxy to vote on such matters as they, in
their discretion, may determine.
Stockholders are entitled to submit proposals in a timely manner for
inclusion in the Company's proxy statement and the form of proxy at an annual
meeting of stockholders on matters appropriate for stockholder action
consistent with the regulations of the Securities and Exchange Commission. As
noted in the Company's proxy statement relating to the 1995 Annual Meeting of
Stockholders, in order to be so included for the 1996 Annual Meeting,
stockholder proposals must be received by the Company not later than January
15, 1996 and otherwise comply with the requirements applicable thereto.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company (File No. 1-4219)
with the Securities and Exchange Commission are incorporated herein by
reference:
(1) Annual Report on Form 10-K for the year ended September 30, 1994;
(2) Annual Report on Form 10-K/A for the year ended September 30, 1994;
(3) Proxy Statement dated June 26, 1995;
(4) Quarterly Report on Form 10-Q for the quarter ended December 31, 1994;
(5) Quarterly Report on Form 10-Q for the quarter ended March 31, 1995;
(6) Quarterly Report on Form 10-Q for the quarter ended June 30, 1995;
(7) Quarterly Report on Form 10-Q/A for the quarter ended June 30, 1995;
(8) Current Report on Form 8-K reporting event of March 1, 1995;
(9) Current Report on Form 8-K reporting event of March 31, 1995;
(10) Current Report on Form 8-K reporting event of April 13, 1995;
(11) Current Report on Form 8-K reporting event of May 30, 1995;
(12) Current Report on Form 8-K reporting event of September 20, 1995; and
(13) Current Report on Form 8-K dated November 13, 1995.
38
<PAGE>
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the date
of the Special Meeting to which this Proxy Statement relates are deemed to be
incorporated herein by reference, and shall be deemed a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein, or contained in this Proxy Statement, shall
be deemed to be modified or superseded for purposes of this Proxy Statement to
the extent that a statement contained herein or in any subsequently filed
document which also is deemed to be incorporated herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed to
constitute a part of this Proxy Statement, except as so modified or superseded.
Attached to this Proxy Statement is a copy of the Company's (i) Annual Report
on Form 10-K, as amended, for the year ended on September 30, 1994, set forth
as Appendix C, (ii) Proxy Statement dated June 26, 1995, set forth as Appendix
D, (iii) Quarterly Report on Form 10-Q, as amended, for the quarter ended June
30, 1995, set forth as Appendix E, and (iv) Form 8-K dated November 13, 1995,
set forth as Appendix F.
THE COMPANY WILL FURNISH WITHOUT CHARGE COPIES OF ANY AND ALL INFORMATION
INCORPORATED BY REFERENCE HEREIN, EXCLUDING THE EXHIBITS THERETO AND THE FORM
10-K, THE PROXY STATEMENT, FORM 8-K AND THE FORM 10-Q ACCOMPANYING THIS PROXY
STATEMENT, TO INTERESTED SECURITY HOLDERS WHOSE PROXY IS BEING SOLICITED, UPON
WRITTEN OR ORAL REQUEST AND BY FIRST CLASS MAIL OR OTHER PROMPT MEANS WITHIN
ONE BUSINESS DAY OF RECEIPT OF SUCH REQUEST. THE COMPANY WILL FURNISH TO ANY
SUCH PERSON ANY EXHIBITS DESCRIBED IN SUCH REPORTS UPON PAYMENT OF REASONABLE
FEES RELATING TO THE COMPANY'S COST OF FURNISHING SUCH EXHIBITS. REQUESTS FOR
COPIES SHOULD BE DIRECTED TO MR. JOSEPH L. VON ROSENBERG, III, CORPORATE
SECRETARY, ZAPATA CORPORATION, 1717 ST. JAMES PLACE, SUITE 550, HOUSTON, TEXAS
77056, TELEPHONE NO. (713) 940-6100.
By Order of the Board of Directors,
/s/ Joseph L. von Rosenberg, III
JOSEPH L. von ROSENBERG, III
Vice President, General Counsel and
Corporate Secretary
Houston, Texas
November 13, 1995
39
<PAGE>
APPENDIX A
PURCHASE AGREEMENT
<PAGE>
AGREEMENT
THIS AGREEMENT (this "Agreement") is dated as of September 20, 1995, by and
among, on the one hand, Zapata Corporation, a Delaware corporation ("Zapata"),
Energy Industries, Inc., a Delaware corporation and a wholly-owned subsidiary of
Zapata ("Zapata Sub"), and Zapata Energy Industries, L.P., a Delaware limited
partnership which is wholly-owned by Zapata ("Zapata Partnership" and
collectively with Zapata and Zapata Sub, the "Seller"), and, on the other hand,
Enterra Corporation, a Delaware corporation ("Enterra"), and Enterra Compression
Company, a Delaware corporation and a wholly-owned subsidiary of Enterra
("Enterra Sub", and collectively with Enterra, the "Purchasers").
WHEREAS, the Purchasers desire to purchase from the Seller, and the Seller
desires to sell to the Purchasers, the Assets (as defined herein) upon the terms
and conditions set forth herein;
WHEREAS, Purchasers desire to assume the Assumed Liabilities (as defined
herein) from the Seller upon the terms and conditions set forth herein; and
WHEREAS, to induce Purchasers to enter into this Agreement, a principal
stockholder of Zapata has executed an agreement with Enterra pursuant to which
such stockholder has agreed to vote the shares of common stock of Zapata owned
or controlled by such stockholder in accordance with the recommendation of the
Board of Directors of Zapata with respect to the approval by the stockholders of
Zapata of resolutions to be submitted to the stockholders of Zapata relating to
this Agreement;
NOW, THEREFORE, in consideration of the respective representations,
warranties and covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 Accounting Terms and Determinations. Unless otherwise specified
in this Agreement, all accounting terms used in this Agreement shall be
interpreted, all determinations as to accounting matters pursuant to the terms
of this Agreement shall be made and all financial statement matters and
certificates and reports as to financial or accounting matters required to be
delivered pursuant to the terms of this Agreement shall be prepared in
accordance with GAAP (except that interim financial statements may not include
footnotes) applied on a consistent basis.
Section 1.2 Other Terms. As used herein, certain other words and terms
shall have the meanings given to them in Exhibit 1 attached hereto.
ARTICLE II.
REPRESENTATIONS, WARRANTIES AND
AGREEMENTS OF THE SELLER
Each Seller, jointly and severally, hereby makes to the Purchasers the
representations, warranties and agreements set forth in this Article II. The
Seller has delivered to the Purchasers a Disclosure Schedule to this Agreement
(the "Disclosure Schedule") on the date hereof. The Seller shall, from time to
time through the Closing Date, advise the Purchasers as to any change, amendment
or supplement to the Disclosure Schedule which is necessary to reflect changes
in the subject matter thereof occurring through the Closing Date.
Section 2.1 Organization and Qualification. Each Seller is a corporation or
partnership, duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. Each Seller has all requisite power
and authority to carry on its business as now being conducted and to own, lease
and operate its properties
1
<PAGE>
and assets as now owned, leased or operated. The nature of the businesses and
activities of Seller, as currently conducted, do not require Seller to be
qualified to do business in any foreign jurisdiction in which they are not so
qualified, except to the extent the failure so to comply would not have a
Material Adverse Effect. Zapata owns all of the outstanding capital stock of
Zapata Sub and directly or indirectly owns all of the outstanding partnership
interests of Zapata Partnership.
Section 2.2 Authority Relative to the Agreement. Each Seller has full
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement, the performance of Seller's
obligations hereunder and the consummation of the transactions contemplated
hereby have been duly and validly authorized and approved by the Boards of
Directors of each Seller (or its general partner) and no further actions or
proceedings on the part of any Seller are necessary to authorize the execution
and delivery of this Agreement, the performance of Seller's obligations
hereunder or the consummation of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by each Seller, and
this Agreement constitutes the legal, valid and binding agreement of each
Seller, enforceable against each Seller in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization, moratorium, or other
similar laws relating to creditors' rights generally and general equitable
principles.
Section 2.3 No Violation. Except for any filings and waiting period
requirements under the HSR Act, the consent of Seller's bank lender, preliminary
and definitive proxy material filings of Zapata with the Securities and Exchange
Commission, and approval of the stockholders of Zapata, no prior consent,
approval or authorization of, or declaration, filing or registration with, any
party, domestic or foreign, is necessary in connection with the execution,
delivery and performance of this Agreement by the Seller, the failure of which
to obtain would have a Material Adverse Effect. Neither the execution, delivery
nor performance of this Agreement in its entirety, nor the consummation of all
of the transactions contemplated hereby, will (i) violate any material
Governmental Requirement applicable to the Seller or any of the Assets, (ii) be
in conflict with, result in a breach or termination of any provision of, cause
the acceleration of the maturity of any debt or obligation pursuant to,
constitute a default under, or result in the creation of a Lien upon any
property or assets of Seller pursuant to any terms, conditions or provisions of
any material Governmental Authorization, lease, license, permit, Environmental
Permit, Contract or other agreement or instrument to or of which any Seller is a
party or a beneficiary (provided, however, that the parties acknowledge that
consents to assignment of the above items will be delivered by Seller to
Purchaser on or prior to the Closing Date and not on the date of this
Agreement), (iii) give rise to any Lien on any of the Assets, or (iv) conflict
with or violate any provision of the charter, Bylaws, limited partnership
agreement or other organizational documents of any Seller or resolutions of the
Board of Directors of any Seller (or any general partner thereof). There are no
Proceedings pending, or to the Seller's knowledge threatened against the Seller,
at law or in equity or before or by any Governmental Authority which may result
in liability to the Purchasers upon the consummation of the transactions
contemplated hereby or which would prevent or delay such consummation.
Section 2.4 Financial Statements.
(a) The Seller has provided the Purchasers with true and complete copies
of the combined balance sheets of the Business as of May 31, 1995 (the "Balance
Sheet Date" and the combined balance sheet as of such date, the "May Balance
Sheet") and September 30, 1994 and the related income statements for the fiscal
year ended September 30, 1994 and the eight (8)-month period ended May 31, 1995,
and the Seller will provide the Purchasers with balance sheets and the related
statements of income for the Business for each monthly period (unaudited) ending
after the Balance Sheet Date and prior to the Closing Date (all of the foregoing
statements of financial position and the related statements of income of the
Business are collectively referred to as the "Seller's Financial Statements").
(b) Seller's Financial Statements, which are, in the case of those
financial statements existing on the date of this Agreement, attached hereto as
Schedule 2.4(b) (including without limitation all notes, schedules and
supplemental data contained in or annexed to such statements), are or will be,
as the case may be, accurate,
2
<PAGE>
complete and in accordance with the books and records of Seller and present, or
will present, as the case may be, fairly in all material respects, the combined
financial position and assets and liabilities of the Business as their
respective dates and the results of its combined operations for the periods then
ended, in conformity with GAAP (subject, in the case of the interim financial
statements, to normal year-end adjustments, the effect of which, individually or
in the aggregate, will not be materially adverse, and the fact that they do not
or will not, as the case may be, contain all of the footnote disclosures
required by GAAP, except as otherwise noted therein).
Section 2.5 Accounting Records. The books of account and other accounting
records of the Business, all of which have been or will be made available to the
Purchasers, are complete and correct subject to normal year-end adjustments, the
effect of which, individually or in the aggregate, will not be materially
adverse, and have been maintained in accordance with Seller's normal business
practices, including, but not limited to, the maintenance of an adequate system
of internal controls.
Section 2.6 Assets Acquired. Upon consummation of the transactions
contemplated by this Agreement, Enterra Sub shall have acquired from Seller all
of the assets (other than Excluded Assets, as defined herein) being used (or
held for use) to generate the operating results reflected in Seller's Financial
Statements. Since the Balance Sheet Date there has been no change in the
inventory or revenue producing equipment of the Business that generated the
revenues reflected in the Seller's Financial Statements, other than changes in
the ordinary course of the Business, consistent with the past practice, which
are not material in the aggregate.
Section 2.7 Absence of Undisclosed Liabilities. Neither any Seller nor
Energy Industries Financial Services, Inc. is liable for or subject to any
liability in connection with the Business except for:
(a) those Liabilities disclosed on the May Balance Sheet and not heretofore
paid or discharged;
(b) those Liabilities arising in the ordinary course of the Business
consistent with past practice under any Contract, commitment or arrangement
disclosed on Schedule 2.11 of the Disclosure Schedule or not required to be
disclosed thereon because of the term or amount involved or otherwise; and
(c) those Liabilities incurred in the ordinary course of the Business,
consistent with past practice, and either not required to be shown on the May
Balance Sheet or arising since the Balance Sheet Date, which liabilities and
obligations individually and in the aggregate are of a character and magnitude
consistent with its past practice.
Section 2.8 Absence of Certain Changes. Except as and to the extent set
forth on Schedule 2.8, since May 31, 1995 (a) no Seller has in connection with
the Business (i) suffered, individually or in the aggregate, any Material
Adverse Effect or (ii) conducted the Business other than in the ordinary course,
consistent with past practice, and (b) neither Zapata Sub nor Zapata Partnership
has declared, set aside or paid any dividend, or made or agreed to make any
other distribution or payment in respect of its shares nor has it redeemed,
purchased or otherwise acquired or agreed to redeem, purchase or otherwise
acquire any of its shares.
Section 2.9 Title to Properties: Encumbrances. Schedule 2.9 of the
Disclosure Schedule sets forth a true and complete description of all real
property used or held for use in connection with the Business. Seller has,
except for Liens which will be terminated in their entirety on or before the
Closing Date, and at the Closing will convey to Enterra Sub, unencumbered, good,
legal, and indefeasible title to all of the Assets, except for Permitted Liens
and those Assets disposed of for fair market value in the ordinary course of the
Business, consistent with past practice, since the Balance Sheet Date and
otherwise in accordance with this Agreement.
Section 2.10 Litigation. Except as set forth on Schedule 2.10 of the
Disclosure Schedule, there are no actions, suits, claims or other proceedings
pending or, to the best knowledge of the Seller, threatened against any Seller
or involving any of its Assets, at law or in equity or before or by any foreign,
federal, state, municipal, or other governmental court, department, commission,
board, bureau, agency, Governmental Authority, or other instrumentality or
person or any board of arbitration or similar entity (a "Proceeding"). The
Seller will promptly
3
<PAGE>
notify the Purchasers of any material Proceeding which relates to the Business
initiated by or against Seller prior to the Closing Date.
Section 2.11 Contracts. Except as listed and described on Schedule 2.11 of
the Disclosure Schedule, no Seller is, in connection with the Business, a party
to or otherwise bound by any written or oral:
(a) Contract or commitment with any present or former stockholder,
director, officer, partner, employee or consultant or for the employment of any
person, including, without limitation, any consultant;
(b) Contract or commitment for the purchase of, or payment for, supplies or
products, or for the performance of services by a third party, involving in any
one case $50,000 or more or in excess of $3,000,000 in the aggregate;
(c) Contract or commitment to sell or supply products or to perform
services outside the ordinary course of business, consistent with past practice,
involving in any one case $50,000 or more or in excess of $3,000,000 in the
aggregate;
(d) Contract or commitment not otherwise covered by this Section 2.11 and
continuing over a period of more than six (6) months from the date hereof and
exceeding $100,000 in value, or in excess of $8,000,000 in the aggregate;
(e) Any Equipment Lease, or any other lease under which Seller is either
lessor or lessee, involving in any one case $100,000 or more or in excess of
$4,000,000 in the aggregate;
(f) Contract or commitment for any capital expenditure involving in any one
case $200,000 or more or in excess of $500,000 in the aggregate;
(g) Master service agreements which (i) (a) are not a standard form
contract used in the gas compression industry or (b) contain amendments to the
indemnification provisions in standard form agreements used in the gas
compression industry, and (ii) continue over a period of more than six (6)
months from the date hereof and exceeding $100,000 in value, or in excess of
$14,000,000 in the aggregate; or
(h) Contract, commitment or arrangement with any other Seller or any
Affiliate of any Seller.
Except as may be disclosed on Schedule 2.11 of the Disclosure Schedule, each of
the Contracts, commitments, arrangements, leases and other instruments,
documents and undertakings listed on such Schedule or not required to be listed
thereon because of the term or amount involved or otherwise, is valid and
enforceable in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors' rights generally and general equitable principles. The Seller, and
to Seller's knowledge, other parties thereto, are in material compliance with
the provisions thereof. The Seller is not, and to Seller's knowledge, other
parties thereto are not, in default in the performance, observance or
fulfillment of any material obligation, covenant or condition contained therein,
and, to Seller's knowledge, no event has occurred which with or without the
giving of notice or lapse of time, or both, would constitute a default
thereunder.
Section 2.12 Compliance with Laws. Except as set forth on Schedule 2.12 of
the Disclosure Schedule and except for such as would not in the aggregate have a
Material Adverse Effect, to the knowledge of the Seller, no Seller is in default
with respect to or in violation of (i) any judgment, order, writ, injunction or
decree of any court or (ii) any legal requirement of any Governmental Authority.
The consummation of the transactions contemplated by this Agreement will not
constitute such a default or violation as to the Seller. Seller has all
Governmental Authorizations required to conduct the Business as now being
conducted. All required filings with respect to such Governmental Authorizations
have been timely made and all required applications for renewal thereof have
been
4
<PAGE>
timely filed. All such Governmental Authorizations are in full force and effect
and there are no proceedings pending or threatened that seek the revocation,
cancellation, suspension, or adverse modification thereof.
Section 2.13 Insurance. Schedule 2.13 of the Disclosure Schedule sets
forth all material policies of property, fire and casualty, product liability,
workers' compensation, liability and other forms of insurance owned or held by
Seller. Such description identifies the issuer of each such policy, the amount
of coverage available and outstanding under each such policy, and whether each
such policy is a "claims made" or an "occurrence" policy. True and complete
copies of such policies have been made available to the Purchasers for review.
Section 2.14 Trademarks. Schedule 2.14 of the Disclosure Schedule sets
forth a list of each trademark, trademark registration, trademark registration
application and trade name which any Seller owns or uses which is material to
the operation of the Business and with respect to which they are the licensor or
licensee.
Section 2.15 Environmental Matters. In addition to the representations
and warranties in Section 2.12 hereof, and not in limitation thereof, except as
disclosed on Schedule 2.15, (a) no releases of Hazardous Materials have occurred
and no conditions have existed from November 9, 1993 until the date of this
Agreement, or the Closing Date, as applicable, at or from any property currently
or previously owned or leased by Seller during the period such property was
owned or leased by Seller, which would require (i) release reporting to a
Governmental Authority or remediation under applicable Environmental Law and
(ii) result in a Material Adverse Effect; (b) there are no pending, or to the
actual knowledge of Seller, threatened Environmental Claims against the Seller
in connection with the Business including, without limitation, Environmental
Claims brought pursuant to CERCLA or comparable state statutes with respect to
the disposal, or arrangement for disposal or treatment (with a transporter or
otherwise), of Hazardous Materials at sites or facilities owned by Seller or
third-parties; and (c) to Seller's actual knowledge and during the period from
November 9, 1993 through the date hereof, or the Closing Date, as applicable,
there are and were no leaking underground storage tanks currently or previously
owned or operated by Seller in connection with the Business located at any
property currently or previously owned or operated by any Seller in connection
with the Business which such leak occurred during the period such property was
owned or leased by Seller.
Section 2.16 Employee Severance/Continuation Agreements. Schedule 2.16 of
the Disclosure Schedule sets forth a complete list of all employees of the
Business that are subject to any employment, retention and/or severance
agreement under which any Seller is obligated. Seller has furnished Purchasers
with the forms (sufficient for determining costs) of such agreements and of any
other plans or arrangements under which any Seller is obligated to provide any
retention compensation or severance benefits to any Zapata Employee.
Section 2.17 Completeness of Disclosure. No representation or warranty by
any Seller contained in this Agreement, and no representation, warranty or
statement contained in any list, certificate, Schedule or other instrument,
document, agreement or writing furnished or to be furnished to, or made with,
the Purchasers pursuant hereto or in connection with the negotiation, execution
or performance hereof, contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary to make
any statement herein or therein not misleading.
Section 2.18 No Other Representations. The Seller is not making any
representations or warranties, express or implied, of any nature whatsoever
except as specifically set forth in this Agreement.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby makes, jointly and severally, to the Seller the
representations and warranties set forth in this Article III.
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Section 3.1 Organization and Authority. Each Purchaser is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Delaware. Each Purchaser has full power and authority to execute and
deliver this Agreement. Enterra directly owns all of the outstanding capital
stock of Enterra Sub.
Section 3.2 Authority Relative to Agreement. The execution, delivery and
performance of this Agreement have been duly and validly authorized and approved
by the Board of Directors of each Purchaser and no further actions on the part
of the Purchasers or Weatherford International Incorporated are necessary to the
execution, delivery and performance of this Agreement. This Agreement has been
duly executed and delivered by the Purchasers and is a valid, legally binding
and enforceable obligation of the Purchasers, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
relating to creditors' rights generally and general equitable principles.
Section 3.3 No Violation. Except for any filing and waiting period
requirements under the HSR Act, no prior consent, approval or authorization of,
or declaration, filing or registration with, any party, domestic or foreign
(including, without limitation, Weatherford International Incorporated), is
necessary in connection with the execution, delivery and performance of this
Agreement by the Purchasers, the failure of which to obtain would have a
material adverse effect on Purchasers. Neither the execution, delivery nor
performance of this Agreement in its entirety, nor the consummation of all of
the transactions contemplated hereby, will (i) violate any material Governmental
Requirement applicable to the Purchasers, or (ii) conflict with or violate any
provision of the Certificate of Incorporation, Bylaws or resolutions of the
Boards of Directors of either Purchaser. There are no Proceedings pending or, to
the Purchasers' knowledge, threatened against the Purchasers, at law or in
equity or before or by any Governmental Authority which may result in liability
to any Seller upon the consummation of the transactions contemplated hereby or
which would prevent or delay such consummation.
Section 3.4 Financing. The Purchasers will have on the Closing Date
sufficient funds available to permit the Purchasers to pay the total Purchase
Price.
Section 3.5 Independent Investigation. The Purchasers have been provided an
opportunity to review all documents and information as they have deemed
necessary or appropriate concerning the Business and such other matters as they
have deemed necessary or appropriate in making their own financial, business and
legal evaluations of the Business and the transactions contemplated hereby, and
the Purchasers have independently and based on such documents, information and
evaluations, as they have deemed appropriate, made their own independent
appraisal and decision with respect to (i) the transactions contemplated hereby,
and (ii) the properties, assets, business, financial value and condition of the
Business and, except for the specific representations and warranties of Seller
made in Article II hereof, Purchasers are acquiring the Assets "As Is".
Section 3.6 Completeness of Disclosure. No representation or warranty by
any Purchaser contained in this Agreement, and no representation, warranty or
statement contained in any list, certificate, Schedule or other instrument,
document, agreement or writing furnished or to be furnished to, or made with,
the Seller pursuant hereto or in connection with the negotiation, execution or
performance hereof, contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact necessary to make any
statement herein or therein not misleading.
Section 3.7 WARN. Based on the list of Continuing Employees which
Purchasers are to deliver to Seller pursuant to Section 11.1 hereof and on which
Seller intends to rely in fulfilling its obligations under the WARN Act, the
Seller's termination of the Zapata Employees who are not Continuing Employees in
accordance with Section 11.1(b) will not violate, conflict with or breach the
WARN Act or result in any liability to Seller or its Affiliates arising out of
the WARN Act.
Section 3.8 No Other Representations. The Purchasers are not making any
representations or warranties, express or implied, of any nature whatsoever
except as specifically set forth in this Agreement.
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ARTICLE IV.
CONVEYANCE TO PURCHASER
Section 4.1 Conveyance to Purchaser. Subject to the terms and conditions of
this Agreement, the Seller will convey, transfer and deliver to Enterra Sub on
the Closing Date all of the assets, properties and rights of, or used or held
for use in connection with, the Business, its goodwill and the Business as a
going concern (collectively, the "Assets"). The Assets to be conveyed,
transferred and delivered shall include all those reflected on the May Balance
Sheet with only such changes therein as shall have occurred between the Balance
Sheet Date and the Closing Date in the ordinary course of business consistent
with past practice. Without limitation of the foregoing provisions, the Assets
shall include, without limitation, all real property, buildings, structures,
leasehold rights and improvements, machinery, equipment, furniture, fixtures,
supplies, vehicles, goodwill, cash, Inventories, accounts and notes receivable
including STL Unit receivables and employee receivables (other than any such
accounts receivable due from any Affiliate of Seller), contract rights and
claims relating thereto, stock, securities, licenses and applications therefor,
franchises, claims, deposits, all rights and interests in, to and under any
patents, patent applications, trademarks, trademark registrations and
applications therefor, copyrights, trade secrets, intellectual property, ideas
and other know-how, shop rights, permits and other rights and privileges, all
shares of capital stock of Energy Industries Financial Services, Inc., and all
records, sales data, and customer and supplier lists of the Business or used or
held for use in connection therewith. Notwithstanding anything in this Section
4.1 that may be construed to the contrary, the Assets shall not include accounts
receivable due from any Affiliate of Seller, the corporate seal, certificate of
incorporation or bylaws of any Seller, the partnership agreement or certificate
of limited partnership of Zapata Partnership, minute books or other records
having to do with the corporate or partnership organization of any Seller, or
tax returns and schedules and work papers relating thereto; any rights to or
under any insurance policies or any claims thereunder; intercompany receivables;
books of accounts; the rights that will accrue to the Seller under this
Agreement; any rights to Seller's claims for any Tax refunds; the tax records of
any Seller; the name "Zapata" or any assets of any Seller not used or held for
use in connection with the Business (collectively, the "Excluded Assets").
Notwithstanding any other provisions in this Agreement which could be construed
to the contrary, Seller is not selling, and Purchasers are not purchasing, any
assets owned by Zapata Protein, Inc., Cimarron Gas Holding Company or their
respective subsidiaries which are not used or held for use in the Business.
Section 4.2 Consideration for Assets.
(a) At the Closing, the Purchasers will purchase the Assets from the
Seller, upon and subject to the terms and conditions of this Agreement and in
reliance upon the representations, warranties, covenants and agreements of the
Seller contained herein, and will pay the Seller, as consideration for the
Assets, the sum of One Hundred and Thirty Million Dollars ($130,000,000) (the
"Purchase Price"), increased or decreased by the amount of the net asset value
adjustment as set forth in Section 4.5(a). The allocation of the Purchase Price
(and the liabilities to be assumed by the Purchasers at the Closing pursuant to
Section 4.2(b) hereof) among the Assets shall be agreed upon by the parties.
Once the allocation has been determined, the Purchasers and the Seller shall
jointly prepare IRS Form 8594 pursuant to Temporary Treasury Regulations Section
1.1060-1T to report the allocation of the Purchase Price. The Seller and the
Purchasers each hereby covenant and agree that they will not take a position on
any tax return before any Governmental Authority or in any Proceeding that is in
any way inconsistent with such allocation and will cooperate with each other in
good faith to resolve any disagreement or dispute that may arise between them
with respect thereto.
(b) As further consideration for the Assets, at the Closing, Enterra
Sub will deliver to the Seller a written undertaking in accordance with Section
4.4(b) hereof, whereby Enterra Sub will assume the following (collectively, the
"Assumed Liabilities"):
(i) all of Seller's liabilities and obligations of the Business on the
May Balance Sheet which are also liabilities and obligations described in
the example attached as Exhibit 2, but only if and to the extent that the
same are accrued or reserved for on the May Balance Sheet and have not been
paid or
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discharged prior to or at the Closing (all of which shall be included in
the calculation of net asset value pursuant to Section 4.5);
(ii) all of Seller's liabilities and obligations of the Business that
have arisen in the ordinary course of the Business, consistent with past
practice, between the Balance Sheet Date and the Closing Date that would be
disclosed on a balance sheet prepared in accordance with GAAP and which are
also liabilities and obligations of the type described in the example
attached as Exhibit 2, but only if and to the extent that the same have not
been paid or discharged prior to or at the Closing (all of which shall be
included in the calculation of net asset value pursuant to Section 4.5);
(iii) all liabilities and obligations of the Seller in respect of the
Contracts, commitments and arrangements, which Contracts, commitments and
arrangements are specifically identified in any list called for by
paragraphs (b) through (g) of Section 2.11 as it may be supplemented or
updated by Seller with Contracts, commitments and arrangements entered into
in the ordinary course of business prior to the Closing Date consistent
with Sections 5.1 or 5.2, or are not required to be identified on any such
list because of the term or amount involved or the descriptive limitations
set forth in Section 2.11, except that the Purchasers shall not assume any:
(A) liabilities or obligations of the aforesaid character
existing as of the Balance Sheet Date and which under GAAP are or
should be accrued or reserved for on a balance sheet or the notes
thereto as a liability or obligation, if and to the extent that the
same were not accrued or reserved for on the May Balance Sheet; or
(B) liabilities or obligations of the character described in
paragraphs (b) through (g) of Section 2.11 existing at the date of
this Agreement, except for those items which are specifically
identified on Schedule 2.11(b) through Schedule 2.11(g) as they may be
supplemented or updated by Seller with Contracts, commitments or
arrangements entered into in the ordinary course of business prior to
the Closing Date, consistent with Sections 5.1 and 5.2; or
(C) liabilities or obligations arising out of any breach by any
Seller of any item of the character referred to in this Section
4.2(b)(iii), including, without limitation, liabilities or obligations
arising out of any Seller's failure to perform any Contract,
commitment or arrangement in accordance with its terms prior to the
Closing; or
(D) any liabilities or obligations arising out of Seller's credit
facility with Texas Commerce Bank; and
(iv) liabilities and obligations of the Seller in respect of warranty
claims by customers relating to the Business;
In determining the liabilities and obligations of the Business to be
assumed by Enterra Sub pursuant to Section 4.2(b)(i) and (ii) hereof, to the
extent that there is a conflict between the methodology set forth in the example
attached as Exhibit 2 and GAAP, then the methodology set forth in the example
attached as Exhibit 2 shall control.
(c) Other than the Assumed Liabilities, the Purchasers shall not assume or
be responsible for any liability of any Seller (collectively, the "Excluded
Liabilities"). (The parties acknowledge that it is possible that the Purchasers
may, in the operation of the Business after the Closing Date, incur liability
which may result in a Loss, other than as a result of contractual assumption of
liability, and that such Loss, if any, shall be governed in accordance with the
terms and provisions of Article X). The obligations of the Purchasers under
Section 4.2(b) are subject to whatever rights the Purchasers may have under this
Agreement for a breach by any Seller of any representation, warranty, covenant
or agreement contained in this Agreement. In addition to the foregoing, in no
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event shall the Purchasers assume or incur any liability or obligation under
Section 4.2(b) or otherwise (i) in respect of any Tax payable with respect to
the sales, assets or income of the Seller, (ii) based upon Seller's employment
of persons at any time except for the reimbursement arrangement set forth in
Section 11.1(b), or (iii) with respect to each item included as a liability in
the Net Asset Value calculation provided for in Section 4.5, any liability in
excess of the amount relating to such item included in such calculation (and
which is not otherwise superseded by Section 12.2).
(d) The Purchasers shall pay all sales, use, documentary and transfer
Taxes, if any, due as a result of the sale of the Assets and other transactions
undertaken pursuant to this Agreement.
Section 4.3 Closing. The closing of the purchase and sale (the "Closing")
provided for in this Agreement shall take place at the offices of Liddell, Sapp,
Zivley, Hill & LaBoon, L.L.P., Texas Commerce Tower, Houston, Texas 77002 at
10:00 a.m. on the date which is the later of forty-five (45) days after the date
hereof or five (5) days following satisfaction or waiver of all conditions set
forth in Sections 7.1(a) and (c) and 7.2(d). Subject to the provisions of
Article VIII hereof, failure to consummate the purchase and sale provided for in
this Agreement on the date and time and at the place determined pursuant to this
Section 4.3 shall not result in the termination of this Agreement and shall not
relieve any parties to this Agreement of any obligation hereunder. For purposes
of this Agreement, the date on which the Closing occurs is the "Closing Date".
Section 4.4 Closing Deliveries.
(a) At the Closing, the Seller shall deliver to the Purchasers such deeds,
bills of sale, endorsements, assignments and other good and sufficient
instruments of conveyance, transfer and assignment, in form and substance
reasonably satisfactory to counsel for the Purchasers, as shall be effective to
vest in the Enterra Sub good and indefeasible title to the Assets, subject only
to Permitted Liens; deliver to Enterra Sub all of the Assets, including, without
limitation, leases, contracts and commitments, books and records and other data
relating to the Business and deliver to the Purchasers such other documents as
may be required by this Agreement.
(b) At the Closing, the Purchasers shall cause to be transferred to the
Seller in immediately available funds the Purchase Price, increased or
decreased, as the case may be, based on Zapata's calculation of Net Asset Value
on the date of the most recently delivered balance sheet in Seller's Financial
Statements to the extent that such Net Asset Value is greater than, or less
than, as the case may be, One Hundred Six Million, Six Hundred Twenty-Three
Thousand, Nine Hundred and Sixty-Eight Dollars ($106,623,968) ("Interim Net
Asset Value Adjustment"), subject to adjustment pursuant to the Footnote to
Exhibit 2 and also pursuant to Section 4.5. Zapata's calculation shall utilize
the same methods and criteria employed by Zapata in connection with the
preparation of the May Balance Sheet and the example set forth in Exhibit 2, to
the extent such methods and criteria are consistent with GAAP. In making such
calculation, to the extent that there is a conflict between the methodology set
forth in the example attached as Exhibit 2 and GAAP, then the methodology set
forth in the example attached as Exhibit 2 shall control. At the Closing, the
Purchasers shall also deliver to the Seller such instruments, in form and
substance reasonably satisfactory to counsel for the Seller, as shall be
necessary for Enterra Sub to assume the Assumed Liabilities; and deliver to the
Seller such other documents as may be required by this Agreement.
Section 4.5 Net Asset Value Adjustment.
(a) As soon as reasonably practical following (but not more than ninety
(90) days after) the Closing Date, Enterra shall prepare and deliver to Zapata a
statement of Assets and Assumed Liabilities as of the Closing Date (the
"Statement of Net Assets"). The Statement of Net Assets shall be prepared using
the same methods and criteria employed by the Seller in connection with the
preparation of the May Balance Sheet and the example set forth in Exhibit 2, to
the extent such methods and criteria are consistent with GAAP. In making such
calculation, to the extent that there is a conflict between the methodology set
forth in the example attached as Exhibit 2 and GAAP, then the methodology set
forth in the example attached as Exhibit 2 shall control. All expenses incurred
in connection with the preparation of the Statement of Net Assets shall be the
responsibility of the Purchasers. The
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Statement of Net Assets shall be accompanied by Enterra's calculation based
thereon of the amount by which the Assets exceed the Assumed Liabilities (the
amount of such excess, the "Net Asset Value", and Purchasers' calculation
thereof, "Purchasers' Calculation of Net Asset Value"). Zapata shall have the
opportunity, but not the obligation, to participate in Enterra's preparation of
the Purchasers' Calculation of Net Asset Value. Within ten (10) days following
the delivery of the Purchasers' Calculation of Net Asset Value, Zapata shall
notify Enterra whether it agrees or disagrees with the determination of the
Purchasers' Calculation of Net Asset Value, and, if Zapata disagrees, Enterra
and Zapata shall, on a good faith basis, seek to reconcile their disagreement
regarding the Purchasers' Calculation of Net Asset Value and Zapata's
calculation of Net Asset Value ("Zapata's Calculation of Net Asset Value"). The
calculation of Net Asset Value agreed upon by the Purchasers and Zapata shall be
referred to herein as the "Agreed Upon Net Asset Value". Zapata and Enterra
shall each have access to the other party's books, records and other information
and documents supporting such other party's calculation of Net Asset Value.
(b) If, after the review set forth in Section 4.5(a), Enterra and Zapata
reconcile Zapata's Calculation of Net Asset Value with the Purchasers'
Calculation of Net Asset Value, then within three (3) business days, as the case
may be: (i) the Seller shall pay the Purchasers by wire transfer of immediately
available funds the amount by which the Interim Net Asset Value Adjustment
exceeds the Agreed Upon Net Asset Value, or (ii) the Purchasers shall pay to the
Seller by wire transfer of immediately available funds the amount by which the
Agreed Upon Net Asset Value exceeds the Interim Net Asset Value Adjustment. Any
such amounts paid pursuant to this Section 4.5(b) shall be considered an
increase or decrease, as the case may be, to the Purchase Price.
(c) If, after the review set forth in Section 4.5(a), Enterra and Zapata
are unable to reconcile Zapata's Calculation of Net Asset Value with the
Purchasers' Calculation of Net Asset Value, as soon as practical, and in any
event within ten (10) days, the calculation of Net Asset Value and the balance
owing to the Purchasers or the Seller hereunder, as the case may be, shall be
determined jointly by Coopers & Lybrand, L.L.P., Houston, Texas and another
independent, Big Six accounting firm to be named by Enterra. The Net Asset
Value as determined jointly by such accounting firms shall be referred to herein
as the "Accountants' Calculation of Net Asset Value". In making such
determination, to the extent that there is a conflict between the methodology
set forth in the example attached as Exhibit 2 and GAAP, then the methodology
set forth in the example attached as Exhibit 2 shall control. If Coopers &
Lybrand, L.L.P. and such accounting firm named by Enterra shall not be able to
agree on the Net Asset Value and the balance owing to the Purchasers or the
Seller hereunder, as the case may be, within thirty (30) days, then such
accounting firms shall select a third nationally recognized accounting firm
which shall determine the Net Asset Value and the balance owing to the
Purchasers or the Seller hereunder, as the case may be, and the determination of
such third accounting firm shall be final and binding on the parties hereto. The
fees and expenses of such accounting firms shall be borne equally by Zapata and
Enterra. The parties hereto agree to cooperate fully with such accounting firms
and furnish such firms with such information as they may require to make such
determination.
(d) After the determination of the Net Asset Value and the balance owing to
the Purchasers or the Seller hereunder, as the case may be, by the accounting
firm or firms provided for in Section 4.5(c), within three (3) days after such
determination: (i) the Seller shall pay to the Purchasers by wire transfer of
immediately available funds the amount by which the Interim Net Asset Value
Adjustment exceeds the Accountants' Calculation of Net Asset Value, or (ii) the
Purchasers shall pay to the Seller by wire transfer of immediately available
funds the amount by which the Accountants' Calculation of Net Asset Value
exceeds the Interim Asset Value Adjustment. Any such excess amounts paid
pursuant to this Section 4.5(d) shall be considered an increase or decrease, as
the case may be, to the Purchase Price.
(e) Nothing in this Section 4.5 shall preclude any party from exercising,
or shall adversely affect any right or remedy available to it hereunder or limit
in any respect the exercise of, any right or remedy available to it hereunder
for misrepresentation or breach of warranty hereunder, but neither the
Purchasers nor any Seller shall have the right to dispute the Net Asset Value or
any element of the calculation thereof once it has been finally determined in
accordance with Section 4.5(a) or (c) hereof.
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(f) An example of the calculations referred to in this Section 4.5 is
attached hereto on Exhibit 2.
Section 4.6 Assets of Affiliates. To the extent any assets, properties or
rights (other than the Excluded Assets), wherever located, used or held for use
in connection with the Business, are owned, including, without limitation,
assets, properties and rights (a) previously used or held for use in connection
with the Business and (b) still owned by any Affiliate of any Seller, they are
included within the term "Assets", such Affiliate is deemed to be included
within the term "Seller", and the Seller shall cause each such Affiliate, at the
Closing, to convey such Assets to Enterra Sub, or to a Seller for conveyance to
Enterra Sub, in accordance with the provisions hereof.
Section 4.7 Assigned Contracts. To the extent that any Seller's rights
under any Contract included in the Assets, or under any other Asset to be
assigned to Enterra Sub hereunder, may not be assigned without the consent of
another person which has not been obtained by a Seller prior to the Closing,
neither this Agreement nor any instruments of transfer shall constitute an
agreement to assign the same if an attempted assignment would constitute a
breach thereof or be unlawful. If any such consent has not been obtained or if
any attempted assignment would be ineffective or would impair Enterra Sub's
rights under the instrument in question so that Enterra Sub would not in effect
acquire the benefit of all such rights, then the Seller, to the maximum extent
permitted by law and the instrument, shall act as Enterra Sub's agent in order
to obtain for Enterra Sub the benefits thereunder and shall cooperate, to the
maximum extent permitted by law and the instrument, with Enterra Sub in any
other reasonable arrangement designed to provide such benefits to Enterra Sub
(including, without limitation, by entering into an equivalent arrangement).
ARTICLE V.
OBLIGATIONS OF THE SELLER PENDING CLOSING
During the period commencing on the date of this Agreement through the
Closing Date, the Seller hereby covenants and agrees to comply with the
covenants and agreements contained in this Article V, to wit:
Section 5.1 Affirmative Covenants of the Seller. Prior to the Closing
Date, each Seller shall except as specifically contemplated by this Agreement:
(a) operate and conduct the Business only in the ordinary course,
consistent with past practice, including, without limitation, the continuation
of existing insurance coverages;
(b) preserve intact Zapata Sub's and Zapata Partnership's existence,
business organization, Business, Assets and Governmental Authorizations;
(c) promptly notify the Purchasers upon obtaining knowledge of any material
default or event of default under any of the Contracts and promptly notify and
provide copies to the Purchasers of any material written communications
concerning such default; and
(d) comply with all material Governmental Requirements applicable to Seller
and the conduct of the Business except where the failure to do so would not have
a Material Adverse Effect.
Section 5.2 Negative Covenants of Zapata Sub and Zapata Partnership.
Except with the prior written consent of the Purchasers or as otherwise
specifically permitted by this Agreement, Zapata Sub and Zapata Partnership
shall not, from the date of this Agreement to the Closing Date:
(a) make any amendment to its, as applicable, Certificate of Incorporation,
Bylaws, certificate of limited partnership or partnership agreement;
(b) make any change in accounting methods except as may be required by
applicable law or GAAP and after written notice to the Purchasers;
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(c) contract to create any obligation or Liability except in the ordinary
course of the Business, consistent with past practice;
(d) contract to create any mortgage, pledge, lien, security interest or
encumbrance, restriction, or charge of any kind (other than Permitted Liens);
(e) cancel any debts, waive any claims or rights of value or sell,
transfer, or otherwise dispose of any of its properties or assets, except in the
ordinary course of the Business, consistent with past practice;
(f) sell any real estate owned as of the date of this Agreement or acquired
thereafter except for fair market value in the ordinary course of the Business,
consistent with past practice;
(g) except in the ordinary course of the Business, consistent with past
practice, or as agreed by Purchasers and Seller, grant any increase in
compensation or pay or agree to pay or accrue any bonus or like benefit to or
for the credit of any director, officer, employee or other person or enter into
any employment, consulting or severance agreement or other agreement with any
director, officer, employee, or other person or adopt, amend or terminate any
benefit plan or change or modify the period of vesting or retirement age for any
participant of such a plan;
(h) acquire the capital stock or other equity securities or interest of any
person;
(i) make any capital expenditure or a series of expenditures of a similar
nature in excess of $500,000 in the aggregate;
(j) except for negotiations and discussions between the parties hereto
relating to the transactions contemplated by this Agreement or as otherwise
permitted hereunder, enter into any transaction, or enter into, modify or amend
any Contract or commitment, other than in the ordinary course of the Business,
consistent with past practice;
(k) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization, or other reorganization or
business combination of Zapata Sub and Zapata Partnership; or
(l) agree to do any of the things described in clauses (a) through (k) of
this Section 5.2.
Section 5.3 Negative Covenant of Zapata. Except with the prior written
consent of the Purchasers, Zapata shall not, from the date of this Agreement to
the Closing Date, adopt a plan of complete liquidation or dissolution.
ARTICLE VI.
ADDITIONAL AGREEMENTS
Section 6.1 Access To, and Information Concerning, Properties and Records.
During the pendency of the transactions contemplated hereby, the Seller shall
give the Purchasers, their legal counsel, accountants and other representatives
full access during normal business hours, throughout the period prior to the
Closing Date, to all of the assets of the Business, including, without
limitation, the books, Contracts, properties, premises, permits, licenses,
Governmental Authorizations and records, and shall permit the Purchasers and
their representatives to make such inspections (including, without limitation,
with regard to such properties, physical inspection of the surface and
subsurface thereof which is not materially intrusive) and to have discussions
with material suppliers and customers of Seller as the Purchasers and such
representatives may require and furnish to the Purchasers and their
representatives during such period all such information concerning Seller and
its affairs as they may reasonably request. With regard to physical inspection
or testing, Purchasers shall restore such properties, to the extent reasonable
and customary under the circumstances, to substantially their original
condition. Purchasers shall be responsible for any Loss (other than consequences
of complying with applicable Governmental Requirements)
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resulting directly from Purchasers' entry or conduct of such testing. Purchasers
shall be responsible for disposal of any waste or materials generated during
such investigation in accordance with any applicable Governmental Requirements.
Upon Seller's request, Purchasers shall provide Seller a copy of any such
written test methodologies or results which relate to the Assets. Purchasers
shall maintain the confidentiality of such test results in accordance with
Section 6.4. The Purchasers agree that all discussions and communications with
suppliers and customers of the Seller will be with the consent and cooperation
of the Seller.
Section 6.2 Miscellaneous Agreements and Consents. Subject to the terms and
conditions of this Agreement, the Purchasers and the Seller agree to use their
good faith, reasonable best efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, all things necessary, proper, or advisable under
applicable laws and regulations to consummate and make effective, as soon as
practicable after the date hereof, the transactions contemplated by this
Agreement, including, without limitation, making the required filings under the
HSR Act and seeking the early termination or expiration of the waiting period
thereunder. Purchasers agree to pay the filing fee in connection with the HSR
Act filings.
Section 6.3 Public Announcement. Except as determined under applicable law
by counsel to the Seller or the Purchasers, the timing and content of any
announcements, press releases or other public statements concerning the matters
contained herein will occur upon, and be determined by, the mutual consent of
the Seller and the Purchasers.
Section 6.4 Confidentiality. Without the express written consent of all of
the parties hereto, each of the parties hereto agrees to maintain in confidence
and not disclose to any other person the terms of the transactions contemplated
herein or the information delivered in connection with the Purchasers' due
diligence investigation, other than disclosures required to obtain the approvals
for the transactions contemplated hereby, disclosures to those professionals and
advisors who have a need to know, disclosures of information already available
to the public or any other disclosures required by applicable law or judicial,
regulatory or administrative proceeding. In the event that any Purchaser or any
Seller is at any time requested or required (by oral questions, interrogatories,
request for information or documents, subpoena or other similar process) to
disclose any information supplied to it in connection with the transactions
contemplated hereby, such party agrees to provide the other parties hereto
prompt notice of such request so that an appropriate protective order may be
sought and/or such other party may waive the first party's compliance with the
terms of this Section 6.4.
Section 6.5 Certain Post-Closing Assistance by Purchasers. Purchasers agree
to cause the appropriate personnel to assist Seller in the prosecution or
defense of any claims and litigation (including counterclaims filed by Seller)
for which Seller has indemnified Purchasers hereunder. Such services shall be
rendered by Purchasers to Seller at no cost and expense to Seller except that
Seller shall reimburse Purchasers for any reasonable out-of-pocket travel and
similar expenses incurred by the personnel of Purchasers in performing these
functions.
Section 6.6 Zapata Name. Purchasers acknowledge and agree that no rights of
any kind whatsoever in the name "Zapata" are being granted or transferred in
connection with this Agreement. At all times after the Closing Date, Purchasers
shall refrain from using the word "Zapata" or any word or expression similar
thereto in the name under which Purchasers do business or in any corporate name,
trademark, service mark or other name or mark used in connection with their
business. As promptly as practicable after the Closing Date, but in any event
within thirty (30) days after the Closing Date, the name "Zapata" shall be
removed by Purchasers from all of the Assets, including any stationery, business
cards, forms or other documents.
Section 6.7 Compliance with Bulk Sales Laws. The Purchasers and the Seller
hereby waive compliance with the bulk sales law and any other similar laws in
any applicable jurisdiction in respect of the transactions contemplated by this
Agreement.
Section 6.8 Stockholder Meeting. Zapata shall call and hold a meeting of
its stockholders to be held as soon as is practicable for the purpose of voting
on the transactions contemplated hereunder. Zapata's Board of Directors
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shall recommend to its stockholders approval of the transactions contemplated
hereunder and shall take all such actions as may be reasonably required to
obtain such approvals as promptly as practicable, including, without limitation,
the solicitation of proxies.
ARTICLE VII.
CONDITIONS TO CLOSING
Section 7.1 Conditions to Each Party's Obligation to Close. The obligations
of each party to close the transactions contemplated hereby are subject to the
reasonable satisfaction or waiver of the following conditions on or prior to the
Closing Date:
(a) The receipt of regulatory approvals and the expiration of any
applicable waiting period with respect thereto;
(b) The Closing will not violate any injunction, order or decree of any
court or Governmental Authority having competent jurisdiction; and
(c) Approval of the transactions contemplated hereunder by the stockholders
of Zapata.
Section 7.2 Conditions to the Obligations of the Purchasers to Close. The
obligations of the Purchasers to close the transactions contemplated herein are
subject to the reasonable satisfaction or waiver of the following conditions on
or prior to the Closing Date:
(a) Subject to Section 7.4, all representations and warranties of the
Seller contained herein shall be true and correct in all material respects
(except to the extent qualified by a materiality standard, in which case such
representations and warranties shall be true and correct) as of the date hereof
and at and as of the Closing (except that Purchaser's satisfaction with its
review of any update by Seller to Schedule 2.8 shall also be a condition to
closing), with the same force and effect as though made on and as of the
Closing;
(b) The Seller shall have performed in all material respects all
obligations and agreements and complied with all covenants and conditions
contained in this Agreement to be performed or complied with by the Seller prior
to the Closing Date;
(c) The Seller shall have executed and delivered to the Purchasers proper
instruments for the transfer of the Assets in form and substance reasonably
satisfactory to Purchasers and their counsel in accordance with Section 4.4
hereof;
(d) The Seller shall have furnished the Purchasers with evidence of
consents as shall be required to enable the Purchasers to continue to enjoy the
benefit of any material Governmental Authorization, lease, license, permit,
Environmental Permit, Contract or other agreement or instrument to or of which
any Seller is a party or a beneficiary as it relates to the Business, including,
without limitation, consents to assignment of the agreements listed on Exhibit
3;
(e) The Purchasers shall have received certificates dated as of the Closing
Date executed by the President or Vice President of each Seller certifying to
the effect described in Sections 7.2(a) and 7.2(b):
(f) The Purchasers shall have received the written opinion dated the
Closing Date of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., counsel for the
Seller, in form and substance reasonably satisfactory to the Purchasers and
their counsel.
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Section 7.3 Conditions to the Obligations of the Seller to Close. The
obligations of the Seller to close the transactions contemplated herein are
subject to the reasonable satisfaction or waiver of the following conditions on
or prior to the Closing Date:
(a) All representations and warranties of Purchasers contained herein shall
be true and correct in all material respects (except to the extent qualified by
a materiality standard, in which case such representations and warranties shall
be true and correct) as of the date hereof and at and as of the Closing, with
the same force and effect as though made on and as of the Closing;
(b) The Purchasers shall have performed in all material respects all
obligations and agreements and complied with all covenants and conditions
contained in this Agreement to be performed or complied with by Purchasers prior
to the Closing Date;
(c) The Seller shall have received certificates dated as of the Closing
Date, executed by an appropriate officer of each Purchaser certifying to the
effect described in Sections 7.3(a) and 7.3(b);
(d) The Seller shall have received the Purchase Price;
(e) Enterra Sub shall have executed and delivered to the Seller proper
instruments for the assumption of the Assumed Liabilities, in each case, in form
and substance reasonably satisfactory to Seller and its counsel in accordance
with Section 4.4 hereto; and
(f) The Seller shall have received the written opinion dated the Closing
Date of Morgan, Lewis & Bockius, counsel for the Purchasers, in form and
substance reasonably satisfactory to Seller and its counsel.
Section 7.4 Amendments to Disclosure Schedule. In addition to changes,
amendments or supplements to the Disclosure Schedule as permitted by the first
paragraph of Article II, Seller may amend the Disclosure Schedule to include an
item or items which should have been included on the date of this Agreement but
which was inadvertently omitted. In such case, the Disclosure Schedule will be
deemed corrected as of the date of this Agreement; provided however, that such
amendment made by Seller shall not be taken into account in connection with
determining fulfillment of Purchaser's condition to closing set forth in Section
7.2(a) hereof which provides that all representations of the Seller shall be
true and correct in all material respects on the date of this Agreement (subject
to the exception set forth therein).
ARTICLE VIII.
TERMINATION; AMENDMENT; WAIVER
Section 8.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing Date:
(a) By mutual written consent of Enterra and Zapata;
(b) By Enterra, if any of the conditions to Closing contained in Section
7.1 or 7.2 shall not have been complied with or performed at the time required
for such compliance or performance and such noncompliance or nonperformance
shall not have been waived in writing by Enterra.
(c) By Zapata, if any of the conditions to Closing contained in Section 7.1
or 7.3 shall not have been complied with or performed at the time required for
such compliance or performance and such noncompliance or nonperformance shall
not have been waived in writing by Zapata.
(d) By Enterra or Zapata, if the Closing Date shall not have occurred on or
before 5:00 p.m., Houston time, on December 20, 1995 or such later date agreed
to in writing by Enterra and Zapata; and
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(e) By Enterra or Zapata, if any court of competent jurisdiction in the
United States of America or other federal or state governmental body shall have
issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the transactions herein contemplated and such
order, decree, ruling or other action shall have been final and nonappealable.
Section 8.2 Effect of Termination. The following provisions shall apply in
the event of a termination of this Agreement:
(a) If this Agreement is terminated by either Enterra or Zapata as
permitted under Section 8. l(a) or (e) hereof and not as the result of the
failure of any party to perform its obligations hereunder, such termination
shall be without liability to any party to this Agreement or any stockholder,
partner, director, officer, employee, agent or representative of such party.
(b) If this Agreement is terminated as a result of the failure of
Purchasers to perform their obligations hereunder, Purchasers shall be fully
liable for any and all damages (other than special, consequential or punitive
damages) sustained or incurred by Seller.
(c) If this Agreement is terminated as a result of the failure of Seller to
perform its obligations hereunder, Seller shall be fully liable for any and all
damages (other than special, consequential or punitive damages) sustained or
incurred by Purchasers.
(d) Seller and Purchasers agree that the provisions of Sections 6.4 and
12.3 shall survive any termination of this Agreement. In the event of such
termination, each party promptly will destroy or, if requested, redeliver to the
other party all documents, work papers and other materials furnished by such
party relating to the transactions contemplated hereby (including all copies
made thereof). All confidential information received by any party, or any
employee, agent or representative of any party, concerning the other party shall
continue to be treated in accordance with the confidentiality obligations set
forth in Section 6.4.
Section 8.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed by all the parties.
Section 8.4 Extension; Waiver. At any time prior to the Closing Date,
Purchasers or Seller may (i) extend the time for the performance of any of the
obligations or other acts of the non-extending party, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document, certificate or writing delivered pursuant hereto by the non-waiving
party, or (iii) waive compliance with any of the agreements or conditions
contained herein by the non-waiving party. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE IX.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Section 9.1 Survival of Representations and Warranties. The parties hereto
agree that their respective representations and warranties contained in this
Agreement shall survive for a period of one year after the Closing Date and
shall thereafter terminate and be of no further force or effect, except that (a)
all representations and warranties set forth in Sections 2.1, 2.2, 2.9, 3.1 and
3.2 hereof shall survive the Closing Date without limitation, (b) the
representations and warranties set forth in Section 2.15 hereof shall survive
for a period of five (5) years after the Closing Date, and (c) any
representation or warranty as to which a claim (including, without limitation, a
contingent claim) has been asserted in writing by a party and delivered to the
other party during the survival period shall continue in effect with respect to
such claim until such claim shall have been finally resolved or settled.
Notwithstanding any investigation or audit conducted before or after the Closing
Date or the decision of any party to complete the Closing, each party shall be
entitled to rely upon the representations and warranties of the other party or
parties set forth herein.
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ARTICLE X.
INDEMNIFICATION
Section 10.1 Indemnification by the Seller. Subject to the limitations
described in Section 10.5, each Seller, jointly and severally, unconditionally,
absolutely and irrevocably agrees to and shall defend, indemnify and hold
harmless the Purchasers, and each of the Purchasers' Subsidiaries, stockholders,
partners, Affiliates, officers, directors, employees, agents, successors,
assigns, heirs and legal and personal representatives (the Purchasers and all
such persons or other entities are collectively referred to as the "Purchasers'
Indemnified Persons"), from and against, and shall reimburse the Purchasers'
Indemnified Persons for, each Loss paid, imposed on or incurred by the
Purchasers' Indemnified Persons:
(a) resulting from any inaccuracy in any representations or warranties of
any Seller under this Agreement, or any certificate delivered or to be delivered
by any Seller pursuant hereto,
(b) to the extent caused by any breach of any covenant or agreement in this
Agreement by any Seller,
(c) which is an Excluded Liability,
(d) to the extent caused by any violation of any bulk sales law or other
similar state laws designed to protect the rights of creditors in sales of
substantially all assets in any applicable jurisdiction in respect of the
transactions contemplated by this Agreement,
(e) with the exception of those matters governed by Section 10.1(f) hereof,
because of, resulting from or arising out of the business, operations or assets
of the Seller prior to the Closing Date but excluding any Assumed Liabilities,
or
(f) to the extent caused by an Environmental Claim, or any Liability which
otherwise relates to, or involves a Liability that arises out of or is based
upon, any Environmental Law to the extent that such Environmental Claim or
Liability is caused by any activity occurring, condition existing, omission to
act or other matter existing prior to the Closing Date, subject to reduction, if
any, to the extent the liability has been exacerbated by Purchaser after the
Closing Date or Purchaser has failed to use reasonable efforts to mitigate such
liability after the Closing Date if Purchaser actually knew of such liability;
provided, however, no indemnity or reimbursement shall be provided by Seller for
any Liability for which an Environmental Claim has not been made unless any
proposed cost or expenditure is approved in writing by Seller, which approval
will not be withheld unreasonably and; provided further, however, except to the
extent that no flexibility exists with regard to ordered compliance with
Environmental Laws, no indemnity may be sought for costs associated with an
Environmental Claim or Liability that exceeds the minimum standard necessary to
attain compliance with Environmental Laws. Purchaser shall at all times have
the right to self report to Governmental Authorities any condition it believes
constitutes a Liability under Environmental Laws. For the purpose of this
Section 10.1(f), written agreement by Governmental Authorities of clean-up
responsibility, or approval by Governmental Authorities of a clean-up plan,
shall constitute an Environmental Claim. Any proposed plan to address
compliance with Environmental Laws shall be developed jointly between Purchasers
and Seller, and must be presented to Seller prior to any implementation;
and any and all actions, suits, claims, proceedings, investigations, demands,
assessments, audits, fines, judgments, costs and other Losses (including,
without limitation, disbursements and expenses of attorneys) incident to any of
the foregoing or to the enforcement of this Section 10.1.
With respect to matters not involving Proceedings commenced or threatened by
third parties, within five (5) days after notification from the Purchasers'
Indemnified Persons supported by reasonable documentation setting forth the
nature of the circumstances entitling the Purchasers' Indemnified Persons to
indemnity hereunder, the Seller, at no cost or expense to the Purchasers'
Indemnified Persons, shall acknowledge, if Seller agrees to so indemnify, to the
Purchasers' Indemnified Persons its obligations to indemnify under this Section
10.1 and shall diligently commence
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resolution of such matters in a manner reasonably acceptable to the Purchasers'
Indemnified Persons and shall diligently and timely prosecute such resolution to
completion; provided, however, with respect to those claims that may be
satisfied by payment of a liquidated sum of money, the Seller may, in its sole
discretion, but shall not be required to, promptly pay the amount so claimed to
the extent supported by reasonable documentation and so long as any settlement
includes a complete release of all Purchasers' Indemnified Persons. If
litigation or any other Proceeding is commenced or threatened, the provisions of
Section 10.3 shall control.
Section 10.2 Indemnification by the Purchasers. Subject to the limitations
described in Section 10.6, each Purchaser, jointly and severally,
unconditionally, absolutely and irrevocably agrees to and shall defend,
indemnify and hold harmless the Seller and each of Seller's Subsidiaries,
stockholders, partners, Affiliates, officers, directors, employees, agents,
successors, assigns, heirs and legal and personal representatives (the Seller
and all such persons or other entities are collectively referred to as the
"Seller's Indemnified Persons") from and against, and shall reimburse the
Seller's Indemnified Persons for, each Loss paid, imposed on or incurred by the
Seller's Indemnified Persons:
(a) resulting from any inaccuracy in any representations or warranties of
the Purchasers under this Agreement, or any certificate delivered or to be
delivered by the Purchasers pursuant hereto,
(b) to the extent caused by any breach of any covenant or agreement in this
Agreement by the Purchasers,
(c) which is an Assumed Liability, or
(d) because of, resulting from or arising out of the operation of the
Business after the Closing Date, and
any and all actions, suits, claims, proceedings, investigations, demands,
assessments, audits, fines, judgments, costs and other Losses (including without
limitation disbursements and expenses of attorneys) incident to any of the
foregoing or to the enforcement of this Section 10.2.
With respect to matters not involving Proceedings commenced or threatened by
third parties, within five (5) days after notification from the Seller's
Indemnified Persons supported by reasonable documentation setting forth the
nature of the circumstances entitling the Seller's Indemnified Persons to
indemnity hereunder, the Purchasers or Enterra (as the case may be), at no cost
or expense to the Seller's Indemnified Persons, shall acknowledge, if Purchasers
agree to so indemnify, to the Seller's Indemnified Persons their obligations to
indemnify under this Section 10.2 and shall diligently commence resolution of
such matters in a manner reasonably acceptable to the Seller's Indemnified
Persons and shall diligently and timely prosecute such resolution to completion;
provided, however, with respect to those claims that may be satisfied by payment
of a liquidated sum of money, the Purchasers or Enterra (as the case may be) may
promptly pay the amount so claimed to the extent supported by reasonable
documentation and so long as any settlement includes a complete release of all
Seller's Indemnified Persons. If litigation or any other Proceeding is commenced
or threatened, the provisions of Section 10.3 shall control.
Section 10.3 Notice and Defense of Third Party Claims. If any Proceeding
shall be brought or asserted under this Article against an indemnified party or
any successor thereto (the "Indemnified Person") in respect of which indemnity
may be sought under this Article from an indemnifying person or any successor
thereto (the "Indemnifying Person"), the Indemnified Person shall give prompt
written notice of such Proceeding to the Indemnifying Person who shall assume
the defense thereof, including the employment of counsel reasonably satisfactory
to the Indemnified Person and the payment of all expenses. Actual or threatened
action by a Governmental Authority or other entity is not a condition or
prerequisite to the Indemnifying Person's obligations under this Article. The
Indemnified Person shall have the right to employ separate counsel in any of the
foregoing Proceedings and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the
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expense of the Indemnified Person. The Indemnified Person's right to participate
in the defense or response to any Proceeding should not be deemed to limit or
otherwise modify its rights under this Article. In the event that the
Indemnifying Person, within ten (10) business days after notice of any such
Proceeding, fails to acknowledge its obligation to indemnify hereunder and to
assume the defense thereof, the Indemnified Person shall have the right to
undertake the defense, compromise or settlement of such Proceeding for the
account of the Indemnifying Person, subject to the right of the Indemnifying
Person to assume the defense of such Proceeding with counsel reasonably
satisfactory to the Indemnified Person at any time prior to the settlement,
compromise or final determination thereof. Anything in this Article to the
contrary notwithstanding, the Indemnifying Person shall not, without the
Indemnified Person's prior written consent, settle or compromise any Proceeding
or consent to the entry of any judgment with respect to any Proceeding for
anything other than money damages paid by the Indemnifying Person. The
Indemnifying Person may, without the Indemnified Person's prior written consent,
settle or compromise any such Proceeding or consent to entry of any judgment
with respect to any such Proceeding that requires solely the payment of money
damages by the Indemnifying Person and that includes as an unconditional term
thereof the release by the claimant or the plaintiff of the Indemnified Person
from all liability in respect of such Proceeding. As a condition to asserting
any rights under this Article, each of the Purchasers' Indemnified Persons must
appoint Enterra, and each of the Seller's Indemnified Persons must appoint
Zapata, as their sole agents for all matters relating to any claim under this
Article. Subject to compliance with the time limitations set forth in Section
9.1 hereof, the Indemnified Person's failure to give prompt written notice to
the Indemnifying Person of any actual, threatened or possible demand which may
give rise to a right of indemnification hereunder shall not relieve the
Indemnifying Person of any liability which the Indemnifying Person may have to
the Indemnified Person unless the failure to give such notice materially and
adversely prejudiced the Indemnifying Person.
Section 10.4 Limitations.
(a) An Indemnifying Person shall have no liability under Section 10.1(a) or
10.2(a) unless notice of a claim for indemnity, or notice of facts as to which
an indemnifiable Loss is expected to be incurred, shall have been given within
the periods specified in Section 9.1.
(b) In calculating the amount of any Loss for which any Indemnifying Person
is liable under this Article X, there shall be taken into consideration the
value of any federal or state income tax effects on the Indemnified Person that
result from the circumstances to which the Loss related or from which the Loss
arose as well as any payments made by any Indemnifying Person.
Section 10.5 Limitation of Seller's Liability.
(a) Notwithstanding anything to the contrary contained in Section 10.1,
after the Closing, the aggregate liability of the Seller for any Loss,
individually or in the aggregate with all other Losses covered by this
Agreement, for which indemnification is required by Seller on behalf of
Purchasers' Indemnified Persons pursuant to Section 10.1, shall be limited to
(i) the aggregate amount of the Excluded Liabilities (which may be used to
satisfy only the Excluded Liabilities) and (ii) $4,000,000 (for all other
matters, exclusive of a termination described in Section 8.2(c), for which
liability shall be unlimited). The matters referred to in the immediately prior
parenthetical shall include, without limitation, all matters described in
Section 10.1(a), (b), (d), (e) and (f) and the qualifier set forth immediately
after Section 10.1(f).
(b) The Purchasers' Indemnified Persons are entitled to indemnification
pursuant to Section 10.l only to the extent that the amount of any Loss,
individually or in the aggregate with all other Losses covered by this
Agreement, exceeds $250,000 and is not an Assumed Liability and in such event
the Purchasers' Indemnified Persons shall be entitled, subject to Section
10.5(a) hereof, to recover the full amount of such Loss in excess of $250,000.
Such $250,000 limitation shall not apply, however, to (i) a Net Asset Value
adjustment payment pursuant to Section 4.5, or (ii) Seller's obligations
pursuant to Section 12.2.
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Section 10.6 Limitation of Purchasers' Liability.
(a) Notwithstanding anything to the contrary contained in Section 10.2,
after the Closing, the aggregate liability of the Purchasers for any Loss,
individually or in the aggregate with all other Losses covered by this
Agreement, for which indemnification is required by Purchasers on behalf of
Seller's Indemnified Persons pursuant to Section 10.2, shall be limited to (i)
the aggregate amount of the Assumed Liabilities (which may be used to satisfy
only the Assumed Liabilities) and (ii) $4,000,000 (for all other matters,
exclusive of a termination described in Section 8.2(b), for which liability
shall be unlimited).
(b) The Seller's Indemnified Persons are entitled to indemnification
pursuant to Section 10.2 only to the extent that the amount of any Loss,
individually or in the aggregate with all other Losses covered by this
Agreement, exceeds $250,000 and is not an Excluded Liability, and in such event
the Seller's Indemnified Persons shall be entitled, subject to Section 10.6(a)
hereof, to recover the full amount of such Loss in excess of $250,000. Such
$250,000 limitation shall not apply, however, to (i) a reimbursement obligation
of a Purchaser pursuant to Section 11.1(b) hereof, (ii) a Loss resulting from a
breach by a Purchaser of Section 3.7 hereof, (iii) a Loss resulting from
Purchasers' reimbursement obligation set forth in Section 12.15, (iv) the Net
Asset Value adjustment payment pursuant to Section 4.5; or (v) Purchasers'
obligations pursuant to Section 12.2.
Section 10.7 Limitation on Claims. No party to this Agreement shall make a
claim against another party to this Agreement except pursuant to, and subject to
the limitations contained in, this Article X.
Section 10.8 Inconsistent Provisions. The provisions of this Article shall
govern and control over any inconsistent provisions of this Agreement.
ARTICLE XI.
EMPLOYMENT MATTERS
Section 11.1 Employment.
(a) The full-time and part-time employees of the Business, whether
currently employed, or employed between the date hereof and the Closing Date,
are collectively referred to as the "Zapata Employees". As soon as reasonably
practicable after the date of this Agreement, Purchasers shall furnish Seller
with a list of the names of each of the Zapata Employees to whom Purchasers
reasonably expect to extend offers of employment on the Closing Date
("Continuing Employees").
(b) Any Zapata Employee who is not a Continuing Employee, as determined
according to the list provided by Purchasers to Seller under Section 11.1(a),
shall be terminated by Seller prior to the Closing Date. Notwithstanding
anything to the contrary in Section 11.1(a), prior to the Closing Date, Seller
shall provide Zapata Employees who are not Continuing Employees and who are
identified in Section 11.1(a), with severance benefits under the Seller's
Severance Plan attached hereto as Exhibit 4; provided, however, that if the
aggregate amount of such severance payments referred to in this sentence (taking
into account only those Zapata Employees whose employment is terminated by
Zapata as required by this Agreement) exceeds Fifty Thousand Dollars ($50,000),
Purchasers shall promptly reimburse Seller for the amount of such excess. With
respect to any Zapata Employee, however, in no event shall Purchasers be
required to reimburse Seller for severance payments in excess of those required
by the terms of the Seller's Severance Plan.
Section 11.2 Purchasers' Responsibility for Zapata Employees' Retirement
and Other Benefits.
(a) Purchasers will cause to be provided pension, medical, 401k plan and
other benefits to all Continuing Employees from and after the Closing Date to
the same extent provided to similarly situated employees of Purchasers.
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(b) Seller will retain responsibility for and continue to pay all medical,
life insurance, disability and other welfare plan expenses and benefits for each
Zapata Employee with respect to claims incurred by such employees or their
covered dependents under any benefit plan and subject to the terms thereof prior
to the Closing Date. Expenses and benefits with respect to claims incurred by
Continuing Employees or their covered dependents on or after the Closing Date
shall be the responsibility of Purchasers. For purposes of this paragraph, a
claim is deemed incurred when the services that are the subject of the claim are
performed; provided, however, that in the case of life insurance, a claim is
deemed incurred when the death occurs and in the case of long-term disability
benefits, when the disability occurs. With respect to each Zapata Employee who
is not a Continuing Employee or such employee's dependent, the Seller shall be
responsible for health care continuation rights under Section 4980B of the Tax
Code and Sections 601-609 of ERISA for those Zapata Employees. The Purchasers
shall be responsible for all continuation of health coverage rights under
Section 4980B of the Tax Code and Sections 601-609 of ERISA for all Continuing
Employees and their dependents.
Section 11.3 No Third Party Beneficiaries. No provision of this Article
shall create any third party beneficiary or other rights in any employee or
former employee (including any beneficiary or dependent thereof) of the Seller
in respect to continued employment or resumed employment with either the
Purchasers or Seller and no provision of this Article XI shall create any such
rights in any employee or former employee (including any beneficiary or
dependent thereof) of Seller with respect to any benefits that may be provided
directly or indirectly in any Benefit Plan or other employee benefit plan or
program.
ARTICLE XII.
MISCELLANEOUS
Section 12.1 Books and Records. Upon consummation of the transactions
provided herein and for a period of five years thereafter, the Seller agrees
that upon the reasonable written request of the Purchasers, the Seller will
provide the Purchasers with access to the tax records (or copies thereof)
retained by the Seller pursuant to this Agreement. All costs and expenses
associated with providing such tax records (or copies thereof) shall be borne by
the Purchasers. Nothing herein shall be deemed to require the Seller to maintain
or refrain from disposing of any books and records transferred pursuant to this
Agreement for any period of time after the Closing Date. However, if Seller
desires to dispose of any such books or records, Seller agrees to give
Purchasers notice of such intention and the opportunity to retain such books and
records, at Purchasers' expense.
Section 12.2 Accounts Receivable.
(a) In the event that 90% of the face amount of the accounts receivable
included within the Assets on the Closing Date (the "90% Amount") are not
collected within one hundred twenty (120) days after the Closing Date, then at
the request of Purchasers, the Seller shall pay Enterra Sub an amount equal to
(i) the 90% Amount, (ii) less amounts collected by Purchasers, (iii) less the
allowance for doubtful accounts utilized in the calculation of the Agreed Upon
Net Asset Value.
(b) For purposes of Section 12.2(a), Purchasers shall use best efforts to
diligently collect all accounts receivable. All payments received by Purchasers
from any debtor for accounts receivable which are Assets shall be applied first
to the oldest accounts receivable applicable to such debtor, whether owed to
Seller or Purchasers.
(c) If and when a payment is made by Seller to Enterra Sub pursuant to
Section 12.2(a), upon receipt of such payment Purchasers shall assign to the
Seller making the payment all of its rights with respect to the uncollected
accounts receivables giving rise to the payment and shall also thereafter
promptly remit any excess collections received by Purchasers with respect to
such assigned receivables. If and when the amount subsequently collected by
Seller with respect to the assigned receivables equals (i) the payment therefor
plus (ii) the costs and expenses reasonably incurred by Seller in the collection
of such assigned receivables, Seller shall reassign to Enterra Sub all of such
assigned receivables as have not been collected in full by Seller and shall also
thereafter promptly
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remit any excess collections received by Seller. Upon the reasonable written
request of Enterra Sub, Seller shall provide it with a status report concerning
the collection of assigned receivables.
Section 12.3 Expenses. The Purchasers and the Seller will each pay their
own expenses in connection with the transactions contemplated hereby.
Section 12.4 Brokers and Finders. Neither the Purchasers nor the Seller
shall be responsible to the other party for the payment of any broker's fee,
finder's fee or commission of any sort in connection with the transactions
described herein. The Seller shall be responsible for payment of any such fee to
Wertheim Schroder & Co. Incorporated or any other party to which the Seller has
such an obligation. The Purchasers shall be responsible for payment of any such
fee to Simmons & Company International, Inc. or any other party to which the
Purchasers have such an obligation.
Section 12.5 Entire Agreement; Assignment. This Agreement constitutes the
entire agreement among the parties and their Affiliates with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, among the parties and their Affiliates or
any of them with respect to the subject matter hereof. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective permitted successors and assigns, but
neither this Agreement nor any of the rights, interests and obligations
hereunder shall be assigned by any of the parties hereto without the prior
written consent of the other parties, except that this Agreement may be assigned
to an Affiliate by any party without the prior written consent of another party;
provided however, that notwithstanding such assignment, the assignor shall
remain liable for all obligations hereunder.
Section 12.6 Further Assurances. From time to time as and when requested by
the Purchasers, the Seller shall execute such further agreements, assignments,
documents, deeds, certificates and other instruments of conveyance and transfer
and to take or cause to be taken such other actions as the Purchasers may
reasonably require to vest title to the Assets in the Purchasers and as shall be
reasonably necessary or advisable to carry out the purposes of and to effect the
transactions contemplated by this Agreement.
Section 12.7 Enforcement of the Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof, this being in addition to
any other remedy to which they are entitled pursuant to the terms hereof or
otherwise, at law or in equity.
Section 12.8 Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws in any
jurisdiction, that provision shall be ineffective to the extent of such
illegality, invalidity or unenforceability in that jurisdiction and such holding
shall not, consistent with applicable law, invalidate or render unenforceable
such provision in any other jurisdiction, and the legality, validity and
enforceability of the remaining provisions of this Agreement shall not be
affected thereby, and shall remain in full force and effect in all
jurisdictions.
Section 12.9 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by registered mail (postage prepaid, return receipt
requested) or prepaid Federal Express (return receipt requested) to the
respective parties as follows:
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if to any Seller:
Zapata Corporation
1717 St. James Place, Suite 550
Houston, Texas 77056
Attn: Joseph L. von Rosenberg, III, Esq.
Vice President, General Counsel and Corporate Secretary
with required copy (which shall not constitute notice) to:
Mr. Avram A. Glazer
President and Chief Executive Officer
18 Stoney Clover Lane
Pittsford, New York 14534
and
John D. Held, Esq.
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3500 Texas Commerce Tower
Houston, Texas 77002
if to the Purchasers:
Enterra Corporation
13100 Northwest Freeway, Sixth Floor
Houston, Texas 77040
Attn: President
with required copy (which shall not constitute notice) to:
Weatherford International Incorporated
1360 Post Oak Blvd., Suite 1000
Houston, Texas 77056
Attn: H. Suzanne Thomas, Esq.
and
David R. King, Esq.
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, Pennsylvania 19103
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
Section 12.10 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
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Section 12.11 Gender: "Including" is Not Limiting; Descriptive Headings.
The masculine and neuter genders used in this Agreement each includes the
masculine, feminine and neuter genders, and the singular number includes the
plural, each where appropriate, and vice versa. Wherever the term "including" or
a similar term is used in this Agreement, it shall mean "including by way of
example only and without in any way limiting the generality of the clause or
concept referred to." The descriptive headings are inserted for convenience of
reference only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
Section 12.12 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and the other Purchasers'
Indemnified Parties and Seller's Indemnified Parties, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
Section 12.13 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
Section 12.14 Incorporation by Reference. Any and all schedules, exhibits,
annexes, statements, reports, certificates or other documents or instruments
referred to herein or attached hereto are incorporated herein by reference
hereto as though fully set forth at the point referred to in the Agreement.
Section 12.15 Non-Competition Agreement with Peter M. Holt and Benjamin D.
Holt, Jr. Seller agrees to enforce Seller's rights under the Non-Competition
Agreement dated November 9, 1993 among Zapata, Peter M. Holt and Benjamin D.
Holt, Jr. (the "Holt Non-Competition Agreement") in accordance with its terms;
provided, however, the Purchasers shall promptly reimburse Seller for any costs
or expenses (including, without limitation, attorneys' fees) incurred by Seller
as a result of such action. Seller agrees not to amend the Holt Non-Competition
Agreement, or grant the waiver described in Section 5 of the Holt Non-
Competition Agreement, without the prior written consent of Purchasers. Each
Seller acknowledges that any violation of this Section 12.15 will result in
irreparable injury to the Purchasers and their Affiliates and that damages at
law would not be reasonable or adequate compensation to the Purchasers and their
Affiliates for a violation of this Section 12.15 and that Purchasers and their
Affiliates shall be entitled to have the provisions of this Section 12.15
specifically enforced by preliminary and permanent injunctive relief without the
necessity of proving actual damages and without posting bond or other security.
Section 12.16 Non-Competition by Seller; Equitable Remedies.
(a) Until three years after the Closing Date, Seller agrees that it will
not, anywhere in the world, unless acting in accordance with Enterra's prior
written consent: (i) own directly or indirectly, manage, operate or control or
participate in the ownership, management, operation or control of, or be
connected as a principal, agent, representative, consultant, investor, owner,
partner, manager or joint venturer with, or permit its name to be used by or in
connection with, any business or enterprise engaged anywhere in the world, in
any aspect of the Business, provided that Seller may invest as an investor in
the voting securities of any person that is a reporting company under the
Securities Exchange Act of 1934, as amended, so long as (A) the aggregate amount
of such securities that Seller owns directly or indirectly is less than five
percent of the total outstanding voting securities of such person and (B) Seller
is not otherwise an Affiliate with respect to such person, or (ii) solicit the
employment of any person who on the Closing Date, or who within two years
thereafter, is employed by Purchasers on a full or part-time basis, provided,
however, that Seller may have employment discussions with, and hire, those
persons who approach Seller of their own volition.
(b) Each Seller acknowledges that (i) the provisions of this Section 12.16
are reasonable and necessary to protect the legitimate interests of Purchasers
and their Affiliates, (ii) the Business is international in scope, (iii) any
violation of this Section 12.16 will result in irreparable injury to the
Purchasers and their Affiliates and that damages at law would not be reasonable
or adequate compensation to the Purchasers and their Affiliates for a violation
of this Section 12.16 and (iv) Purchasers and their Affiliates shall be entitled
to have the provisions of this
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Section 12.16 specifically enforced by preliminary and permanent injunctive
relief without the necessity of proving actual damages and without posting bond
or other security. In the event that any of the provisions of this Section
12.16 should ever be deemed to exceed the time, geographic, or any other
limitations permitted by applicable law, then such provisions shall be deemed
reformed to the maximum permitted by applicable law.
(c) Purchasers and each Seller intend to and do hereby confer jurisdiction
to enforce the covenants set forth in this Section 12.16 upon the courts of any
jurisdiction within the geographical scope of such covenants. In addition to
Section 12.8 hereof and not in limitation thereof, if the courts of any one or
more of such jurisdictions hold such covenants unenforceable in whole or in
part, it is the intention of Purchasers and each Seller that such determination
not bar or in any way adversely affect the right of Purchasers and their
Affiliates to equitable relief and remedies hereunder in courts of any other
jurisdiction as to breaches or violations of this Section 12.16, such covenants
being, for this purpose, severable into diverse and independent covenants.
(d) Nothing in this Section 12.16 is intended to restrict, and shall not be
construed to restrict, Zapata's ownership, management, operation, control or
participation of its wholly owned subsidiary, Cimarron Gas Holding Company, or
its subsidiaries, which engage in the natural gas marketing, trading, gathering
and processing business and which utilizes gas compressors in connection with
such business in the ordinary course of business.
Section 12.17 Equitable Remedies.
Notwithstanding any other provision of this Agreement, each party will have
the right to institute judicial proceedings against the other party or anyone
acting by, through or under such other party in order to enforce the instituting
party's rights under Section 12.15 or 12.16 through specific performance,
injunction or similar equitable relief. For this purpose, each of the parties
hereto irrevocably and unconditionally (i) agrees that any suit arising out of
this Agreement may be brought and adjudicated in the U.S. District Court for the
Southern District of Texas, or, if such court will not accept jurisdiction, in
any court of competent jurisdiction sitting in Harris County, Texas, (ii)
submits to the non-exclusive jurisdiction of any such court for the purposes of
any such suit and (iii) waives and agrees not to assert by way of motion, as a
defense or otherwise in any such suit, any claim that it is not subject to the
jurisdiction of the above courts, that such suit is brought in an inconvenient
forum or that the venue of such suit is improper. Each of the parties hereto
also irrevocably and unconditionally consents to the service of any process,
pleadings, notices or other papers in a manner permitted by the notice
provisions of Section 12.9 hereof.
Section 12.18 Arbitration.
(a) Except as provided in Section 12.17, all disputes, differences or
questions arising out of or relating to this Agreement (including, without
limitation, those as to the validity, interpretation, breach, violation or
termination hereof) shall, at the written request of any party hereto, be
finally determined and settled pursuant to arbitration in Houston, Texas, by
three arbitrators, one to be appointed by Enterra, and one by Seller, and a
neutral arbitrator to be appointed by such two appointed arbitrators. The
neutral arbitrator shall be an attorney and shall act as chairman. Should (i)
either party fail to appoint an arbitrator as hereinabove contemplated within
ten (10) days after the party not requesting arbitration has received such
written request, or (ii) the two arbitrators appointed by or on behalf of the
parties as contemplated in this Section 12.18 fail to appoint a neutral
arbitrator as hereinabove contemplated within ten (10) days after the date of
the appointment of the last arbitrator appointed, then any person sitting as a
Judge of the United States District Court for the Southern District of Texas,
Houston Division, upon application of Seller or of Enterra, shall appoint an
arbitrator to fill such position with the same force and effect as though such
arbitrator had been appointed as hereinabove contemplated.
(b) The arbitration proceeding shall be conducted in Houston, Texas, in
accordance with the Rules of the American Arbitration Association. A
determination, award or other action shall be considered the valid action of the
arbitrators if supported by the affirmative vote of two or three of the three
arbitrators. The costs of arbitration (exclusive of attending the arbitration,
and of the fees and expenses of legal counsel to such party, all of which shall
be borne by such party) shall be shared equally by Purchasers and Seller. The
arbitration award shall be final and
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conclusive and shall receive recognition, and judgment upon such award may be
entered and enforced in any court of competent jurisdiction.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed as of the day and year first above written.
ZAPATA CORPORATION
By: /s/ Joseph L. von Rosenberg, III
--------------------------------------
Joseph L. von Rosenberg, III
Vice President, General Counsel and
Corporate Secretary
ENERGY INDUSTRIES, INC.
By: /s/ Joseph L. von Rosenberg, III
--------------------------------------
Joseph L. von Rosenberg, III
Vice President, General Counsel and
Corporate Secretary
ZAPATA ENERGY INDUSTRIES, L.P.
By ZAPATA RENTALS, INC., its general partner
By: /s/ Joseph L. von Rosenberg, III
-----------------------------------
Joseph L. von Rosenberg, III
Vice President, General Counsel and
Corporate Secretary
ENTERRA CORPORATION
By: /s/ Steven W. Krablin
--------------------------------------
Steven W. Krablin
Vice President
ENTERRA COMPRESSION COMPANY
By: /s/ Steven W. Krablin
--------------------------------------
Steven W. Krablin
Vice President
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EXHIBIT 1
DEFINITIONS
(a) "Accountants' Calculation of Net Asset Value" shall have the meaning set
forth in Section 4.5.
(b) "Affiliate" as used in this Agreement means, with respect to any person,
(i) any person that, directly or indirectly, controls, is controlled by, or
is under common control with, such person in question, (ii) any officer,
director, stockholder or partner of such person in question, or member of
the extended family of such officer, director, stockholder or partner and
(iii) any person that, directly or indirectly, controls, is controlled by,
or is under common control with, any officer, director, stockholder or
partner of such person in question or member of the extended family of such
officer, director, stockholder or partner. For the purposes of the
definition of Affiliate, "control" (including, with correlative meaning,
the terms "controlled by" and "under common control with"), as used with
respect to any person, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management and
policies of such person, whether through the ownership of voting securities
or by contract or otherwise.
(c) "Agreed Upon Net Asset Value" shall have the meaning set forth in Section
4.5 hereof.
(d) "Agreement" shall have the meaning specified in the Preamble.
(e) "Assets" shall have the meaning specified in Section 4.1.
(f) "Assumed Liabilities" shall have the meaning specified in Section 4.2(b).
(g) "Business" shall mean the natural gas compression businesses historically
engaged in by Zapata Sub and Zapata Partnership and their Affiliates.
(h) "Continuing Employees" shall have the meaning specified in Section 11.1.
(i) "Contracts" mean all agreements contracts, leases or subleases relating to
the Business to which any Seller is a party or by which any Seller or any
of the Assets is bound.
(j) "Disclosure Schedule" shall have the meaning specified in the beginning of
Article II.
(k) "Environmental Claims" means any and all administrative or judicial
actions, suits, orders, claims, liens, notices, violations or proceedings
arising under any applicable Environmental Law or any Environmental Permit
binding upon Seller, or at common law or otherwise, brought, issued or
asserted by: (A) a Governmental Authority for compliance, damages,
penalties, removal, response, remedial or other action pursuant to any
applicable Environmental Law or (B) a third party seeking damages for
personal injury caused by Seller or property damage resulting from the
release of a Hazardous Material at or from any current or prior facility of
any Seller for which Seller would bear liability, including, without
limitation, Seller's employees seeking damages for exposure to Hazardous
Materials.
(l) "Environmental Laws" means applicable Governmental Requirements currently
in effect related to protection of the environment (including, without
limitation, natural resources), exposure to, control, emission, discharge,
release, threatened release, exposure, handling, use, manufacturing,
generation, treatment, storage, transportation or disposal of Hazardous
Materials.
(m) "Environmental Permit" means all Governmental Authorizations required for
the operation of the Business in conformity with applicable Environmental
Laws and includes any and all orders, consent orders or
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binding agreements issued or entered into by a Governmental Authority and
binding upon Seller under any applicable Environmental Laws.
(n) "Equipment Leases" means the lease agreements covering the compressor
systems and related equipment used or held for use in the Business.
(o) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and the rulings
issued thereunder.
(p) "Excluded Liabilities" shall have the meaning set forth in Section 4.2.
(q) "GAAP" means as to a particular person, such accounting practice as, in the
opinion of independent certified public accountants of recognized national
standing, conforms at the time to generally accepted accounting principles
in the United States, consistently applied, and which are recognized as
such by the Financial Accounting Standards Board.
(r) "Governmental Authority" means any foreign governmental authority, the
United States of America, any state of the United States, any local
authority and any political subdivision of any of the foregoing, any multi-
national organization or body, any agency, department, commission, board,
bureau, court or other authority of any of the foregoing, or any quasi-
governmental or private body exercising, or purporting to exercise, any
executive, legislative, judicial, administrative, police, regulatory or
taxing authority or power of any nature.
(s) "Governmental Authorization" means any permit, license, franchise,
approval, certificate, consent, ratification, permission, confirmation,
endorsement, waiver, certification, registration, qualification or other
authorization issued, granted, given or otherwise made available by or
under the authority of any Governmental Authority or pursuant to any
Governmental Requirement.
(t) "Governmental Requirement" means any currently published and applicable
law, treaty, ordinance, statute, rule, code, regulation, judgment, decree
or order binding upon Seller, injunction, edict, writ, permit, certificate,
stipulation, common law or other published and legally enforceable
requirement of any Governmental Authority.
(u) "Hazardous Material" means any hazardous, extremely hazardous, or toxic
substance, material or waste not at a background level (taking into account
offsite conditions) which is regulated by any Governmental Authority,
including without limitation any material or substance that is (i) defined
as a "hazardous substance" under applicable state or local law, (ii) (a)
crude oil products, including, without limitation, petroleum and (b) solid
waste as defined under the Environmental Laws; the prior or continued
presence of which would result in investigation or cleanup responsibility
of Buyer or Seller under Environmental Laws, (iii) asbestos as regulated by
CERCLA, (iv) designated as a "hazardous substance" pursuant to section 311
of the Federal Water Pollution Control Act, as amended, 33 U.S.C. (S)1251
et seq. (33 U.S.C. (S)1321), (v) defined as a "hazardous waste" pursuant to
section 1004 of the Resource Conversation and Recovery Act, as amended, 42
U.S.C. (S)6901 et seq. (42 U.S.C. (S)6901), (vi) defined as a "hazardous
substance" pursuant to section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act, as amended, 42 U.S.C. (S)9601 et
seq. (42 U.S.C. (S)9601) ("CERCLA"), (vii) defined as a "regulated
substance" pursuant to section 9001 of the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. (S)6901 et seq. (42 U.S.C. (S)6991)
("RCRA") or (viii) otherwise regulated under the Toxic Substances Control
Act, 15 U.S.C. (S)2601, et seq., the Clean Air Act, as amended, 42 U.S.C.
(S)7401, et seq., the Hazardous Materials Transportation Act, as amended,
49 U.S.C. (S)1801, et seq., or the Federal Insecticide, Fungicide and
Rodenticide Act, as amended, 7 U.S.C. (S)136, et seq; or other Governmental
Requirement provided, however, the reference to specific statutory or other
general legal references contained within this definition shall be
construed as those statutes in effect on the date of this Agreement.
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(v) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, together with all rules and regulations promulgated thereunder.
(w) "Indemnified Person" shall have the meaning specified in Section 10.3.
(x) "Indemnifying Person" shall have the meaning specified in Section 10.3.
(y) "Inventories" means all inventories used or held for use in connection with
the Business, including without limitation, finished goods, work-in-
progress and raw materials.
(z) "IRS" means the Internal Revenue Service.
(aa) "Liability" means any debt, obligation, duty, liability or obligation of
any nature (including any guaranty, endorsement, claim, loss, damage,
deficiency, cost, expense, obligation or responsibility, whether or not
accrued, absolute, undisclosed, unfixed, unliquidated, unsecured,
unmatured, unaccrued, contingent, conditional, inchoate, implied,
vicarious, joint, several or secondary liability), regardless of whether
such debt, obligation, duty, liability or obligation would be required to
be disclosed on a balance sheet prepared in accordance with GAAP.
(bb) "Lien" means any mortgage, pledge, hypothecation, assignment, deposit,
arrangement, encumbrance, lien (statutory or otherwise), security interest
or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever.
(cc) "Loss" means any loss, damage, injury, Liability, claim, demand,
Proceeding, settlement judgment, award, punitive damage, award, fine,
penalty, Tax, fee, charge, cost or expense (including, without limitation,
costs of attempting to avoid or in opposing the imposition thereof,
interest, penalties, costs of preparation and investigation, and the fees,
disbursements and expenses of attorneys, accountants and other professional
advisors). In calculating the dollar amount of any Loss, an allowance shall
be made for any insurance proceeds or other amounts, including any Tax
benefits, that may be recovered in connection therewith (subject to
reduction for any premium relating thereto).
(dd) "Material Adverse Effect" shall mean any material adverse change in the
condition (financial or otherwise), assets, Liabilities, reserves,
business, or results of operations of the Business.
(ee) "PBGC" means the Pension Benefit Guaranty Corporation.
(ff) "Permitted Lien" means the following:
(i) Liens for taxes not due or due but not yet delinquent or which are
being contested in good faith by appropriate proceedings and for which
adequate reserves have been established;
(ii) carriers', warehousemen's, mechanics', materialmen's, repairmen's or
other like Liens arising as required in the conduct of its Business
and not overdue for a period of more than sixty (60) days or which are
being contested in good faith by appropriate proceedings and other
non-consensual Liens arising as required in the conduct of its
Business and removed within thirty (30) days of the date on which the
entity on whose property the Lien is imposed knows or reasonably
should have known of the existence thereof or which are being
contested in good faith by appropriate proceedings, in each case for
which adequate reserves have been established;
(iv) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred as required in the ordinary course of the Business.
consistent with past practice;
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(v) easements, rights-of-way, restrictions and other similar encumbrances
incurred as required in the conduct of its Business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the
entity on whose property the Lien is imposed; or
(vi) Equipment Leases entered into in the ordinary course of the Business,
consistent with past practice (all of which are listed in the
Disclosure Schedule in accordance with Section 2.11).
(gg) "Proceeding" shall have the meaning specified in Section 2.10.
(hh) "Purchasers" shall have the meaning specified in the Preamble and shall
include permitted successors and assigns of Purchasers.
(ii) "Purchasers' Calculation of Net Asset Value" shall have the meaning set
forth in Section 4.5.
(jj) "Purchasers' Indemnified Persons" shall have the meaning set forth in
Section 10.1.
(kk) "Real Property Leases" means all leases covering real property used or held
for use in the Business.
(ll) "Seller" shall have the meaning set forth in the Preamble and shall include
permitted successors and assigns of any Seller.
(mm) "Seller's Indemnified Persons" shall have the meaning set forth in Section
10.2.
(nn) "Subsidiary" means, when used with reference to a particular person any
corporation, a majority of the outstanding voting securities of which is
owned or controlled directly or indirectly by such person, or if less than
a majority of such voting securities are so owned or controlled, any
corporation in regard to which such person possesses, directly or
indirectly, the power to direct or cause the direction of management and
policies of such corporation. Any partnership, joint venture or other
enterprise shall be a Subsidiary of a particular person, if that person
has, directly or indirectly, a 50% or greater equity interest or in regard
to which such person possesses, directly or indirectly, the power to direct
or cause the direction of management and policies of such entity.
(oo) "Tax Code" means the Internal Revenue Code of 1986, as amended.
(pp) "Taxes" means any federal, state, local or foreign taxes, assessments,
duties, levies, fees or other governmental charge or impositions.
(qq) "WARN" means the federal Workers Adjustment, Retraining and Notification
Act, as amended.
(rr) "Zapata Employees" shall have the meaning set forth in Section 11.1(a).
4
<PAGE>
APPENDIX B
OPINION OF SCHRODER WERTHEIM & CO.
<PAGE>
APPENDIX B
September 20, 1995
The Board of Directors
Zapata Corporation
1717 St. James Place
Suite 550
Houston, TX 77056
Members of the Board:
In accordance with the terms of the engagement letter dated as of April 13, 1995
between Zapata Corporation ("Zapata") and Schroder Wertheim & Co. Incorporated
("Schroder Wertheim"), we have acted as exclusive financial advisor to Zapata
with regard to a potential sale of its wholly-owned subsidiaries Energy
Industries, Inc. and Zapata Energy Industries, L.P. (collectively "EI" or the
"Company"). Under the terms of a draft purchase agreement dated September 19,
1995 (the "Draft Purchase Agreement"), Enterra Corporation ("Enterra") would
purchase from Zapata all of the assets and property of the natural gas
compression businesses historically engaged in by EI (the "Transaction") for
cash consideration of $130 million, and assume certain liabilities, subject to
certain adjustments based on the net asset value of EI on the closing date (the
"Consideration").
We understand that as an inducement to Enterra's entering into a definitive
Purchase Agreement, The Malcolm I. Glazer Trust, beneficial owner of
approximately 35.3% of the outstanding common stock of Zapata, has agreed on
behalf of itself, and any affiliates of such Trust or Malcolm I. Glazer, that
the Trust and such affiliates will vote all shares of Zapata common stock owned
by them in accordance with the recommendation of Zapata's Board of Directors to
Zapata's shareholders with respect to approval of the Transaction by Zapata's
stockholders, pursuant to a letter agreement dated September 20, 1995 (the
"Glazer Letter").
You have requested that Schroder Wertheim render an opinion (the "Opinion"), as
investment bankers, as to the fairness from a financial point of view to Zapata
of the Consideration to be received by Zapata. This letter confirms the oral
Opinion rendered to the Board of Directors of Zapata on September 20, 1995. It
is understood that (i) the Opinion shall be used by the Company solely in
connection with its consideration of the Transaction and (ii) the Company will
not furnish the Opinion or any other material prepared by Schroder Wertheim
(including this letter) to any other person or persons or use or refer to the
Opinion or this letter for any other purposes without Schroder Wertheim's prior
written approval; provided, however, that the Company may publish the Opinion in
its entirety in any proxy statement or similar documents distributed to its
stockholders in connection with the Transaction, subject to our prior written
approval of any summary, of excerpt from or reference to the Opinion.
<PAGE>
The Board of Directors
Zapata Corporation
September 20, 1995
Page 2
Schroder Wertheim, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. Schroder Wertheim is a full service securities
firm and in the course of our normal trading activities we may from time to time
effect transactions and hold positions in securities of Zapata and Enterra.
Schroder Wertheim acted as financial advisor to Zapata regarding the Company's
negotiations with Enterra and will receive a fee which is contingent upon
consummation of the Transaction. Schroder Wertheim rendered investment banking
services to Zapata in another transaction for which the firm received a
customary fee and has also been engaged as Zapata's financial advisor to assist
in the potential divestiture of Zapata's wholly owned subsidiary, Cimaron Gas
Holding Company, and its subsidiaries.
In connection with the Opinion set forth herein, we have, among other things:
(i) reviewed the Draft Purchase Agreement and the Glazer Letter;
(ii) reviewed the unaudited financial statements of EI for the (i) twelve
months ended December 31, 1992, (ii) ten months ended October 31, 1993,
(iii) eleven months ended September 30, 1994, (iv) eight months ended May
31, 1995, (v) eleven months ended August 31, 1995, all of which were
prepared by Zapata management;
(iii) reviewed the pro forma unaudited financial statements of EI for the (i)
twelve months ended October 31, 1993, (ii) twelve months ended September
30, 1994, (iii) eight months ended May 31, 1994, and (iv) eleven months
ended August 31, 1994, all of which were prepared by Zapata management;
(iv) reviewed and discussed, with the management of Zapata and EI, certain
financial information prepared by management, including the historical
pro forma financial results referred to above, and EI management's
projections for future periods, as well as the current financial
condition and business prospects of EI;
(v) compared certain financial data for EI under the proposed terms of the
Transaction with that of certain publicly traded companies which we
deemed to be reasonably comparable to EI;
(vi) compared the financial terms, to the extent publicly available, of
certain recent acquisition transactions which we deemed to be reasonably
comparable to the proposed financial terms of the Transaction;
(vii) actively solicited the interest of potential buyers, held discussions,
both in person and via telephone, with potential buyers regarding their
interest in acquiring EI, and reviewed written acquisition proposals
relating to EI;
(viii) visited EI's facilities in Corpus Christi, Texas; and
(ix) performed such other financial studies, analyses, inquiries and
investigations as we deemed appropriate.
<PAGE>
The Board of Directors
Zapata Corporation
September 20, 1995
Page 3
In rendering the Opinion, we have relied upon the accuracy and completeness of
all information supplied or otherwise made available to us by Zapata and EI or
obtained by us from other sources, and we have not assumed any responsibility
for independently verifying such information, undertaken an independent
appraisal of the assets or liabilities (contingent or otherwise) of EI, or been
furnished with any such appraisals. With respect to projections and financial
forecasts for EI, we have been advised by both Zapata and EI, and we have
assumed, without independent investigation, that they have been reasonably
prepared and reflect the best currently available estimates and judgment as to
the expected future financial performance of the Company.
The Opinion is necessarily based upon financial, economic, market and other
conditions as they exist, and the information made available to us, as of the
date hereof. We disclaim any undertaking or obligation to advise any person of
any change in any fact or matter affecting the Opinion which may come or be
brought to our attention after the date of the Opinion.
Our opinion is directed to the Board of Directors of Zapata and does not
constitute a recommendation to any Zapata stockholders as to how such
stockholder should vote regarding the Transaction. The Opinion relates solely to
the question of the fairness, from a financial point of view, to Zapata of the
Consideration. We have not been asked to express, and we have not expressed, any
opinion as to the appropriateness of the Transaction for Zapata from a business
or operational point of view.
We have not reviewed any proxy statement or similar document that may be used in
connection with the Transaction, as such materials were not prepared as of the
date of the Opinion.
Based upon and subject to all the foregoing, we are of the opinion, as
investment bankers, that as of the date hereof, the Consideration is fair, from
a financial point of view, to Zapata.
Very truly yours,
Schroder Wertheim & Co. Incorporated
<PAGE>
APPENDIX C
ANNUAL REPORT ON FORM 10-K, AS AMENDED, OF THE COMPANY
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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
I
TEM 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>
I
TEM 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.
I
TEM 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
I
TEM 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>
I
TEM 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>
I
TEM 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
I
TEM 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."
I
TEM 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.
I
TEM 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.
I
TEM 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
I
TEM 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>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-K/A
[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 OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
P.O. BOX 4240
HOUSTON, TEXAS 77210-4240
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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
TITLE OF EACH CLASS WHICH 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
I
TEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. /X/
DOCUMENTS INCORPORATED BY REFERENCE: NONE
================================================================================
<PAGE>
The information appearing under the caption "Executive Officers of the
Registrant" in Item 1 of the Company's Annual Report on Form 10-K for the year
ended September 30, 1994 is amended to read in its entirety as set forth below.
The amended information reflects the Company's determination that Joseph B.
Mokry, an officer of a subsidiary of the Company, should be considered an
executive officer of the Company.
EXECUTIVE OFFICERS OF 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
Chief Executive Officer and President
Ronald C. Lassiter (62).. Acting Chief Operating Officer December 1994
Lamar C. McIntyre (56)... Vice President, Chief Financial Officer and Treasurer October 1994
Bruce K. Williams (46)... Chairman, President and Chief Executive Officer
of Zapex July 1987
Robert W. Jackson (51)... President and Chief Executive Officer of Cimarron November 1992
Joseph B. Mokry (47)..... President and Chief Operating Officer of
Energy Industries January 1995
</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 is also a self-employed, private investor whose
diversified portfolio consists of investments in television broadcasting,
restaurants, restaurant equipment, health care, banking, real estate, stocks,
government securities and corporate bonds, for more than the past five years.
He is a director and Chairman of the Board of Gilbert/Robinson Restaurants, Inc.
(a restaurant holding company) and he is a director of Specialty Equipment
Companies, Inc. He is 66 years of age and serves on the Executive Committee and
Nominating Committee of the Company's Board of Directors. His current term of
office as a director expires in 1996.
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. In December 1994, Mr. Lassiter withdrew from an active
management role with Zapata Protein, Inc. as a result of his participation in a
group seeking to acquire that subsidiary. 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.
1
<PAGE>
Lamar C. McIntyre has served as Vice President, Chief Financial Officer
and Treasurer since October 1994. He served as Vice President, Tax from October
1990 through November 1991, and Vice President, Tax and Treasurer from December
1991 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.
Joseph B. Mokry has served as President and Chief Operating Officer of
Energy Industries for more than the past five years and held various management
positions for the previous twelve years. He is a member of the executive
management committee for Holt Companies.
================================================================================
The information appearing on Part III to the Company's Annual Report on
Form 10-K for the year ended September 30, 1994 is amended to read in its
entirety as set forth below.
PART III
I
TEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under "Item 1. Business--Executive Officers
of the Registrant" is incorporated herein by reference.
Set forth below is information respecting the directors of the Company.
Each director is elected for a term of three years and serves until his
successor is elected and qualified. Ages given are as of December 15, 1994.
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
of Zapata since August 1994. He also has been a self-employed, private investor
whose diversified portfolio consists of investments in television broadcasting,
restaurants, restaurant equipment, health care, banking, real estate, stocks,
government securities and corporate bonds for more than the past five years. He
is a director and Chairman of the Board of Gilbert/Robinson Restaurants, Inc. (a
restaurant holding company) and he is a director of Specialty Equipment
Companies, Inc. He is 66 years of age and serves on the Executive Committee and
Nominating Committee of the Company's Board of Directors. His current term of
office as a director expires in 1996.
Kristian Siem has been a director since 1993. He has been chairman of
the Norex Group (a diversified holding company engaged in shipping, drilling,
passenger cruise vessels, insurance brokering and travel agencies) since 1979.
He served as Chief Operating Officer of the Company from August 1994 until
December 1994. Mr. Siem is Chairman of the Board of Directors and Chief
Executive Officer of Norex
2
<PAGE>
America, Inc., Chairman of the Board of Directors of Wilrig AS, and a director
of Drayton Blue Chip Trust Plc, Lowndes Lambert Group Holdings Plc, DI
Industries, Inc. and Det Sondenfjelds-Norske Dampskibsselskab. He is 45 years
of age. His current term of office as a director expires in 1997.
Avram A. Glazer, a director since 1993, has been employed by, and has
worked on behalf of, for the past five years Malcolm I. Glazer and a number of
entities owned and controlled by Malcolm I. Glazer. He also serves as a director
of Gilbert/Robinson Restaurants, Inc. (a restaurant holding company) and a
director of Specialty Equipment Companies, Inc. He is 34 years of age and
serves on the Executive Committee and Nominating Committee of the Company's
Board of Directors. His current term of office as a director expires in 1996.
Avram A. Glazer is the son of Malcolm I. Glazer.
Peter M. Holt has been a director since November 1993. Since July
1984, he has served as Chief Executive Officer of Energy Industries, Inc., which
was acquired by Zapata in November 1993. He is also the Chief Executive Officer
of certain other companies, including Caterpillar equipment dealerships and
companies engaged in used machinery sales, aircraft sales and real estate
investment, a position he has held with each such entity for more than the past
five years. Mr. Holt is also a director of Texas Commerce Bank, San Antonio,
and Chairman of the Board of DUECO, a used equipment cooperative. He is 46
years of age and serves on the Nominating Committee of the Company's Board of
Directors. His current term of office as a director expires in 1997.
Ronald C. Lassiter, a director since 1974, has been acting Chief
Operating Officer of Zapata since December 1994. He was Chairman of the Board
of Directors of Zapata from December 1985 to July 1994 and Chief Executive
Officer of Zapata from January 1983 to July 1994. 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. He is 62 years of age and serves on
the Executive Committee and Compensation Committee of the Company's Board of
Directors. His current term of office as a director expires in 1996.
Luther W. Miller, a director since December 1994, has served as senior
attorney in the Rochester, New York law firm of Cooke & Miller for more than the
past five years. He is 62 years of age and serves on the Audit Committee and
Nominating Committee of the Company's Board of Directors. His current term of
office as a director expires in 1995.
Myrl S. Gelb, a director since December 1994, has served as President
and director of Savannah Bank, N.A. for more than the past five years. He is
57 years of age and serves on the Executive Committee, Audit Committee and
Compensation Committee of the Company's Board of Directors. His current term of
office as a director expires in 1995.
On July 1, 1993, Malcolm I. Glazer, Avram A. Glazer and Norex Drilling,
Ltd. entered into an agreement pursuant to which the Company agreed that the
Board of Directors would elect and did elect Malcolm I. Glazer, Avram A. Glazer
and Kristian Siem to serve as directors on the Company's Board of Directors.
Malcolm I. Glazer and Avram A. Glazer became Class I directors and Mr. Siem
became a Class II director.
In connection with the acquisition of Energy Industries, Inc. ("Energy
Industries"), the Company agreed to use its best efforts to elect Peter M. Holt
as a member of the Board of Directors and as a member of the Executive Committee
and Nominating Committee of the Board of Directors. In November 1993, the
3
<PAGE>
Board of Directors elected Mr. Holt as a Class II director. If the term of
office for the class of directors for which Mr. Holt was elected expires prior
to 1996, the Company agreed to use its best efforts to cause the Nominating
Committee of the Board of Directors to nominate Mr. Holt as a director of the
Company for an additional three-year term.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company during the fiscal year ended September 30, 1994 and
Forms 5 and amendments thereto with respect to such year and certain written
representations that no Form 5 is required, the Company believes that no person
subject to Section 16 of the Securities Exchange Act of 1934 with respect to the
Company failed to file on a timely basis, as disclosed in such Forms, reports
required by Section 16(a) of such Act during such fiscal year or prior years.
I
TEM 11. EXECUTIVE COMPENSATION.
The following tables sets forth information regarding annual, long-
term and other compensation with respect to the fiscal years ended September 30,
1994, 1993 and 1992 for services in all capacities rendered to the Company by
the persons who served as chief executive officer during fiscal 1994 and the
four most highly compensated executive officers of the Company other than the
chief executive officer who was serving as executive officer on September 30,
1994 (the "Named Officers").
4
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- ------------
ALL OTHER
SALARY BONUS LTIP COMP.
NAME AND PRINCIPAL POSITION YEAR $ $ PAYOUTS($) ($)(4)
- ----------------------------------------- ------- -------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Malcolm I. Glazer, Chairman and
Chief Executive Officer (1)............. 1994 29,800(1) -- -- --
Ronald C. Lassiter, Chairman and
Chief Executive Officer of
Zapata Protein, Inc. (2)................ 1994 361,779(2) -- -- --
1993 358,600(2) 175,000 -- 2,100
1992 358,600 125,510 2,006,519(3) 1,200
Robert W. Jackson, President and Chief
Executive Officer of Cimarron (5)....... 1994 200,000 -- -- --
1993 200,000 -- -- --
Marvin J. Migura, Senior Vice President
and Chief Financial Officer (6) 1994 165,600 -- -- 3,600
1993 165,600 70,000 -- 3,000
1992 162,970 57,960 -- 1,400
Joseph B. Mokry, President and Chief
Operating Officer of Energy
Industries, Inc......................... 1994 172,260 100,080 -- 8,512
Kristian Siem
Chief Operating Officer (7)............. 1994 92,348 -- -- --
</TABLE>
________________
(1) In August 1994, Mr. Glazer was elected as Chairman, President and Chief
Executive Officer. He received no compensation during the period for
acting in these capacities other than director and board committee fees,
which are included in the "Salary" column.
(2) Mr. Lassiter served as Chief Executive Officer during fiscal 1992 and 1993
and until July 1994. From July 1994 until December 1994, he was Chairman
and Chief Executive Officer of Zapata Protein, Inc. In December 1994, Mr.
Lassiter withdrew from an active management role with Zapata Protein, Inc.
as a result of his participation in a group seeking to acquire that
subsidiary. Since December 1994, he has been acting Chief Operating
Officer of Zapata Corporation. Amounts in the "Salary" column include
amounts paid to Mr. Lassiter under the consulting agreement described below
under "Employment Agreements and Other Incentive Plans."
5
<PAGE>
(3) In connection with the merger of Zapata Gulf with a subsidiary of
Tidewater, Inc. in January 1992, Mr. Lassiter received this payment under
the Equity Incentive Plan established by Zapata Gulf in 1989. There are no
further amounts payable under this plan.
(4) The amounts indicated represent the Company's contributions to the profit-
sharing plan.
(5) Mr. Jackson became an executive officer of the Company in November 1992.
(6) Mr. Migura resigned as an executive officer of the Company effective as of
October 28, 1994.
(7) Mr. Siem was Chief Executive Officer during July and August 1994 and Chief
Operating Officer from August 1994 until December 1994. The amount shown
in the "Salary" column for Mr. Siem includes director and board committee
fees and amounts paid under a consulting agreement with the Company
providing for his services as Chief Operating Officer.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END ($)
---------------------------- ------------------------------
Exercisable Unexercisable Exercisable Unnexercisable
----------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Malcolm I. Glazer........... 6,666 13,334 0 0
Ronald C. Lassiter.......... 244,000 0 335,000 0
Robert W. Jackson........... 0 0 0 0
Marvin J. Migura............ 140,000 0 192,500 0
Joseph B. Mokry............. 0 0 0 0
Kristian Siem............... 6,666 13,334 0 0
</TABLE>
The options included in the foregoing table were granted in 1990 under
Zapata's 1990 Stock Option Plan, except in the case of Messrs. Glazer and Siem,
whose options were granted in 1993 under the Company's Amended and Restated
Special Incentive Plan with respect to their service as non-employee directors.
The options were granted at market value on the date of grant and are
exercisable in cumulative one-third installments commencing one year from the
date of grant, with full vesting occurring on the third anniversary of the grant
date. On September 30, 1994, the closing price of Common Stock on the NYSE was
$4.50 per share, after giving effect to the one-for-five reverse stock split.
No options were granted to, or exercised by, the Named Officers during the year
ended September 30, 1994.
PENSION PLAN INFORMATION
Effective January 15, 1995, the Company amended its Pension Plan to
provide that highly-compensated employees (those having covered annual
compensation in excess of $66,000) will not earn additional benefits under the
plan after that date. In addition, the Company terminated its Supplemental
Pension Plan except with respect to benefits already accrued. Messrs. Glazer,
Siem, Jackson and Mokry are not participants in the Pension Plan or the
Supplemental Pension Plan. Mr. Lassiter retired for purposes of the Pension
Plan effective August 1, 1994 and receives annual benefits of $87,860 under the
Pension Plan
6
<PAGE>
and $203,025 under the Supplemental Pension Plan. Mr. Migura's estimated annual
benefit is $62,412 (assuming payments commence at age 65 on a single life
annuity basis).
EMPLOYMENT AGREEMENTS AND OTHER INCENTIVE PLANS
Effective as of March 15, 1991, Zapata entered into employment
agreements with, among others, Messrs. Lassiter and Migura. As a result of the
termination of Mr. Migura's employment in October 1994, he will receive payments
for three years equivalent to his base salary in effect at the time of
termination ($165,600 annually). The agreements also provided for continuation
of salary for a three-year period following termination of employment under
certain circumstances occurring within two years after a change of control. A
"change of control" for purposes of this provision occurred in July 1992. As a
result of the change in Mr. Lassiter's responsibilities in July 1994, Mr.
Lassiter terminated his employment under this provision of his contract.
Subsequently, Mr. Lassiter entered in a consulting agreement with the Company
under which he agreed to serve as Chairman and Chief Executive Officer of Zapata
Protein, Inc. for the same aggregate compensation he would have been entitled to
receive under the termination provisions of the employment agreement, with the
payment schedule deferred over a more extended period of time so long as Mr.
Lassiter continues to serve under the consulting agreement. The payments to Mr.
Lassiter under these provisions are included in the "Salary" column of the
Summary Compensation Table.
Effective as of August 17, 1994, Zapata entered into a consulting
agreement with Mr. Siem under which he agreed to provide certain consulting
services to the Company and serve as its Chief Operating Officer in exchange for
a quarterly fee of $75,000. Mr. Siem ceased to serve as the Company's Chief
Operating Officer on December 15, 1994.
The employment agreements of Messrs. Lassiter and Migura provide that
all payments to be made thereunder shall be reduced as necessary such that the
present value of all parachute payments, as defined under federal tax laws, will
be one dollar less than three times the executive's base amount of salary, so as
to avoid the excise taxes on the executive or the disallowance of a tax
deduction by Zapata.
Effective as of September 30, 1992, Cimarron entered into an
employment agreement with Robert W. Jackson (the "Jackson Agreement"). The
Jackson Agreement provides for Mr. Jackson's continuing employment as President,
Chief Executive Officer and Director of Cimarron for a period of five years.
However, if Mr. Jackson's employment is terminated for cause, his salary will
cease as of such date. If Mr. Jackson's employment is terminated by death or
total or permanent disability, his salary will cease as of the end of the month
in which such event occurs. If Mr. Jackson's employment is terminated without
cause, Cimarron will be obligated to pay the salary then being paid for the
remainder of the term of the Jackson Agreement. In the event that Mr. Jackson
voluntarily resigns for "good reason," Cimarron is obligated to continue to pay
the salary then being paid for the remainder of the term of the Jackson
Agreement. "Good reason" is defined as (i) the assignment to Mr. Jackson of any
duties materially inconsistent with his position, a substantial change in his
reporting responsibilities or the failure to re-elect him as President, Chief
Executive Officer or Director of Cimarron; (ii) a reduction in Mr. Jackson's
base salary or benefits; (iii) the transfer of Mr. Jackson; or (iv) a material
breach by Cimarron of the Jackson Agreement. If Mr. Jackson voluntarily resigns
without good reason, his salary will cease as of the date of resignation.
7
<PAGE>
COMPENSATION OF DIRECTORS
During the year ended September 30, 1994, those members of Zapata's
Board of Directors who were not employees of the Company were paid an annual
retainer of $20,000, plus $3,000 for serving as chairman of any committee, plus
$700 for each Board or committee meeting attended. Effective October 1, 1994,
the per meeting fee was changed to an annual fee of $1,000 for each Committee of
the Board on which a Board member serves and the additional fee for serving as
chairman of a committee was eliminated. Those directors who also are Zapata
employees do not receive any additional compensation for their services as
directors.
Pursuant to the Company's Amended and Restated Special Incentive Plan,
each non-employee director of the Company automatically receives, following
initial appointment or election to the Board of Directors, a grant of options to
purchase 20,000 shares of the Company's Common Stock at the fair market value on
the date of the grant. Each such option is exercisable in three equal annual
installments after the date of the grant.
On August 27, 1981, Zapata and B. John Mackin, a director of Zapata
until his resignation in February 1994, entered into a Consulting and Retirement
Agreement pursuant to which Mr. Mackin, who was then serving as Chairman of the
Board and Chief Executive Officer of Zapata, agreed to continue serving as
Chairman of the Board and Chief Executive Officer of Zapata until his normal
retirement date, and to serve as a consultant to the Company following his
retirement. The agreement provides for annual retirement income of $225,000 for
the remainder of Mr. Mackin's life and thereafter $112,500 annually to his wife
should she survive him. Mr. Mackin retired as an employee of the Company on
December 31, 1985 and receives the amounts provided for under the agreement.
The agreement was deemed appropriate by the Board of Directors because by
serving the Company in the stated capacities, Mr. Mackin forfeited retirement
benefits comparable to those provided for under such agreement and which
otherwise would have accrued to him with respect to his previous employment, and
he was not eligible to participate in Zapata's Pension Plan.
In November 1993, Peter M. Holt and Zapata entered into a three-year
consulting agreement pursuant to which Zapata will pay Mr. Holt an annual
consulting fee of $200,000 for the first year, $150,000 for the second year and
$130,000 for the third year. During the first eighteen months of the term of
the consulting agreement, Mr. Holt will serve in the capacity of chairman and
chief executive officer of the divisions or subsidiaries of Zapata engaged in
the natural gas compression business and shall have the title of chairman and
chief executive officer. Mr. Holt has agreed that, upon receipt of the written
request of the chief executive officer of Zapata during such eighteen month
period, he will relinquish the title of chief executive officer of such
divisions or subsidiaries, but will continue to have the title of chairman of
such divisions or subsidiaries. During the second eighteen months of the term
of the consulting agreement, Mr. Holt will serve in the capacity of chairman of
such divisions or subsidiaries and shall have the title of chairman.
C
OMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Members of the Compensation Committee of the Board of Directors during
the year ended September 30, 1994 included Messrs. Holt, M. Glazer, Siem, Daniel
P. Whitty and until his resignation in February 1994, Mr. B. John Mackin. Mr.
A. Glazer became a member of the Committee in August 1994. Daniel P. Whitty
resigned from the Board of Directors in November 1994.
8
<PAGE>
Peter M. Holt is a director of the Company and is the beneficial owner
of 8.9% of the Company's Common Stock. In November 1993, the Company purchased
the natural gas compression business of Energy Industries for an aggregate of
$67,227,631 in cash and 13,500,000 shares of the Company's Common Stock. At the
time of the acquisition, Mr. Holt was the chief executive officer of Energy
Industries, as well as its majority shareholder. As part of the acquisition of
Energy Industries, the Company entered into a noncompetition agreement with Mr.
Holt. In exchange for Mr. Holt's covenant not to compete with the Company's
natural gas compression business for a three-year period after the closing date
in the states of Arkansas, Louisiana, Kansas, New Mexico, Oklahoma and Texas,
the Company paid Mr. Holt $3,886,514. Also, in connection with the acquisition
of Energy Industries, the Company entered into a three-year Consulting Agreement
with Mr. Holt. See "Compensation of Directors," above.
Energy Industries, now a wholly-owned subsidiary of the Company,
purchases parts used in manufacturing and servicing compressors and for resale
to its customers from an affiliate of Mr. Holt. Energy Industries paid
approximately $7.3 to this affiliate of Mr. Holt in fiscal 1994. The Company
believes that such payments are comparable to those that would have been made to
other non-affiliated entities.
Mr. Holt also uses an aircraft of another affiliated company of his
for travel in connection with his duties at Energy Industries. Energy
Industries pays Mr. Holt's affiliates for this usage, the amount of which was
$16,085 for the fiscal year ended September 30, 1994. The Company believes that
such payments are comparable to those that would be made to other non-affiliated
firms for comparable services.
Mr. Siem has been a director of the Company since 1993. Mr. Siem is
also the chairman and chief executive officer of Norex America, Inc. 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 (as so amended, the "Norex Agreement"). The
Norex Agreement enabled Zapata to refinance its then outstanding senior debt and
substantially reduce the amount of its 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 notes, maturing May 16, 1996. Such notes also are exchangeable
into 673,077 shares of Tidewater, Inc. common stock.
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 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 penalty of
$655,000.
The Company entered into an administrative services arrangement with
Norex Drilling effective June 1, 1993, pursuant to which it provided office
space and certain administrative services to Norex Drilling. Norex Drilling
reimbursed the Company on a quarterly basis for the full cost of providing such
services as
9
<PAGE>
and when incurred, plus an administrative fee of 2.5% . In fiscal 1994, the
Company billed Norex Drilling $104,000 under this arrangement, which was
terminated in December 1994.
For information on Mr. Mackin's Consulting and Retirement Agreement
with the Company, see, "Compensation of Directors," above.
I
TEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following persons were known by Zapata to be
the beneficial owners of more than 5% of Zapata's voting securities:
<TABLE>
<CAPTION>
SHARES OWNED PERCENT
TITLE OF CLASS NAME AND ADDRESS BENEFICIALLY OF CLASS
- ------------------------------ --------------------------- --------------------- --------
<S> <C> <C> <C>
Common Stock.................. The Malcolm I. Glazer Trust 10,395,384(1) 32.8%
and Malcolm I. Glazer
1482 South Ocean Boulevard
Palm Beach, Florida
Norex America, Inc., 3,139,224(2) 9.9
P.O. Box 429
Hamilton, Bermuda
Peter M. Holt 2,822,628(3) 8.9
c/o Holt Company of Texas
S.W.W. White at Holt Avenue
San Antonio, Texas
$2 Preference Stock........... Larry A. Reiten 150 5.7
Route 1, Box 297
Bayfield, Wisconsin
</TABLE>
________________
(1) Based on information contained in a Schedule 13D, as amended as of October
25, 1994, which was filed with the Securities Exchange Commission (the
"Commission") by The Malcolm I. Glazer Trust (the "Trust") and Mr. Glazer.
The Schedule 13D states that Mr. Glazer contributed all of his shares of
Common Stock to the Trust and that, as trustee and beneficiary of the
Trust, Mr. Glazer is a beneficial owner of the shares of Common Stock held
by the Trust.
(2) Includes 260,000 shares held by Norex Plc, which owns approximately 46.7%
of the outstanding capital stock of Norex America.
10
<PAGE>
(3) Based on (i) information contained in a Schedule 13D, as amended as of June
8, 1994, which was filed with the Commission by Mr. Holt and (ii)
additional information provided to the Company by Mr. Holt. The Schedule
13D and the additional information indicates ownership as follows:
1,021,969 shares held by Mr. Holt, individually; 115,950 shares held by the
Peter M. Holt Grantor Trust; 28,033 shares held by the Peter Holt H-R
Trust; 220,478 shares held by the S Stock GST Trust for Peter M. Holt;
60,478 shares held by the S Stock GST Trust for Benjamin D. Holt III;
120,478 shares held by the S Stock GST Trust for Anne Holt; 207,582 shares
held by the Holt Corporate Stock Marital Trust--1985; 200,886 shares held
by the Holt Corporate Stock Life Trust--1985 and 840,097 shares held by
Benjamin D. Holt, Jr. Peter M. Holt disclaims beneficial ownership as to
all of the shares held by the S Stock GST Trust for Benjamin D. Holt III
and the S Stock GST Trust for Anne Holt. The amount in the table also
includes 6,667 shares of Common Stock, which Mr. Holt has the right to
acquire within 60 days through the exercise of nonqualified stock options.
The directors and the executive officers of Zapata named in the
Summary Compensation Table in Item 11 and the directors and the executive
officers of Zapata as a group, beneficially owned the following amounts of
equity securities of Zapata as of December 28, 1994.
<TABLE>
<CAPTION>
SHARES OWNED PERCENT
TITLE OF CLASS NAME BENEFICIALLY(1) OF CLASS
- ----------------- --------------- --------------- --------
<S> <C> <C> <C>
Common Stock Myrl S. Gelb 0 *
Avram A. Glazer 6,666 *
Malcolm I. Glazer 10,402,050(2) 32.7
Peter M. Holt 2,822,627(3) 7.1
R. C. Lassiter 98,477 *
Luther W. Miller 0 *
Kristian Siem 3,145,890(4) 10.5
Robert W. Jackson 384,436(5) *
Joseph B. Mokry 0 *
Directors and executive officers
as a group (11) persons 17,001,485 53.6
</TABLE>
________________
* Less than 1%
(1) Except as otherwise noted, individuals listed in the table have sole voting
and investment power with respect to the indicated shares. Investment
power with respect to certain shares held by certain officers
11
<PAGE>
of the Company under the Profit Sharing Plan is limited; such shares amount
to less than 1% of the total number of shares of Common Stock held by all
officers and directors as a group. Included in the amounts indicated are
shares which are subject to options exercisable within 60 days of December
28, 1994. The number of such shares are 6,666 for each of Messrs. A.
Glazer, M. Glazer, Holt and Siem; 42,000 for Mr. McIntyre and 166,664
shares for the directors and executive officers as a group.
(2) 10,395,384 shares are owned by the Malcolm I. Glazer Trust.
(3) Includes 28,033 shares held by the Peter Holt H-R Trust; 220,478 shares
held by the S Stock GST Trust for Peter M. Holt; 60,478 shares held by the
S Stock GST Trust for Benjamin D. Holt III; 120,478 shares held by the S
Stock GST Trust for Anne Holt; 207,582 shares held by the Holt Corporate
Stock Marital Trust--1985; 200,886 shares held by the Holt Corporate Stock
Life Trust--1985 and 840,097 shares held by Benjamin D. Holt, Jr. Peter M.
Holt disclaims beneficial ownership as to all of the shares held by the S
Stock GST Trust for Benjamin D. Holt III and the S Stock GST Trust for Anne
Holt.
(4) Includes 260,000 shares held by Norex Plc, which owns approximately 46.7%
of the outstanding capital stock of Norex America.
(5) All such shares are owned by the Robert W. Jackson Trust.
I
TEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company allowed Jack T. Trotter, a director of the Company until
November 1994, the use of a corporate aircraft under an arrangement which
provided the Company with full recovery of the expenses associated with such
use, including all direct and indirect costs. For fiscal 1994, Mr. Trotter paid
the Company a total of $317,000 for the use of the corporate aircraft.
For further information concerning certain transactions and
relationships of Peter M. Holt and Kristian Siem with the Company, see
"Compensation Committee Interlocks and Insider Participation" above.
Ronald C. Lassiter is an equity participant in an entity with which
the Company is negotiating for the sale of the Company's subsidiary, Zapata
Protein, Inc. The Company understands that Mr. Lassiter would also serve as
Chief Executive Officer of the purchasing entity following the sale.
================================================================================
Item 14(a)(3) of the Company's Annual Report on Form 10-K for the year
ended September 30, 1994 is amended to add the following exhibit.
10(x)--Consulting Agreement dated as of August 17, 1994 between
Zapata Corporation and Kristian Siem.
12
<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 AMENDMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
ZAPATA CORPORATION
(Registrant)
/s/ Joseph L. von Rosenberg III
By: _________________________________
(Joseph L. von Rosenberg III, Vice
President, General Counsel and
Corporate Secretary)
January 30, 1995
13
<PAGE>
APPENDIX D
PROXY STATEMENT OF THE COMPANY DATED JUNE 26, 1995
<PAGE>
[LOGO OF ZAPATA CORPORATION]
June 26, 1995
To Our Stockholders:
You are cordially invited to attend the 1995 Annual Meeting of Stockholders to
be held on July 27, 1995, at 12:00 noon, New York time, at the offices of
Bloomberg Financial Markets Commodity News, 499 Park Avenue, New York, New York
10022.
At the meeting, we will report on the progress of the Company, comment on
matters of interest, and respond to your questions. A copy of the Company's 1994
annual report to stockholders has been or is being furnished to stockholders.
Whether or not you plan to attend the meeting, we ask that you indicate the
manner in which you wish your shares to be voted and sign and return your proxy
as promptly as possible in the enclosed envelope so that your vote may be
recorded. You may vote your shares in person if you attend the meeting, even if
you send in your proxy.
I appreciate your continued interest in the Company.
Sincerely yours,
/s/ Avram A. Glazer
Avram A. Glazer
President and Chief Executive Officer
<PAGE>
TABLE OF CONTENTS
PAGE
Notice of Annual Meeting of Stockholders
Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Voting Securities . . . . . . . . . . . . . . . . . . . . . . . . 1
Certain Beneficial Owners . . . . . . . . . . . . . . . . . . . . 2
Election of Directors. . . . . . . . . . . . . . . . . . . . . . . 3
Nominees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Continuing Directors . . . . . . . . . . . . . . . . . . . . . . . 3
Board of Directors and Committees of the Board . . . . . . . . . . 4
Security Ownership of Management . . . . . . . . . . . . . . . . . 6
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 7
Compliance with Section 16(a) of the Exchange Act . . . . . . . . 10
Certain Relationships and Related Transactions . . . . . . . . . . 10
Report of the Compensation Committee . . . . . . . . . . . . . . . 11
Compensation Committee Interlocks and Insider Participation . . . 12
Stockholder Return Performance Graphs . . . . . . . . . . . . . . 14
Ratification of the Appointment of Independent Accountants . . . . 15
Stockholder Proposal on Cumulative Voting . . . . . . . . . . . . 15
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Stockholder Proposals for 1996 Annual Meeting of Stockholders. . . 17
<PAGE>
ZAPATA CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 27, 1995
The Annual Meeting of the Stockholders of Zapata Corporation will be held
at the offices of Bloomberg Financial Markets Commodity News, 499 Park Avenue,
New York, New York 10022 on Thursday, July 27, 1995, at 12:00 noon, New York
time, for the purpose of considering and voting on:
1. Election of two directors as members of Class III of the Board of
Directors for three-year terms.
2. Ratification of the appointment of Coopers & Lybrand L. L. P. as
independent public accountants for the Company for 1995.
3. A stockholder proposal to request the Board of Directors to take the
steps necessary to provide for cumulative voting of the Company's
Common Stock.
4. Such other business as may properly come before the meeting and any
adjournment thereof.
The Board of Directors has fixed June 20, 1995 as the record date for
determining the stockholders of the Company entitled to notice of and to vote at
the meeting and at any adjournment thereof, and only holders of the Company's
Common Stock and $2 Noncumulative Convertible Preference Stock of record at the
close of business on such date will be entitled to notice of and to vote at the
meeting or adjournment.
By order of the Board of Directors,
/s/ Joseph L. von Rosenberg III
Joseph L. von Rosenberg III
Vice President, General Counsel
and Corporate Secretary
Houston, Texas
J
une 26, 1995
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE AND RETURN
YOUR PROXY AS PROMPTLY AS POSSIBLE. AN ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES, IS ENCLOSED FOR THIS PURPOSE.
<PAGE>
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Zapata Corporation, a Delaware
corporation (hereinafter called the "Company"), to be voted at the 1995 Annual
Meeting of Stockholders to be held at the offices of Bloomberg Financial Markets
Commodity News, 499 Park Avenue, New York, New York 10022 on Thursday, July 27,
1995, at 12:00 noon, New York time, and any and all adjournments thereof.
Solicitation of proxies by mail is expected to commence on June 26,
1995, and the cost thereof will be borne by the Company. In addition to such
solicitation by mail, certain of the directors, officers and regular employees
of the Company may, without extra compensation, solicit proxies by telephone and
personal interview. Arrangements will be made with brokerage houses,
custodians, nominees and other fiduciaries to send proxy materials to their
principals, and they will be reimbursed by the Company for postage and clerical
expenses. Furthermore, American Stock Transfer & Trust Co. has been retained to
assist in the solicitation of proxies for a nominal fee.
Shares represented by properly executed proxies will be voted as
specified. If no specifications have been given in a proxy, the shares
represented thereby will be voted FOR the election of nominees listed herein as
directors (Item 1), FOR the ratification of Coopers & Lybrand L. L. P. as
independent public accountants for 1995 (Item 2), AGAINST the stockholder
proposal to request the Board of Directors to take the steps necessary to
provide for cumulative voting of the Company's Common Stock (the "Stockholder
Proposal") (Item 3), and, in the discretion of the persons named in the proxy,
on any other business that may properly come before the meeting.
Proxies may be revoked at any time prior to the exercise thereof by
filing with the Corporate Secretary, at the Company's principal executive
offices, a written revocation or a duly executed proxy bearing a later date or
by appearing at the meeting and voting in person. The principal executive
offices of the Company are located at One Riverway, Suite 2100, Houston, Texas
77056. The mailing address of the Company is P.O. Box 4240, Houston, Texas
77210-4240. For a period of at least ten days prior to the Annual Meeting of
Stockholders, a complete list of stockholders entitled to vote at the meeting
will be available for inspection by stockholders of record during ordinary
business hours for proper purposes at the Company's principal executive offices.
VOTING SECURITIES
Stockholders of record at the close of business on June 20, 1995 (the
"Record Date"), are entitled to vote at the meeting and at any adjournments
thereof. On that date the issued and outstanding capital stock of the Company
consisted of 29,502,407 shares of Common Stock (the "Common Stock") and 2,627
shares of $2 Noncumulative Convertible Preference Stock (the "$2 Preference
Stock"), each of which shares is entitled to one vote. The presence at the
meeting, in person or by proxy, of the holders of a majority of the outstanding
shares of voting stock of the Company is necessary to constitute a quorum for
the transaction of business at the Annual Meeting of Stockholders. If there are
not sufficient shares represented in person or by proxy at the meeting to
constitute a quorum, the meeting may be postponed or adjourned in order to
permit further solicitations of proxies by the Company. Proxies given pursuant
to this solicitation and not revoked will be voted at any postponement or
adjournment of the Annual Meeting of Stockholders in the manner set forth above.
The two nominees receiving the greatest number of votes cast by the
holders of Common Stock and $2 Preference Stock will be elected as directors.
There will be no cumulative voting in the election of directors. The
Stockholder Proposal and the ratification of independent public accountants
require the affirmative vote of holders of a majority of the shares of Common
S
tock and $2 Preference Stock present
<PAGE>
in person or represented by duly executed proxies at the Annual Meeting of
Stockholders and entitled to vote on the subject matter.
Under Delaware law, abstentions are treated as present and entitled to
vote and thus will be counted in determining whether a quorum is present.
Abstentions will have the same effect as a vote against a matter, except as to
the election of directors, as to which they will have no effect. A broker non-
vote (i.e., shares held by brokers or nominees as to which instructions have not
been received from the beneficial owners or persons entitled to vote and the
broker or nominee does not have discretionary power to vote on a particular
matter) is counted for purposes of determining the existence of a quorum but
will have no effect on the outcome of the vote on the Stockholder Proposal or
the ratification of independent public accountants.
CERTAIN BENEFICIAL OWNERS
The following information relates to the holders of the Company's
voting securities known to the Company on June 20, 1995 to own beneficially 5%
or more of any class of the Company's voting securities. For the purposes of
this Proxy Statement, beneficial ownership of securities is defined in
accordance with the rules of the Securities and Exchange Commission (the
"Commission") to mean generally the power to vote or dispose of securities,
regardless of any economic interest therein.
<TABLE>
<CAPTION>
Shares Owned Percent
Title of Class Name and Address Beneficially of Class
- --------------------------- --------------------------- -------------------- -------------
<S> <C> <C> <C>
Common Stock............... The Malcolm I. Glazer Trust 10,402,050 (1) 35.3
and Malcolm I. Glazer
1482 South Ocean Boulevard
Palm Beach, Florida 33480
Peter M. Holt 2,822,617 (2) 9.6
c/o Holt Company of Texas
S.W.W. White at Holt Avenue
San Antonio, Texas 78222
$2 Preference Stock........ Larry A. Reiten 150 5.7
Route 1, Box 297
Bayfield, Wisconsin 54814-9701
</TABLE>
________________
(1) Based on information contained in a Schedule 13D, as amended as of October
25, 1994, which was filed with the Commission by The Malcolm I. Glazer
Trust (the "Trust") and Mr. Glazer. The Schedule 13D states that Mr.
Glazer contributed all of his shares of Common Stock to the Trust and that,
as trustee and beneficiary of the Trust, Mr. Glazer is a beneficial owner
of the shares of Common Stock held by the Trust. The amount in the table
also includes 6,666 shares of Common Stock, which Mr. Glazer has the right
to acquire within 60 days through the exercise of nonqualified stock
options.
(2) Based on (i) information contained in a Schedule 13D, as amended as of June
8, 1994, which was filed with the Commission by Mr. Holt and (ii)
additional information provided to the Company by Mr. Holt. The Schedule
13D and the additional information indicates ownership as follows:
1,021,969 shares held by Mr. Holt, individually; 115,950 shares held by the
Peter M. Holt Grantor Trust; 28,033 shares held by the Peter Holt H-R
Trust; 220,478 shares held by the S Stock GST Trust for Peter M. Holt;
60,478 shares held by the S Stock GST Trust for Benjamin D. Holt III;
120,478 shares held by the S Stock GST Trust for Anne Holt; 207,582 shares
held by the Holt Corporate Stock Marital Trust--1985; 200,886 shares held
by the Holt Corporate Stock Life Trust--1985 and 840,097 shares held by
Benjamin D. Holt, Jr. Peter M. Holt disclaims beneficial ownership as to
all of the shares held by the S Stock GST Trust for Benjamin D. Holt III
and the S Stock GST Trust for Anne Holt. The amount in the table also
2
<PAGE>
includes 6,666 shares of Common Stock, which Mr. Holt has the right to
acquire within 60 days through the exercise of nonqualified stock options.
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation, as amended,
provides for the classification of the Board of Directors into three classes
(Class I, Class II and Class III), having staggered terms of three years each.
The current term of office of directors in Class III expires at the forthcoming
Annual Meeting of Stockholders. The terms of office of the directors in Classes
I and II will expire at the annual meetings of stockholders to be held in 1996
and 1997, respectively. Two Class III directors will be elected at the Annual
Meeting of Stockholders to serve for three-year terms expiring at the 1998
annual meeting of stockholders.
It is the intention of the persons designated as proxies in the
enclosed proxy card, unless the proxy is marked with contrary instructions, to
vote for the election of Messrs. Robert V. Leffler, Jr. and W. George Loar as
Class III directors to serve until the 1998 annual meeting of stockholders and
until their successors have been duly elected and qualified. In May 1995, the
Board of Directors appointed Messrs. Leffler and Loar to fill the vacancies
created by the resignations of Messrs. Myrl S. Gelb and Luther W. Miller. If
either of these nominees becomes unavailable for any reason, shares represented
by such proxies will be voted for such person or persons, if any, as may be
designated by the Board of Directors. At present, it is not anticipated that
any nominee will be unable to serve. Directors will be elected by a plurality
of the votes cast.
NOMINEES
The following sets forth certain information with respect to the
business experience of each nominee during the past five years.
Robert V. Leffler, Jr., age 49, has served as a director since May
1995. Mr. Leffler also has served as owner of the Leffler Agency, an
advertising and marketing/public relations firm based in Baltimore, Maryland
that specializes in sports, rental real estate, and medical areas, for more than
the past five years.
W. George Loar, age 72, has been a director since May 1995. Mr. Loar
has been retired for the past five years from his position as Vice President and
General Manager of KQTV, a St. Joseph, Missouri ABC-affiliated television
station.
CONTINUING DIRECTORS
The following sets forth certain information with respect to all
members of the Board of Directors whose current terms will continue after the
Annual Meeting of Stockholders. Information is provided concerning the business
experience of each continuing director during the past five years and the other
directorships held by each continuing director. Unless otherwise indicated,
each person has had the same occupation for at least five years.
Class I Directors - Term Expiring 1996
Malcolm I. Glazer, age 66, has been a director since July 1993. Mr.
Glazer has served as Chairman of the Board of Directors since July 1994, and
served as President and Chief Executive Officer of the Company from August 1994
until March 1995. Mr. Glazer has been a self-employed, private investor whose
diversified portfolio consists of investments in television broadcasting,
restaurants, restaurant equipment, food services equipment, health care,
banking, real estate, stocks, government securities and corporate bonds, for
more than the past five years. He is a director and Chairman of the Board of
The Houlihan's Restaurant
3
<PAGE>
Group, Inc., and also is a director of Specialty Equipment Companies, Inc. and
Envirodyne Industries, Inc. Malcolm I. Glazer is the father of Avram A. Glazer.
Ronald C. Lassiter, age 62, has been a director since 1974. Mr.
Lassiter served as Acting Chief Operating Officer of the company from December
1994 to March 1995. He served as Chairman of the Board of Directors of the
Company from December 1985 to July 1994, and Chief Executive Officer from
January 1983 to July 1994. From July 1994 until December 1994, he was Chairman
and Chief Executive Officer of Zapata Protein, Inc. In December 1994, Mr.
Lassiter withdrew from an active management role with Zapata Protein, Inc. as a
result of his participation in a group seeking to acquire that subsidiary. That
proposed acquisition was not consummated, and Mr. Lassiter has resumed his
active management role as Chairman and Chief Executive Officer of Zapata
Protein, Inc. pursuant to the consulting agreement described under "Employment
Agreements and Other Incentive Plan." He has served in various positions with
the Company since 1970, and he served as a director of Zapata Gulf Marine
Corporation from November 1984 to January 1992. In addition, Mr. Lassiter
serves as a director of Daniel Industries, Inc.
Class II Directors - Term Expiring 1997
Avram A. Glazer, age 34, has been a director since July 1993. Mr.
Glazer has served as President and Chief Executive Officer of the Company since
March 1995. For the past five years, he has been employed by, and has worked on
behalf of, Malcolm I. Glazer and a number of entities owned and controlled by
Malcolm I. Glazer, including Florida Management Office, TV Management Office,
Farmington Mobile Home Park, Inc., Century Development Corporation d/b/a KGNS
Laredo, and Canandaigua Mobile Park. Mr. Glazer's principal responsibilities
include identifying, implementing, monitoring and disposing of Malcolm I.
Glazer's investment interests. He also serves as a director of The Houlihan's
Restaurant Group, Inc., and is a director of Speciality Equipment Companies,
Inc. and Envirodyne Industries, Inc. Avram A. Glazer is the son of Malcolm I.
Glazer.
Peter M. Holt, age 46, has been a director since November 1993. Since
July 1984, Mr. Holt has served as the Chief Executive Officer of Energy
Industries, Inc., which was acquired by the Company in November 1993. Mr. Holt
is also the Chief Executive Officer of certain other companies, including
Caterpillar equipment dealerships and companies engaged in used machinery sales,
aircraft sales and real estate investments, a position he has held with each
such entity for more than the past five years. In addition, Mr. Holt is a
director of Texas Commerce Bank-San Antonio, and Chairman of the Board of DUECO,
a used equipment cooperative.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
During fiscal 1994, the Board of Directors held seven (7) meetings.
The Board of Directors has established an Audit Committee, Compensation
Committee, Nominating Committee and an Executive Committee to oversee specific
matters affecting the Company.
The Audit Committee is currently composed of Messrs. W. George Loar
(Chairman) and Robert Leffler, Jr. The Audit Committee held two (2) meetings in
fiscal 1994. The Audit Committee meets with the Company's independent
accountants to review the Company's accounting policies, internal controls and
other accounting and auditing matters; makes recommendations to the Board as to
the engagement of independent accountants; and reviews the letter of engagement
and statement of fees relating to the scope of the annual audit and special
audit work which may be recommended or required by the independent accountants.
The Compensation Committee, currently composed of Messrs. Avram Glazer
(Chairman), Robert Leffler, Jr. and R. C. Lassiter, held one (1) meeting during
fiscal 1994. The functions performed by the Compensation Committee include:
reviewing the Company's executive salary and bonus structure; reviewing
4
<PAGE>
Zapata's stock option plans (and making grants thereunder); recommending
directors' fees; setting bonus goals; and approving salary and bonus awards to
key executives.
The Nominating Committee, currently composed of Messrs. W. George Loar
(Chairman), Malcolm Glazer and Peter Holt, held one (1) meeting during fiscal
1994. The functions performed by the Nominating Committee include: proposing
candidates to fill vacancies on the Board of Directors, reviewing the structure
and composition of the Board, and considering qualifications requisite for
continuing Board service. The Nominating Committee will consider candidates
recommended by a stockholder of the Company. Any such recommendation should be
provided to the Corporate Secretary of the Company.
The Executive Committee, currently composed of Messrs. Avram Glazer
(Chairman), Malcolm Glazer, R. C. Lassiter and W. George Loar, held five (5)
meetings in fiscal 1994. The Executive Committee reviews and develops
strategies and policies of the Company and recommends changes thereto.
During the fiscal year ended September 30, 1994 each director attended
at least 75% of the aggregate number of meetings of the Company's Board of
Directors and respective committees on which he served.
Compensation of Directors
During the year ended September 30, 1994, those members of Zapata's
Board of Directors who were not employees of the Company were paid an annual
retainer of $20,000, plus $3,000 for serving as chairman of any committee, plus
$700 for each Board or committee meeting attended. Effective October 1, 1994,
the per-meeting fee was changed to an annual fee of $1,000 for each committee of
the Board on which a Board member serves and the additional fee for serving as
chairman of a committee was eliminated. Effective April 1, 1995, the Company
changed the payment schedule of directors' fees from an annual payment to a
quarterly payment. Those directors who also are Zapata employees do not receive
any additional compensation for their services as directors.
Pursuant to the Company's Amended and Restated Special Incentive Plan,
each non-employee director of the Company automatically receives, following
initial appointment or election to the Board of Directors, a grant of options to
purchase 20,000 shares of the Company's Common Stock at the fair market value on
the date of the grant. Each such option is exercisable in three equal annual
installments after the date of the grant.
On August 27, 1981, the Company and B. John Mackin, a former director
of the Company who resigned in February 1994, entered into a Consulting and
Retirement Agreement pursuant to which Mr. Mackin, who was then serving as
Chairman of the Board and Chief Executive Officer of the Company, agreed to
continue serving as Chairman of the Board and Chief Executive Officer of the
Company until his normal retirement date, and to serve as a consultant to the
Company following his retirement. The agreement provides for annual retirement
income of $225,000 for the remainder of Mr. Mackin's life and thereafter
$112,500 annually to his wife should she survive him. Mr. Mackin retired as an
employee of the Company on December 31, 1985, and receives amounts provided for
under the agreement. The agreement was deemed appropriate by the Board of
Directors since, by serving the Company in the stated capacities, Mr. Mackin
forfeited retirement benefits comparable to those provided for under such
agreement and which otherwise would have accrued to him in respect of his
previous employment, and he was not eligible to participate in the Company's
pension plan.
In November 1993, Peter M. Holt and the Company entered into a three-
year Consulting Agreement pursuant to which the Company will pay Mr. Holt an
annual consulting fee of $200,000 for the first year, $150,000 for the second
year and $130,000 for the third year. Pursuant to the Consulting Agreement,
during the first eighteen months of its term, Mr. Holt served in the capacity of
Chairman and Chief Executive Officer of the divisions or subsidiaries of the
Company engaged in the natural gas compression business, and had the title of
Chairman and Chief Executive Officer. The Consulting Agreement provides that
5
<PAGE>
commencing in May 1995 and for the balance of the remaining 18 months of the
term of the Consulting Agreement, Mr. Holt is to serve as Chairman of such
divisions and subsidiaries. Mr. Holt also is the Chief Executive Officer of
such divisions and subsidiaries.
SECURITY OWNERSHIP OF MANAGEMENT
Set forth below is certain information with respect to beneficial
ownership of the Company's Common Stock as of June 20, 1995 by each director,
nominee director, persons named in the Summary Compensation Table under
"Executive Compensation" below and by the directors and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
Shares Owned Percent
Title of Class Name Beneficially(1) of Class
- -------------- ---------- --------------- --------
<S> <C> <C> <C>
Common Stock Avram A. Glazer 6,666 *
Malcolm I. Glazer 10,402,050 (2) 35.3
Peter M. Holt 2,822,617 (3) 9
R. C. Lassiter 98,477 *
Robert V. Leffler, Jr. 0 *
W. George Loar 0 *
Robert W. Jackson 350,436 (4) *
Joseph B. Mokry 0 *
Kristian Siem 889,224 (5) 3.0
Directors and executive officers
as a group (11 persons) 14,724,168 49.9
</TABLE>
________________
* Less than 1%
(1) Except as otherwise noted, individuals listed in the table have sole voting
and investment power with respect to the indicated shares. Investment
power with respect to certain shares held by certain officers of the
Company under the Profit Sharing Plan is limited; such shares amount to
less than 1% of the total number of shares of Common Stock held by all
officers and directors as a group. Included in the amounts indicated are
shares which are subject to options exercisable within 60 days of December
28, 1994. The number of such shares are 6,666 for each of Messrs. A.
Glazer, M. Glazer, and Holt; and 173,331 shares for the directors and
executive officers as a group.
(2) 10,395,384 shares are owned by the Malcolm I. Glazer Trust.
(3) Includes 1,021,969 shares held by Mr. Holt, individually; 115,950 shares
held by the Peter M. Holt Grantor Trust; 28,033 shares held by the Peter
Holt H-R Trust; 220,478 shares held by the S Stock GST Trust for Peter M.
Holt; 60,478 shares held by the S Stock GST Trust for Benjamin D. Holt III;
120,478 shares held by the S Stock GST Trust for Anne Holt; 207,582 shares
held by the Holt Corporate Stock Marital Trust--1985; 200,886 shares held
by the Holt Corporate Stock Life Trust--1985 and 840,097 shares held by
Benjamin D. Holt, Jr. Peter M. Holt disclaims beneficial ownership as to
all of the shares held by the S Stock GST Trust for Benjamin D. Holt III
and the S Stock GST Trust for Anne Holt.
(4) All such shares are owned by the Robert W. Jackson Trust.
(5) All such shares are owned by Norex America, Inc.
6
<PAGE>
EXECUTIVE COMPENSATION
The following tables set forth information regarding annual, long-term
and other compensation with respect to the fiscal years ended September 30,
1994, 1993 and 1992 for services in all capacities rendered to the Company by
those persons who served as the Company's Chief Executive Officer during the
fiscal year ended September 30, 1994 and the other four most highly compensated
executive officers of the Company other than the Chief Executive Officer who was
serving as an executive officer on September 30, 1994 (the "Named Officers").
The format and information presented are as prescribed in the rules of the
Commission.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------------- ------------ -------------
LTIP All Other
Name & Principal Position Year Salary($) Bonus($) Payouts($) Comp.($)(4)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Malcolm I. Glazer, 1994 29,800 (1) -- -- --
Chairman and Chief
Executive Officer (1)
Ronald C. Lassiter, 1994 361,779 (2) -- -- --
Chairman and Chief 1993 358,600 (2) 175,000 -- 2,100
Executive Officer of 1992 358,600 125,510 2,006,519 (3) 1,200
Zapata Protein, Inc. (2)
Robert W. Jackson, 1994 200,000 -- -- --
President and Chief 1993 200,000 -- -- --
Executive Officer of
Cimarron (5)
Marvin J. Migura, 1994 165,600 -- -- 3,600
Senior Vice President and 1993 165,600 70,000 -- 3,000
Chief Financial Officer (6) 1992 162,970 57,960 -- 1,400
Joseph B. Mokry, 1994 172,260 100,080 -- 8,512
President and Chief
Operating Officer of
Energy Industries, Inc.
Kristian Siem, Chief 1994 92,348 -- -- --
Operating Officer (7)
</TABLE>
_________________
(1) In August 1994, Mr. Glazer was elected as Chairman, President and Chief
Executive Officer. Mr. Glazer served as President and Chief Executive
Officer until March 1995. He received no compensation during such period
for acting in these capacities other than the Director and board committee
fees, which are included in the "Salary" column. Mr. Glazer continues to
serve as Chairman of the Company.
7
<PAGE>
(2) Mr. Lassiter served as Chief Executive Officer during fiscal 1992 and 1993
and until July 1994. From July 1994 until December 1994, he was Chairman
and Chief Executive Officer of Zapata Protein, Inc. In December 1994, Mr.
Lassiter withdrew from an active management role with Zapata Protein, Inc.
as a result of his participation in a group seeking to acquire that
subsidiary. That proposed acquisition was not consummated, and Mr. Lassiter
has resumed his active management role with Zapata Protein, Inc. From
December 1994 to March 1995, he served as Acting Chief Operating Officer of
Zapata Corporation. Amounts in the "Salary" column include amounts paid to
Mr. Lassiter under the consulting agreement described below in "Employment
Agreements and Other Incentive Plans."
(3) In connection with the merger of Zapata Gulf Marine Corporation with a
subsidiary of Tidewater, Inc. in January 1992, Mr. Lassiter received such
payment under the Equity Incentive Plan established by Zapata Gulf Marine
Corporation in 1989. There are no further amounts payable under such plan.
(4) The amounts indicated represent the Company's contributions to its Profit-
Sharing Plan.
(5) Mr. Jackson became an executive officer of the Company in November 1992.
(6) Mr. Migura resigned as an executive officer of the Company effective as of
October 28, 1994.
(7) Mr. Siem was Chief Executive Officer during July and August 1994 and Chief
Operating Officer from August 1994 until December 1994. The amount shown
in the "Salary" column for Mr. Siem includes Director and board committee
fees and amounts paid under a consulting agreement with the Company
providing for his services as Chief Operating Officer. For additional
information concerning compensation payable to Kristian Siem, see
"Employment Agreements and Other Incentive Plans" in this Proxy Statement.
While the officers of the Company receive benefits in the form of
certain perquisites, none of the Named Officers receives perquisites which
exceed in value the lesser of $50,000 or 10% of such officer's salary and bonus.
Aggregated Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at Fiscal Year-End(#) Fiscal Year-End($)
- ------------------- ----------------------------- -------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------- ----------------------------- -------------------------
<S> <C> <C>
Malcolm I. Glazer 6,666 / 13,334 0 / 0
- ------------------- ----------------------------- ------------------------
Ronald C. Lassiter 244,000 / 0 335,000 / 0
- ------------------- ----------------------------- ------------------------
Robert W. Jackson 0 / 0 0 / 0
- ------------------- ----------------------------- ------------------------
Marvin J. Migura 140,000 / 0 192,500 / 0
- ------------------- ----------------------------- ------------------------
Joseph B. Mokry 0 / 0 0 / 0
- ------------------- ----------------------------- ------------------------
Kristian Siem 6,666 / 13,334 0 / 0
- ------------------- ----------------------------- ------------------------
</TABLE>
8
<PAGE>
The options included in the foregoing table were granted in 1990 under
the Company's 1990 Stock Option Plan, except in the case of Messrs. Glazer and
Siem, whose options were granted in 1993 under the Company's Amended and
Restated Special Incentive Plan with respect to their service as non-employee
directors. The options were granted at Market Value on the date of grant and
are exercisable in cumulative one-third installments commencing one year from
the date of grant, with full vesting occurring on the third anniversary of the
grant date. On September 30, 1994, the closing price of Common Stock on the
NYSE was $4.50 per share. No options were granted to, or exercised by, the
Named Officers in fiscal 1994.
Pension Plan Information
Effective January 15, 1995, the Company amended its Pension Plan to
provide that highly-compensated employees (those having covered annual
compensation in excess of $66,000) will not earn additional benefits under the
plan after that date. In addition, the Company terminated its Supplemental
Pension Plan except with respect to benefits already accrued. Messrs. Glazer,
Jackson and Mokry are not participants in the Pension Plan or the Supplemental
Pension Plan. Mr. Lassiter retired for purposes of the Pension Plan effective
August 1, 1994 and receives annual benefits of $87,860 under the Pension Plan
and $101,512 under the Supplemental Pension Plan. Mr. Migura's estimated annual
benefit is $62,412 (assuming payments commence at age 65 on a single life
annuity basis).
Employment Agreements and Other Incentive Plans
Effective as of March 15, 1991, Zapata entered into employment
agreements with, among others, Messrs. Lassiter and Migura. As a result of the
termination of Mr. Migura's employment in October 1994, he will receive payments
for three years equivalent to his base salary in effect at the time of
termination ($165,600 annually). The agreements also provided for continuation
of salary for a three-year period following termination of employment under
certain circumstances occurring within two years after a change of control. A
"change of control" for purposes of this provision occurred in July 1992. As a
result of the change in Mr. Lassiter's responsibilities in July 1994, Mr.
Lassiter terminated his employment under this provision of his contract.
Subsequently, Mr. Lassiter entered into a consulting agreement with the Company
under which he agreed to serve as Chairman and Chief Executive Officer of Zapata
Protein, Inc. for the same aggregate compensation he would have been entitled to
receive under the termination provisions of the employment agreement, with the
payment schedule deferred over a more extended period of time so long as Mr.
Lassiter continues to serve under the consulting agreement. The payments to Mr.
Lassiter under these provisions are included in the "Salary" column of the
Summary Compensation Table.
The employment agreements of Messrs. Lassiter and Migura provide that
all payments to be made thereunder shall be reduced as necessary such that the
present value of all parachute payments, as defined under federal tax laws, will
be one dollar less than three times the executive's base amount of salary, so as
to avoid the excise taxes on the executive or the disallowance of a tax
deduction by Zapata.
Effective as of August 17, 1994, Zapata entered into a consulting
agreement with Mr. Siem under which he agreed to provide certain consulting
services to the Company and serve as its Chief Operating Officer in exchange for
a quarterly fee of $75,000. Mr. Siem ceased to serve as the Company's Chief
Operating Officer on December 15, 1994. His consulting agreement was terminated
pursuant to the terms and conditions of a settlement agreement entered into on
March 7, 1995 under which the Company paid Mr. Siem $300,000 in exchange for his
agreement to waive and release all claims under the consulting agreement. See
"Compensation Committee Interlocks and Insider Participation" for related
information concerning payments by the Company to entities with which Mr. Siem
is affiliated to repurchase shares of the Company's common stock and repay
outstanding debt held by such entities, and information concerning Mr. Siem's
resignation from the Company's Board of Directors.
9
<PAGE>
Effective as of September 30, 1992 Cimarron entered into an employment
agreement with Robert W. Jackson (the "Jackson Agreement"). The Jackson
Agreement provides for Mr. Jackson's continuing employment as President, Chief
Executive Officer and Director of Cimarron for a period of five years. However,
if Mr. Jackson's employment is terminated for cause, his salary will cease as of
such date. If Mr. Jackson's employment is terminated by death or total or
permanent disability, his salary will cease as of the end of the month in which
such event occurs. If Mr. Jackson's employment is terminated without cause,
Cimarron will be obligated to pay the salary then being paid for the remainder
of the term of the Jackson Agreement. In the event that Mr. Jackson voluntarily
resigns for "good reason," Cimarron is obligated to continue to pay the salary
then being paid for the remainder of the term of the Jackson Agreement. "Good
reason" is defined as (i) the assignment to Mr. Jackson of any duties materially
inconsistent with his position, a substantial change in his reporting
responsibilities or the failure to re-elect him as President, Chief Executive
Officer or Director of Cimarron; (ii) a reduction in Mr. Jackson's base salary
or benefits; (iii) the transfer of Mr. Jackson; or (iv) a material breach by
Cimarron of the Jackson Agreement. If Mr. Jackson voluntarily resigns without
good reason, his salary will cease as of the date of resignation.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file with the Commission and the New York
Stock Exchange initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company. Directors, officers
and greater than 10% stockholders are required by the Commission's regulations
to furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended September 30, 1994 all
reports required by Section 16(a) to be filed by its directors, officers and
greater than 10% beneficial owners were filed on a timely basis.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company allowed Jack T. Trotter, a director of the Company until
November 1994, the use of a corporate aircraft under an arrangement which
provided the Company with full recovery of the expenses associated with such
use, including all direct and indirect costs. For fiscal 1994, Mr. Trotter paid
the Company a total of $317,000 for the use of the corporate aircraft.
On February 14, 1995, the Company entered into a stock purchase
agreement for the sale of Zapata Protein, Inc. with ZP Acquisition Corp. ("ZP").
R. C. Lassiter held an ownership interest in ZP, which committed to buy all of
the issued and outstanding shares of Zapata Protein for $56 million. ZP and its
guarantors failed to close the transaction and perform their obligations under
the purchase agreement and related guaranty agreement. The Company has filed a
lawsuit in the District Court of Harris County, Texas, number 95-26579, styled
Zapata Corporation v. ZP Acquisition Corp., et al, seeking to recover all
-----
damages arising from the aforementioned failure to close the Zapata Protein
transaction.
10
<PAGE>
For information concerning certain related transactions and
relationships of Peter M. Holt and Kristian Siem with the Company, and certain
proposed transactions between the Company and Malcolm Glazer, see "Compensation
Committee Interlocks and Insider Participation" in this Proxy Statement.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee (the "Committee") is responsible for the
approval and administration of compensation programs for the Company's executive
officers. The Committee endeavors to ensure that the compensation programs for
its executive officers are effective in attracting and retaining key executives
responsible for the success of the Company and are administered in an
appropriate fashion in the long-term best interest of the Company and its
stockholders. The Committee seeks to align total compensation for its executive
officers with the performance of the Company and the individual performance of
each executive officer in assisting the Company in accomplishing its goals. The
Company's present compensation program consists of (1) an annual component,
which includes base salary and an annual incentive bonus, and (2) a long-term
component consisting of stock options.
Base Salary
The Committee's policy with respect to 1994 base salaries for
executive officers was generally to keep them at the same levels as had been in
effect for 1993. This decision was based on the Committee's subjective
determination, based on recommendations from the Chief Executive Officer, that
the base salary rates were at an appropriate level in light of compensation
surveys in which the Company participated and the expectation that executive
compensation policies would be reviewed on a comprehensive basis at a later
date. The Committee did not consider a salary increase for Mr. Lassiter because
his salary is governed by a negotiated consulting agreement. When Kristian Siem
became Chief Executive Officer in July 1994 following Mr. Lassiter's
resignation, his salary was fixed at an annual rate of $300,000 pursuant to a
negotiated consulting agreement. In August 1994, Malcolm Glazer was elected
Chairman, President and Chief Executive Officer. He received no compensation
for acting in these capacities other than Director and board committee fees.
Annual Incentive Bonus
The 1994 bonus amounts for the executive officers were awarded by the
Committee based on the recommendations of the Chief Operating Officer, which in
turn were based on a subjective assessment of their performance in helping the
Company achieve the goals set forth in the Company's strategic plan, to the
extent applicable to each executive officer's area of responsibility. The
Committee did not utilize any formulas based on stock prices or other
quantitative measures of corporate performance in determining the 1994 bonus
amounts. Neither Malcolm Glazer, Kristian Siem nor R. C. Lassiter received a
bonus for 1994.
Stock Options
The Company believes that to achieve its long-term growth objectives
and to align management and its stockholders' interests, it is in the Company's
best interest from time to time to grant stock options to key members of its
management staff. The Company's 1990 Stock Option Plan is administered by the
Committee, which has the full power and authority to designate participants
and determine the terms and provisions of the option agreements. The
price of each option granted is the fair market value of a share of the
Company's Common Stock on the date the option is granted. No options were
granted under
11
<PAGE>
the 1990 Stock Option Plan during 1994. The Committee believes that options
should be granted only once every several years so that option grants do not
become considered a part of normal annual compensation.
THE COMPENSATION COMMITTEE
Avram A. Glazer (Chairman)
Robert V. Leffler, Jr.
R. C. Lassiter (nonvoting)
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Members of the Compensation Committee of the Board of Directors during
the year ended September 30, 1994 included Peter M. Holt, Malcolm I. Glazer,
Kristian Siem and Daniel P. Whitty, and until his resignation in February 1994,
B. John Mackin. Mr. A. Glazer became a member of the Committee in August 1994.
Daniel P. Whitty resigned from the Board of Directors in November 1994. Myrl S.
Gelb became a member of the Board of Directors and the Compensation Committee in
December 1994. He resigned as a director in May 1995 and was replaced as a
member of the committee by Robert V. Leffler, Jr.
Peter M. Holt is a director of the Company and is the beneficial owner
of 9.6% of the Company's Common Stock. In November 1993, the Company purchased
the natural gas compression business of Energy Industries for an aggregate of
$67,227,631 in cash and 2,700,000 shares of the Company's Common Stock. At the
time of the acquisition, Mr. Holt was Chief Executive Officer of Energy
Industries, as well as its majority shareholder. As part of the acquisition of
Energy Industries, the Company entered into a noncompetition agreement with Mr.
Holt. In exchange for Mr. Holt's covenant not to compete with the Company's
natural gas compression business for a three-year period after the closing date
in the states of Arkansas, Louisiana, Kansas, New Mexico, Oklahoma and Texas,
the Company paid Mr. Holt $3,886,514. Also, in connection with the acquisition
of Energy Industries, the Company entered into a three-year Consulting Agreement
with Mr. Holt. See "Board of Directors and Committees of the Board -
Compensation of Directors" in this Proxy Statement.
Energy Industries, now a wholly-owned subsidiary of the Company,
purchases parts used in manufacturing and servicing compressors and for resale
to its customers from an affiliate of Mr. Holt. Energy Industries paid
approximately $7.3 million to this affiliate of Mr. Holt in fiscal 1994. The
Company believes that such payments are comparable to those that would have been
made to other nonaffiliated entities.
Mr. Holt also uses an aircraft of another affiliated company of his
for travel in connection with his duties at Energy Industries. Energy
Industries pays Mr. Holt's affiliate for this usage, the amount of which was
$16,085 for the fiscal year ended September 30, 1994. The Company believes that
such payments are comparable to those that would be made to other nonaffiliated
firms for comparable services.
Mr. Siem served as a director of the Company from 1993 until his
resignation in April 1995. Mr. Siem is also the Chairman and Chief Executive
Officer of Norex America, Inc. 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,
12
<PAGE>
as amended (as so amended, the "Norex Agreement"). 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 notes, maturing May 16, 1996. The 8.5%
unsecured notes were exchangeable into the 673,077 shares of Tidewater common
stock for which the $1 Preference Stock had previously been exchangeable. In
March 1995 the Company entered into an agreement with Norex under which the
Company was permitted to sell the shares of Tidewater, Inc. common stock and
apply the net proceeds toward repayment of the 8.5% unsecured notes. All of
such shares were sold in March 1995 for $12.7 million and the proceeds applied
to reduce the outstanding principal amount of the 8.5% unsecured notes from
$17.5 million to $4.8 million in April 1995. On April 10, 1995 Zapata
repurchased from Norex 2,250,000 shares of the Company's Common Stock for an
aggregate purchase price of $9,000,000. Pursuant to a conditional resignation
letter dated March 7, 1995, Mr. Siem's resignation from the Company's Board of
Directors became effective when the repurchase of the 2,250,000 shares of the
Company's Common Stock from Norex, the receipt by Norex of the proceeds of the
sale of the Tidewater, Inc. common stock and the payment to Mr. Siem of certain
unpaid directors' fees and reimbursed expenses had all been completed. As a
result, Mr. Siem's resignation from the Board of Directors became effective on
April 10, 1995.
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 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 penalty of
$655,000.
The Company also entered into an administrative services arrangement
with Norex Drilling effective June 1, 1993, pursuant to which it provided office
space and certain administrative services to Norex Drilling. Norex Drilling
reimbursed the Company on a quarterly basis for the full cost of providing such
services as and when incurred, plus an administrative fee of 2.5%. In fiscal
1994, the Company billed Norex Drilling $104,000 under this arrangement, which
was terminated in December 1994.
On June 16, 1995, the Company and Malcolm Glazer entered into a non-
binding letter of intent under which the Company would acquire 4,189,298 shares,
or 31% of the outstanding common stock of Envirodyne Industries, Inc.
("Envirodyne") in a private transaction in exchange for an unsecured,
subordinated promissory note to be issued by the Company. The note will bear
interest payable quarterly at a rate equal to the reference rate of Chemical
Bank. Earlier, a special committee of disinterested directors was established
by the Company's Board of Directors to evaluate this possible acquisition and
the evaluation presently is underway. The acquisition of the shares is subject
to, among other things, the completion of the Committee's evaluation process;
receipt by the Committee of a fairness opinion from Wertheim Schroder & Co.
Incorporated, an investment banking firm that was retained by the Committee to
review the proposed acquisition; negotiation and execution of a definitive
purchase agreement and expiration of the waiting period under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976. The purchase price will be
determined with reference to the 30-day average sales price of Envirodyne's
common stock.
For information on Mr. Mackin's consulting and retirement Agreement
with the Company, see "Compensation of Directors" above.
13
<PAGE>
STOCKHOLDER RETURN PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the
Company's cumulative total return on its Common Stock over the preceding five-
year period with the cumulative total return of the Standard & Poor's 500 Stock
Index ("S&P 500 Index") and with two peer groups of publicly traded companies
over the same period. The first peer group (the "1993 Peer Group") is the peer
group used by the Company in the presentation of the performance graph included
in the proxy soliciting material for its 1993 and 1994 annual meetings and
consists of the following companies: Edisto Resources Corporation, Energy
Service Company, Inc., Global Marine Inc., Marine Drilling Companies, Inc.,
Mesa, Inc., Reading & Bates Corporation, and Western Company of North America.
The second peer group (the "1994 Peer Group") is a new group of peer issuers
selected by the Company in order to provide a better comparison to companies in
the natural gas services sector of the energy industry, in which the Company's
current operations are concentrated. (The 1993 Peer Group includes several
companies in the offshore drilling industry in which the Company no longer
operates.) The 1994 Peer Group consists of Tidewater, Inc., Enterra Corp.,
Production Operators Corp., Western Gas Resources, Inc., Aquila Gas Pipeline
Corporation, Tejas Gas Corporation, KN Energy, Inc., and USX-Delhi Group. In
accordance with Commission rules, the 1993 Peer Group is presented along with
the 1994 Peer Group in the year of transition.
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG ZAPATA CORPORATION, THE S & P 500 INDEX,
THE 1994 PEER GROUP AND THE 1993 PEER GROUP
<TABLE>
<CAPTION>
Measurement Period ZAPATA 1994 1993
(Fiscal Year Covered) CORPORATION PEER GROUP PEER GROUP S & P 500
- -------------------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Measurement Pt-
09/30/89
FYE 09/30/89 $100 $100 $100 $100
FYE 09/30/90 $ 48 $146 $128 $ 91
FYE 09/30/91 $ 31 $143 $ 59 $119
FYE 09/30/92 $ 38 $188 $ 41 $132
FYE 09/30/93 $ 38 $269 $ 61 $149
FYE 09/30/94 $ 35 $212 $ 52 $155
</TABLE>
* $100 INVESTED ON 09/30/89 IN STOCK OR INDEX-
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING SEPTEMBER 30.
14
<PAGE>
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Subject to stockholder ratification, the Board of Directors has
appointed Coopers & Lybrand L.L.P. to serve as the Company's independent public
accountants for the fiscal year ending September 30, 1995. Representatives of
Coopers & Lybrand L.L.P. are expected to be present at the meeting and will have
the opportunity to make a statement if they desire to do so and to respond to
appropriate questions.
Vote Required
The affirmative vote of a majority of the total number of shares of
Common Stock and $2 Preference Stock present in person or represented by proxy
at the meeting is required to approve the ratification of Coopers & Lybrand
L.L.P. as the Company's independent public accountants.
The Board of Directors recommends a vote FOR ratification of the
selection of Coopers & Lybrand L.L.P. as the Company's independent public
accountants for the fiscal year ending September 30, 1995.
STOCKHOLDER PROPOSAL ON CUMULATIVE VOTING
Martin Glotzer, who resides at 7061 North Kedzie Avenue #301, Chicago,
Illinois 60645, is the owner of 2,000 shares, and John J. Gilbert, who resides
at 29 East 64th Street, New York, New York 10021-7043, is the owner of 203
shares and co-trustee with Margaret R. Gilbert under the will of Caston J.
Gilbert for 40 shares, and both representing an additional family interest of
1,600 shares of the Company's Common Stock. These stockholders have advised
the Company that it is their intention to present the following resolution for
consideration and action by stockholders at the 1995 Annual Meeting of
Stockholders:
"RESOLVED: That the stockholders of Zapata Corporation, assembled in
annual meeting in person and by proxy, hereby request the Board of
Directors to take the steps necessary to provide for cumulative voting in
the election of directors, which means each stockholder shall be entitled
to as many votes as shall equal the number of shares he or she owns
multiplied by the number of directors to be elected, and he or she may cast
all of such votes for a single candidate, or any two or more of them as he
or she may see fit."
Proponent's Statement in Support of Proposal
Ms. Gilbert and Messrs. Glotzer and Gilbert have made the following statement in
support of this proposal:
"REASONS: Support along the lines we suggest were shown at the last annual
meeting, when 6.7%, __________ [left blank by proponents] owners of
7,077,149 shares, were cast in favor of this proposal. The vote against
included __________ [left blank by proponents] unmarked proxies.
"A law enacted in California provides that all state pension holding and
state college funds invested in shares must be voted in favor of cumulative
voting proposals, showing increasing recognition of the importance of this
democratic means of electing directors.
"The National Bank Act provides for cumulative voting. Unfortunately, in
many cases companies get around it by forming holding companies without
cumulative voting. Banking authorities have the right to question the
capability of directors to be on banking boards. Unfortunately, in many
cases authorities come in after and say the director or directors were not
qualified. We were delighted to see that the SEC has finally taken action
to prevent bad
15
<PAGE>
directors from being on the board's of public companies.
"We think cumulative voting is the answer to find new directors for various
committees.
"Additionally, some recommendations have been made to carry out the Valdez
10 points. The 11th should be to having cumulative voting and ending
stagger systems of electing directors, in our opinion.
"When Alaska became a state, it took away cumulative voting over our
objections. The Valdez oil spill might have been prevented if environmental
directors were elected through cumulative voting. Also, the high
derivative losses might have been prevented with cumulative voting.
"Many successful corporations have cumulative voting. For example,
Pennzoil having cumulative voting defeated Texaco in that famous case.
Another example is Ingersoll-Rand, which has cumulative voting and won two
awards. In FORTUNE magazine it was ranked second in its industry as
'America's Most Admired Corporations' and the WALL STREET TRANSCRIPT noted
'on almost any criteria used to evaluate management, Ingersoll-Rand
excels.' In 1994 they raised their dividend. We believe that Zapata should
follow these examples.
"If you agree, please mark your proxy for this resolution; otherwise it is
automatically cast against it, unless you have marked to abstain."
Comment by Management
The Board of Directors believes that directors should be chosen for
their capacity and willingness to represent all stockholders, and that the
present system of voting for directors provides the best assurance that the
decisions of the directors will be made in the best interest of all the
stockholders, rather than for the benefit of special interest groups.
Cumulative voting tends to produce special interest directors beholden
to the narrow interests of those who elect them, even though such interests may
be adverse to the overall welfare of the Company and the stockholders as a
whole. A board encumbered by such conflicting factions could impede the ability
of the Company to arrive at decisions that represent the long-term interest of
all stockholders and to react timely and decisively in critical situations. The
factionalism caused by cumulative voting could also deter independent persons of
standing and reputation from serving on the Board and reduce the sense of
cooperation and confidence which the Board presently maintains.
Neither Delaware, the State in which the Company and most major
publicly-owned corporations are incorporated, nor the Model Business Corporation
Act, which reflects a consensus of the academic and practicing legal community,
requires cumulative voting. This is in accord with the Board's belief that the
principle of majority rule is the appropriate one for the election of directors.
Under the corporation law of the State of Delaware, the action
recommended in this proposal could be taken only if the Board of Directors
recommended an amendment to the Company's Restated Certificate of Incorporation
establishing cumulative voting and directed that the amendment be submitted to a
vote of the Company's stockholders. The Company's Board of Directors has not
recommended, and does not recommend, such an amendment. Therefore, a vote in
favor of this proposal would be only an advisory recommendation to the Board of
Directors that it take steps to initiate such an amendment.
At certain annual meetings of stockholders of, among others, Florida
Power & Light Company, FPL Group, Inc., Rockefeller Center Properties, Inc.,
Citicorp, The Chase Manhattan Corporation and Chemical
16
<PAGE>
Banking Corporation, Mr. Gilbert submitted similar cumulative voting proposals.
At all such meetings, the proposals were overwhelmingly rejected by the
stockholders.
Vote Required
The affirmative vote of a majority of the total number of shares of
Common Stock and $2 Preference Stock present in person or represented by proxy
at the meeting is required to approve the Stockholder Proposal.
The Board of Directors recommends a vote AGAINST the Stockholder
Proposal.
OTHER MATTERS
The Board of Directors knows of no other matter to be presented at the
1995 Annual Meeting of Stockholders. If any additional matter should be
presented properly, it is intended that the enclosed proxy will be voted in
accordance with the discretion of the persons named in the proxy.
STOCKHOLDER PROPOSALS FOR 1996 ANNUAL MEETING OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the 1996 annual
meeting of stockholders must be received by the Company by January 15, 1996 to
be considered for inclusion in the proxy statement and form of proxy relating to
the 1996 meeting.
By Order of the Board of Directors,
/s/ Joseph L. von Rosenberg III
Joseph L. von Rosenberg III
Vice President, General Counsel
and Corporate Secretary
June 26, 1995
17
<PAGE>
APPENDIX E
QUARTERLY REPORT ON FORM 10-Q, AS AMENDED, OF THE COMPANY
FOR THE QUARTER ENDED JUNE 30, 1995
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED JUNE 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-4219
ZAPATA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE C-74-1339132
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1717 ST. JAMES PLACE, SUITE 550 77056
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (713) 940-6100
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 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 [_]
Number of shares outstanding of the registrant's Common Stock, par value
$.25 per share, on November 13, 1995: 29,548,407.
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Zapata Corporation
<TABLE>
<S> <C>
Condensed Consolidated Balance Sheet ..................................... 3
Condensed Consolidated Income Statement .................................. 4
Divisional Revenues and Operating Results ................................ 5
Condensed Consolidated Statement of Cash Flows ........................... 6
Notes to Financial Statements ............................................ 7
</TABLE>
2
<PAGE>
ZAPATA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1995 1994
--------- -------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 4,081 $ 13,094
Restricted cash...................................... 77 779
Receivables.......................................... 31,228 39,595
Inventories:
Compressor equipment and components................. 24,174 17,629
Fish products....................................... 25,845 34,143
Gas liquids products................................ 656 414
Materials, parts and supplies....................... 3,456 3,601
Prepaid expenses and other current assets............ 4,269 2,609
--------- --------
Total current assets............................... 93,786 111,864
--------- --------
Investments and other assets:
Notes receivable..................................... -- 1,925
Investments.......................................... 2,100 14,471
Goodwill............................................. 25,438 26,105
Deferred income taxes................................ 5,968 2,915
Other assets......................................... 18,396 16,149
--------- --------
51,902 61,565
--------- --------
Property and equipment................................. 232,870 217,523
Accumulated depreciation............................... (108,972) (99,913)
--------- --------
123,898 117,610
--------- --------
Total assets....................................... $ 269,586 $291,039
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt................. $ 8,866 $ 3,009
Accounts payable and accrued liabilities............. 36,256 48,271
--------- --------
Total current liabilities.......................... 45,122 51,280
--------- --------
Long-term debt......................................... 61,948 69,078
--------- --------
Other liabilities...................................... 19,365 16,139
--------- --------
Stockholders' equity:
Preferred and preference stock....................... 3 2,258
Common stock......................................... 7,376 7,930
Capital in excess of par value....................... 129,344 138,293
Reinvested earnings from October 1, 1990............. 7,168 1,785
Investments unrealized gain (loss), net of taxes..... (740) 4,276
--------- --------
143,151 154,542
--------- --------
Total liabilities and stockholders' equity......... $ 269,586 $291,039
========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
ZAPATA CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENT
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues............................... $ 56,037 $ 86,496 $179,708 $241,924
-------- -------- -------- --------
Expenses:
Operating............................ 45,877 74,214 152,823 209,215
Provisions for asset write-downs..... 12,607 18,810 12,607 18,810
Depreciation, depletion and amortiza-
tion................................ 3,641 4,475 10,775 11,969
Selling, general and administrative.. 3,376 5,055 10,204 14,531
-------- -------- -------- --------
65,501 102,554 186,409 254,525
-------- -------- -------- --------
Operating loss......................... (9,464) (16,058) (6,701) (12,601)
-------- -------- -------- --------
Other income (expense):
Interest income...................... 371 431 1,055 1,628
Interest expense..................... (1,583) (1,869) (4,872) (7,482)
Gain on sales of Tidewater common
stock............................... -- -- 4,811 37,457
Other................................ (92) 3,016 928 (2,859)
-------- -------- -------- --------
(1,304) 1,578 1,922 28,744
-------- -------- -------- --------
Income (loss) from continuing opera-
tions before taxes.................... (10,768) (14,480) (4,779) 16,143
-------- -------- -------- --------
Provision for income taxes
State................................ 217 248 546 717
Federal.............................. (3,843) (5,154) (1,862) 5,400
-------- -------- -------- --------
(3,626) (4,906) (1,316) 6,117
-------- -------- -------- --------
Income (loss) from continuing opera-
tions................................. (7,142) (9,574) (3,463) 10,026
Discontinued operations:
Reversal of reserve for loss on
disposition, net of income taxes.... 8,897 -- 8,897 --
-------- -------- -------- --------
Net income (loss)...................... 1,755 (9,574) 5,434 10,026
Preferred stock dividends.............. -- 101 51 303
-------- -------- -------- --------
Net income (loss) to common stockhold-
ers................................... $ 1,755 $ (9,675) $ 5,383 $ 9,723
======== ======== ======== ========
Per share data:
Income (loss) from continuing opera-
tions............................... $ (0.24) $ (0.31) $ (0.11) $ 0.31
Income from discontinued operations.. 0.30 -- 0.28 --
-------- -------- -------- --------
Net income (loss) per share............ $ 0.06 $ (0.31) $ 0.17 $ 0.31
======== ======== ======== ========
Average common shares and equivalents
outstanding........................... 29,824 31,671 31,120 31,708
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
ZAPATA CORPORATION
DIVISIONAL REVENUES AND OPERATING RESULTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ------------------
1995 1994 1995 1994
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Natural gas compression............ $ 19,329 $ 21,810 $ 53,086 $ 49,874
Marine protein..................... 21,737 19,703 61,311 62,307
Natural gas gathering and process-
ing............................... 12,509 41,957 57,829 120,456
Oil and gas........................ 2,462 3,026 7,482 9,287
--------- --------- -------- --------
$ 56,037 $ 86,496 $179,708 $241,924
========= ========= ======== ========
Operating income (loss):
Natural gas compression............ $ 1,704 $ 2,460 $ 4,801 $ 4,842
Marine protein..................... (10,428) 2,122 (8,599) 6,016
Natural gas gathering and process-
ing............................... (39) (473) (482) (696)
Oil and gas........................ 310 (18,743) 528 (18,103)
Corporate.......................... (1,011) (1,424) (2,949) (4,660)
--------- --------- -------- --------
$ (9,464) $ (16,058) $ (6,701) $(12,601)
========= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
ZAPATA CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
------------------
1995 1994
-------- --------
<S> <C> <C>
Cash flow provided (used) by operating activities:
Continuing operations:
Net income (loss) from continuing operations............ $ (3,463) $ 10,026
-------- --------
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation, amortization and valuation provisions.... 23,382 30,779
Gain on sale of assets................................. (5,268) (37,457)
Changes in other assets and liabilities................ (9,719) (6,282)
-------- --------
Total adjustments.................................... 8,395 (12,960)
-------- --------
Net cash provided (used) by continuing operations...... 4,932 (2,934)
-------- --------
Cash flow provided (used) by investing activities:
Proceeds from dispositions of investments and other...... 12,381 88,533
Proceeds from restricted cash investments................ 702 75,083
Proceeds from notes receivable........................... 5,495 1,061
Business acquisitions, net of cash acquired.............. -- (73,222)
Capital expenditures..................................... (18,339) (20,049)
-------- --------
Net cash provided by investing activities............ 239 71,406
-------- --------
Cash flow used by financing activities:
Borrowings............................................... 12,864 --
Principal payments of long-term obligations.............. (14,137) (69,360)
Preferred stock redemption and common stock buybacks..... (11,758) (2,245)
Dividend payments........................................ (1,153) (404)
-------- --------
Net cash used by financing activities................ (14,184) (72,009)
-------- --------
Net decrease in cash and cash equivalents.................. (9,013) (3,537)
Cash and cash equivalents at beginning of period........... 13,094 15,273
-------- --------
Cash and cash equivalents at end of period................. $ 4,081 $ 11,736
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
ZAPATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have been
prepared by Zapata Corporation ("Zapata" or the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. The financial statements reflect all adjustments that are, in the
opinion of management, necessary to fairly present such information. All such
adjustments are of a normal recurring nature. Although Zapata believes that
the disclosures are adequate to make the information presented not misleading,
certain information and footnote disclosures, including significant accounting
policies, normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been condensed or omitted
pursuant to such rules and regulations. It is suggested that these condensed
financial statements be read in conjunction with the financial statements and
the notes thereto included in Zapata's latest annual report on Form 10-K.
In April 1995, Zapata adopted Statement of Financial Accounting Standards
No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," which established accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used, and for
long-lived assets and certain identifiable intangibles to be disposed of. As a
result of adopting SFAS 121, the Company recorded a $12.6 million pretax
provision for asset impairment to reduce its marine protein assets to their
estimated fair market value. The fair market value of the marine protein
assets was determined based upon the highest third-party competitive bid which
had been received by the Company.
NOTE 2. SALE OF NATURAL GAS COMPRESSION OPERATIONS
In April 1995, Zapata announced that the Company was considering the sale of
its natural gas compression operations. In June 1995, Zapata announced that it
had entered into an agreement to sell the assets of its natural gas
compression division for $130 million to Enterra Corporation and reflected
these operations as discontinued operations in the Company's financial
statements as of and for the periods presented in its Form 10-Q. The sale is
subject to stockholder approval and certain governmental approvals.
Subsequent to filing the Company's Form 10-Q for the period ended June 30,
1995, management concluded that it would seek stockholder approval, under
Delaware law, for the sale of its natural gas compression operations. As a
result of this additional condition, the criteria for reporting these
operations as discontinued as of June 30, 1995 had not been met. Therefore,
the Company's Form 10-Q as of June 30, 1995 has been amended to show the
natural gas compression operations in continuing operations. The result of
this restatement had no effect on net income or net income per share data, for
any period presented however, it did have the following effects (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ------------------
1995 1994 1995 1994
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Income statement:
Income (loss) from continuing
operations:
As previously reported............. $ (7,679) $ (10,681) $ (5,223) $ 8,633
As restated........................ (7,142) (9,574) (3,463) 10,026
-------- --------- -------- --------
Effect of correction................. $ 537 $ 1,107 $ 1,760 $ 1,393
======== ========= ======== ========
Income from discontinued operations,
net of income taxes:
As previously reported............. $ 537 $ 1,107 $ 1,760 $ 1,393
As restated........................ -- -- -- --
-------- --------- -------- --------
Effect of correction................. $ (537) $ (1,107) $ (1,760) $ (1,393)
======== ========= ======== ========
</TABLE>
(Table continued on the next page)
7
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ------------------
1995 1994 1995 1994
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Per share data:
Income (loss) from continuing
operations:
As previously reported............ $ (0.26) $ (0.34) $ (0.17) $ 0.26
As restated....................... (0.24) (0.31) (0.11) 0.31
--------- --------- -------- --------
Effect of correction................ $ 0.02 $ 0.03 $ 0.06 $ 0.05
========= ========= ======== ========
Income from discontinued operations:
As previously reported............ $ 0.32 $ 0.03 $ 0.34 $ 0.05
As restated....................... 0.30 -- 0.28 --
--------- --------- -------- --------
Effect of correction................ $ (0.02) $ (0.03) $ (0.06) $ (0.05)
========= ========= ======== ========
</TABLE>
NOTE 3. DISCONTINUED MARINE PROTEIN OPERATIONS SUBSEQUENTLY RETAINED
Zapata has decided to retain the marine protein operations which had
previously been reported as a discontinued operation. In April 1995, the
Company announced the cancellation of the sale of the marine protein division.
Zapata had previously announced that an agreement to sell its marine protein
operations had been reached. However, the acquisition group failed to close
the transaction.
The Company has concluded that the value of its marine protein operations
could be more effectively realized by retaining these operations as part of
Zapata's ongoing operations, rather than pursuing another sale transaction. As
a result, marine protein's net assets and results of operations for all
periods have been reclassified from discontinued operations to continuing
operations. Marine protein's results of operations from October 1994 through
March 1995 had previously been offset against an after-tax reserve of $8.9
million established in the fourth quarter of fiscal 1994 for the estimated
loss on disposition. As a result of the Company's decision to retain the
marine protein operations, the $8.9 million reserve has been reversed in the
current quarter. Marine protein revenues of $39.6 million and operating income
of $1.8 million for the first six months of fiscal 1995 have been reclassified
to continuing operations. Also, marine protein assets and liabilities of $80.7
million and $23.9 million, respectively, as of June 30, 1995 and assets and
liabilities of $100.2 million and $32.6 million, respectively, as of September
30, 1994 have been reclassified to continuing operations.
As a result of adopting SFAS 121, Zapata recorded a $12.6 million pretax
provision for asset impairment to reduce its marine protein assets. The
provision was based on the estimated fair market value of the marine protein
assets. The fair market value of the marine protein assets was determined
based upon the highest third-party competitive bid which had been received by
the Company.
NOTE 4. RESTATED FISCAL 1995 RESULTS OF OPERATIONS
Zapata's first and second quarter income statements for fiscal 1995 have
been restated as follows to reclassify the marine protein operating results to
continuing operations, amounts in thousands.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
DECEMBER 31, MARCH 31,
1994 1995
------------ ---------
<S> <C> <C>
Revenues.............................................. $65,551 $58,120
Operating income (loss)............................... 2,064 699
Net income............................................ $ 748 $ 2,931
</TABLE>
8
<PAGE>
NOTE 5. SUBSEQUENT EVENT
In August 1995, Zapata completed the sale of its remaining U.S. offshore oil
and gas properties. The Company received cash, a production payment entitling
Zapata to a share of future revenues derived from the properties and other
contract consideration. No gain or loss was recognized from the sale.
In August 1995, Zapata announced that it had acquired 31% of the outstanding
common stock of Envirodyne Industries, Inc. ("Envirodyne") for $18.8 million
from Malcolm Glazer, Chairman of the Board of Zapata and a director of
Envirodyne. Zapata paid the purchase price by issuing to the seller a
subordinated promissory note bearing interest at prime and maturing in August
1997. Envirodyne is one of the world's major suppliers of food packaging
products and food service supplies. This acquisition is the first major step
in the transformation of Zapata away from the energy business and into food-
related businesses. Zapata is evaluating acquiring additional shares or
proposing a merger with, or acquisition of, Envirodyne in the future.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
I
TEM 2. BUSINESS
In April 1995, Zapata announced that the Company was considering the sale of
its two natural gas services businesses: the natural gas compression operation
and the natural gas gathering and processing operation. The decision to
consider exiting the energy industry was based on the belief that businesses
outside the energy industry may provide better opportunities for the Company
to pursue. The decision to consider redirecting operations away from the
energy industry does not imply a decision to liquidate Zapata. The Company is
evaluating opportunities to reinvest the stockholders' capital.
In August 1995, Zapata announced that it had acquired 31% of the outstanding
common stock of Envirodyne Industries, Inc. ("Envirodyne"), a manufacturer of
food packaging and food service supplies for $18.8 million. This acquisition
is the first major step in the transformation of Zapata away from the energy
business and into food-related businesses. Zapata is evaluating acquiring
additional shares or proposing a merger with, or acquisition of, Envirodyne in
the future. Zapata is also looking at other opportunities in food-related
areas.
In June 1995, Zapata announced that it had entered into an agreement to sell
the assets of its natural gas compression division for $130 million. The sale
is subject to stockholder approval and certain governmental approvals. Due to
the preliminary nature of the decision process regarding the possible sale of
the natural gas gathering and processing operation, the financial statement
impact of the ultimate disposition of this business cannot be determined at
this time.
Zapata has decided to retain the marine protein operations which had
previously been reported as a discontinued operation. In April 1995, the
Company announced the cancellation of the sale of the marine protein division.
Zapata had previously announced that an agreement to sell its marine protein
operations had been reached. However, the acquisition group failed to close
the transaction. The Company has concluded that the value of the marine
protein operations could be more effectively realized by retaining these
operations as part of Zapata's ongoing operations, rather than pursuing
another sale transaction. As a result, marine protein's net assets and results
of operations for all periods have been reclassified from discontinued
operations to continuing operations.
In August 1995, Zapata completed the sale of its remaining U.S. offshore oil
and gas properties. The Company received cash, a production payment entitling
Zapata to a share of future revenues derived from the properties and other
contract considerations. The Company currently plans to retain its Bolivian
oil and gas operations.
LIQUIDITY AND CAPITAL RESOURCES
In April 1995, Zapata used the proceeds of $12.7 million from the sale of
its remaining 673,077 shares of Tidewater Inc. ("Tidewater") common stock to
reduce the Company's $17.5 million in notes due to Norex America, Inc.
Remaining mandatory principal payments for the next twelve months total $8.4
million. In July 1995, a subsidiary of the Company, Zapata Protein, Inc.,
arranged a $15.0 million bank credit facility.
Cash provided by operating activities totalled $4.9 million during the first
nine months of fiscal 1995 as compared to a $2.9 million use of cash during
the corresponding prior-year period. The use of cash in fiscal 1994 was
primarily due to increases in working capital. Cash provided by investing
activities totalled $239,000 during the first nine months of fiscal 1995 as
compared to $71.4 million during the first nine months of fiscal 1994. The
fiscal 1994 period included proceeds of $85.9 million from the sale of 4.13
million shares of Zapata's Tidewater common stock. Net cash used by financing
activities totalled $14.2 million during the first nine months of fiscal 1995
as compared to $72.0 million in the corresponding prior-year period, which
included a $68.5 million prepayment of senior debt.
10
<PAGE>
In April 1995, Zapata repurchased 2.25 million shares of Zapata's common
stock from Norex America, Inc. for $4.00 per share. The shares repurchased by
Zapata represented 7% of the Company's then outstanding common stock.
Following the repurchase of these shares, Zapata had approximately 29.5
million shares of common stock outstanding.
In June 1995, Zapata announced that its board of directors had authorized
the repurchase of up to 7.5 million shares of its common stock depending on
market conditions.
In August 1995, Zapata announced that it had acquired 31% of the outstanding
common stock of Envirodyne Industries, Inc. ("Envirodyne") for $18.8 million
from Malcolm Glazer, Chairman of the Board of Zapata and a director of
Envirodyne. Zapata paid the purchase price by issuing to the seller a
subordinated promissory note bearing interest at prime and maturing in August
1997. Envirodyne is one of the world's major suppliers of food packaging
products and food service supplies. This acquisition is the first major step
in the transformation of Zapata away from the energy business and into food-
related businesses. Zapata is evaluating acquiring additional shares or
proposing a merger with, or acquisition of, Envirodyne in the future.
RESULTS OF OPERATIONS
Zapata's net income of $1.8 million for the third quarter of fiscal 1995
compared favorably to the fiscal 1994 third quarter net loss of $9.6 million.
The fiscal 1995 third quarter net income included net income of $8.9 million
from discontinued operations as a result of the reversal of an estimated loss
on the disposition of the marine protein operations which was recorded in
fiscal 1994.
The Company's net loss from continuing operations of $7.1 million for the
three months ended June 30, 1995 compared favorably to a net loss of $9.6
million for the corresponding 1994 period. The fiscal 1995 results include a
$12.6 million pretax provision for asset impairment of the Company's marine
protein assets as a result of adopting Statement of Financial Accounting
Standards No. 121 ("SFAS 121") while the fiscal 1994 results include a pretax
valuation provision of $18.8 million associated with the Company's oil and gas
operations. Revenues of $56.0 million and an operating loss of $9.5 million in
the fiscal 1995 third quarter compared to revenues of $86.5 million and an
operating loss of $16.1 million in the 1994 third quarter. The decrease in
revenues from the prior year reflects the Company's decision to decrease
natural gas trading activity in its gathering and processing operations.
Year-to-date, fiscal 1995 revenues of $179.7 million, an operating loss of
$6.7 million and net income of $5.4 million compared to fiscal 1994 revenues
of $241.9 million, an operating loss of $12.6 million and net income of $10.0
million.
Marine Protein--As a result of the Company's decision to retain the marine
protein operations, the net assets and results of marine protein's operations
for all periods have been reclassified from discontinued operations to
continuing operations and the $8.9 million after-tax loss on disposition
recorded September 1994 has been reversed in the current quarter. As a result
of adopting SFAS 121, the Company recorded a $12.6 million pretax provision
for asset impairment to reduce its marine protein assets to their estimated
fair market value. The fair market value of the marine protein assets was
determined based upon the highest third-party competitive bid which had been
received by the Company. SFAS 121 requires companies to write down assets to
their estimated fair market value when assets are determined to be impaired.
Reflecting the provision for asset impairment, revenues of $21.7 million and
operating loss of $10.4 million in the third quarter of fiscal 1995 compared
unfavorably to revenues of $19.7 million and operating income of $2.1 million
in the third quarter of 1994. Current quarter sales volume of fish oil was
double the prior-year period level while fish meal sales volume was 14% lower
in the current quarter as compared to the prior-year quarter. The average
price for fish oil increased to $349 per ton in the third quarter of fiscal
1995 from $302 per ton in the 1994 third quarter; fish meal prices averaged
$355 per ton in the 1995 period and $346 per ton in the 1994 period. The
fiscal 1995 fish catch is approximately 22% lower than the fiscal 1994 fish
catch due principally to inclement weather conditions that hampered fishing
during the current quarter.
11
<PAGE>
Reflecting the effects of the provision for asset impairment and the lower
fish catch, year-to-date fiscal 1995 revenues of $61.3 million and operating
loss of $8.6 million compared unfavorably to fiscal 1994 revenues of $62.3
million and operating income of $6.0 million. Fiscal 1995 sales volume of fish
oil was 6% higher than the fiscal 1994 sales volume while fiscal 1995 fish
meal sales volume declined 3% as compared to fiscal 1994. Year-to-date, fiscal
1995 fish oil prices have averaged $301 per ton versus $317 per ton in fiscal
1994. Likewise, fiscal 1995 fish meal prices have averaged $347 per ton versus
$353 per ton in fiscal 1994.
Natural Gas Gathering, Processing and Marketing--Zapata's natural gas
gathering, processing and marketing operations are conducted through Cimarron
Gas Holding Company and its subsidiaries (collectively, "Cimarron"), which
were acquired early in fiscal 1993. 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's).
Revenues and operating results for the three-month and nine-month periods
ended June 30, 1995 and 1994 are presented in the following table by major
category, in thousands.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
1995 1994 1995 1994
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
REVENUES
Gathering & Processing.............. $ 4,420 $ 7,255 $ 14,010 $ 18,458
NGL Marketing....................... 8,089 34,702 43,819 101,998
--------- --------- -------- ---------
$ 12,509 $ 41,957 $ 57,829 $ 120,456
========= ========= ======== =========
OPERATING RESULTS
Gathering & Processing.............. $ 203 $ (164) $ 357 $ 148
NGL Marketing....................... 35 147 63 696
Selling & Administrative............ (277) (456) (902) (1,540)
--------- --------- -------- ---------
$ (39) $ (473) $ (482) $ (696)
========= ========= ======== =========
</TABLE>
For the third quarter of fiscal 1995, gathering and processing revenues were
lower than the prior year as a result of the negative impact of lower natural
gas prices, while operating results improved, reflecting increased processing
margins. However, marketing revenues and operating income have declined in
fiscal 1995 as compared to 1994, due to the Company's decision to reduce its
natural gas trading activities.
A comparison of average daily volumes of gas, measured in millions of cubic
feet, gathered and processed during the three-month and nine-month periods
ended June 30, 1995 and 1994 is shown below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
AVERAGE DAILY VOLUMES
(MMCF) 1995 1994 1995 1994
--------------------- --------- --------- -------- --------
<S> <C> <C> <C> <C>
Gathering................................. 57.0 47.7 53.5 44.9
Processing................................ 26.5 25.0 26.6 21.9
</TABLE>
In April 1995, Zapata announced that the Company was considering the sale of
its natural gas gathering and processing operation. Due to the preliminary
nature of the decision process regarding the possible sale of the natural gas
gathering and processing operation, the financial statement impact of the
ultimate disposition of this business cannot be determined at this time.
Oil and Gas--Revenues of $2.5 million and operating income of $310,000 for
the third quarter of fiscal 1995 compared favorably to the corresponding
fiscal 1994 period's revenues of $3.0 million and operating loss of $18.7
million. The fiscal 1994 period loss included an $18.8 million property
valuation provision. Although
12
<PAGE>
the Company's U.S. natural gas prices improved during the third quarter of
fiscal 1995, current quarter prices were lower than the prior-year quarter
prices. Zapata's domestic natural gas production for the third quarter of
fiscal 1995 approximated the level of production in the corresponding fiscal
1994 period. The Company's Bolivian operations contributed $399,000 to
operating income in the third quarter of fiscal 1995 as compared to $483,000
in the third quarter of fiscal 1994.
Year-to-date, fiscal 1995 revenues of $7.5 million and operating income of
$528,000 compared favorably to the fiscal 1994 revenues of $9.3 million and
operating loss of $18.1 million due primarily to the 1994 property write-down.
Bolivian operations contributed operating income of $1.2 million in fiscal
1995 and $2.4 million in fiscal 1994.
Natural Gas Compression--In April 1995, Zapata announced that the Company
was considering the sale of its natural gas compression operations. In June
1995, Zapata announced that it had entered into an agreement to sell the
assets of its natural gas compression division for $130 million to Enterra
Corporation. The sale is subject to stockholder approval and certain
governmental approvals.
The major segments of Energy Industries' natural gas compression revenues
and operating results for the three-month and nine-month periods ended June
30, 1995 and the three-month and eight-month periods ended June 30, 1994, in
thousands, are identified below.
<TABLE>
<CAPTION>
NINE MONTHS EIGHT MONTHS
THREE MONTHS ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30,
-------------------- ----------- ------------
1995 1994 1995 1994
--------- --------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES
Compressor Rental................ $ 4,403 $ 5,163 $12,978 $12,066
Fabrication and Sales............ 8,989 9,272 21,879 17,150
Parts & Service.................. 4,731 5,187 14,919 14,123
Other............................ 1,206 2,188 3,310 6,535
--------- --------- ------- -------
$ 19,329 $ 21,810 $53,086 $49,874
========= ========= ======= =======
OPERATING RESULTS
Compressor Rental................ $ 1,175 $ 1,336 $ 3,592 $ 3,686
Fabrication and Sales............ 875 1,206 2,421 1,762
Parts & Service.................. 850 1,152 2,818 2,760
Other............................ 198 383 348 908
Selling & Administrative......... (1,394) (1,617) (4,378) (4,274)
--------- --------- ------- -------
$ 1,704 $ 2,460 $ 4,801 $ 4,842
========= ========= ======= =======
</TABLE>
(The Other segment includes the results of the heat exchanger manufacturing
operation which was sold during the second quarter of fiscal 1995 and used
equipment sales.)
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 are determined primarily by the
demand for compressor packages and vary by size and horsepower of a compressor
package. Energy Industries' utilization, rental rates and fleet size as of
June 30, 1995 and 1994 are compared in the following table.
13
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
<S> <C> <C>
FLEET UTILIZATION:
Horsepower........................................ 81.5% 77.8%
MONTHLY RENTAL RATE, BASED ON:
Horsepower........................................ $ 15.54 $ 17.43
FLEET SIZE:
Number of units................................... 771 701
Horsepower........................................ 129,467 107,494
</TABLE>
Reflecting the effects of low natural gas prices, Energy Industries'
operating results continued to be negatively impacted during the third quarter
of fiscal 1995. As a result, Energy Industries' operating income during the
third quarter of fiscal 1995 compared unfavorably to the third quarter income
of fiscal 1994.
PART II OTHER INFORMATION
I
TEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
The Company held its 1995 Annual Meeting of Stockholders on July 27, 1995
(the "1995 Annual Meeting"). An aggregate of 29,505,034 shares of the
Company's equity securities were outstanding and entitled to vote at the 1995
Annual Meeting as follows: 29,502,407 shares of Common Stock and 2,627 shares
of $2 Noncumulative Convertible Preference Stock. At this meeting, the
stockholders voted on the following matters:
ELECTION OF CLASS III DIRECTORS
<TABLE>
<CAPTION>
FOR AGAINST
---------- ---------
<S> <C> <C>
Robert V. Leffler, Jr................................. 23,515,741 1,523,931
W. George Loar........................................ 23,510,424 1,529,248
</TABLE>
In addition to the Class III Directors elected at the 1995 Annual Meeting,
Malcolm I. Glazer and Ronald C. Lassiter continue to serve as Class I
Directors until the 1996 Annual Meeting of Stockholders, and Avram A. Glazer
and Peter M. Holt continue to serve as Class II Directors until the 1997
Annual Meeting of Stockholders.
RATIFICATION OF THE APPOINTMENT
OF COOPERS & LYBRAND L.L.P. AS
INDEPENDENT PUBLIC ACCOUNTANTS
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTAINED NON-VOTE
--- ------- --------- --------
<S> <C> <C> <C>
24,603,811 329,905 108,067 91,175
</TABLE>
Subject to stockholder approval, the Board of Directors of the Company
appointed Coopers & Lybrand L.L.P. to serve as the Company's independent
public accountants for the year ending September 30, 1995.
STOCKHOLDER PROPOSAL ON CUMULATIVE VOTING
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTAINED NON-VOTE
--- ---------- --------- ---------
<S> <C> <C> <C>
1,874,627 15,385,521 234,018 8,250,338
</TABLE>
Mr. Martin Glotzer, a stockholder of the Company, presented the stockholder
proposal to be voted on at the 1995 Annual Meeting in which he requested that
the stockholders of the Company amend the Company's Restated Certificate of
Incorporation, as amended, to provide for cumulative voting on the election of
directors of the Company.
14
<PAGE>
I
TEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
The exhibits indicated by an asterisk (*) are incorporated by reference to
the Zapata Corporation Annual Report on Form 10-K for the fiscal year ended
September 30, 1994. The exhibits indicated by double asterisk (**) were filed
on Form 10-Q for quarter ended June 30, 1995.
<TABLE>
<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)).
4(e)* --Consent Letter and Waiver dated as of March 7, 1995 by and between
Norex America, Inc. and Zapata Corporation. (Exhibit 4(e) to Zapata's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995
(File No. 1-4219)).
10(a)** --Letter Agreement dated June 29, 1995 by and between Enterra
Corporation and Zapata Corporation.
10(b)** --Assignment and Assumption of Consulting Agreement effective as of
July 1, 1995 by and between Zapata Corporation and Zapata Protein,
Inc.
27 --Financial Data Schedule.
</TABLE>
(b) REPORTS ON FORM 8-K
Current Report on Form 8-K dated June 9, 1995 reporting event of May 30,
1995 (Item 5. Other events reported the election of Robert V. Leffler, Jr. and
W. George Loar to serve as Class III Directors, filling the vacancies left by
the resignations of Myrl S. Gelb and Luther W. Miller).
Current Report on Form 8-K dated April 21, 1995 reporting event of April 13,
1995 (Item 5. Other events reported the repurchase by the Company of 2.25
million shares of its common stock and the resignation of Kristian Siem as a
director of the Company).
15
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS 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
November 13, 1995 By: /s/ Joseph L. Von Rosenberg III
------------------------
JOSEPH L. VON ROSENBERG III
VICE PRESIDENT, GENERAL COUNSEL
AND CORPORATE SECRETARY
November 13, 1995 By: /s/ Lamar C. McIntyre
------------------------
LAMAR C. MCINTYRE
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER,
TREASURER AND ASSISTANT
SECRETARY
16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER 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)).
4(e)* --Consent Letter and Waiver dated as of March 7, 1995 by and between
Norex America, Inc. and Zapata Corporation. (Exhibit 4(e) to Zapata's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995
(File No. 1-4219)).
10(a)** --Letter Agreement dated June 29, 1995 by and between Enterra
Corporation and Zapata Corporation.
10(b)** --Assignment and Assumption of Consulting Agreement effective as of
July 1, 1995 by and between Zapata Corporation and Zapata Protein,
Inc.
27 --Financial Data Schedule.
</TABLE>
* Incorporated by reference to the Zapata Corporation Annual Report on Form
10-K for the fiscal year ended September 30, 1994.
**Filed with Form 10-Q for quarter ended June 30, 1995.
17
<PAGE>
APPENDIX F
FORM 8-K OF THE COMPANY DATED NOVEMBER 13, 1995
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
----------------
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): NONE
ZAPATA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1-4219 C-74-1339132
(STATE OR OTHER (COMMISSION FILE NO.) (I.R.S. EMPLOYEE
JURISDICTION IDENTIFICATION NO.)
OF INCORPORATION)
1717 ST. JAMES PLACE, SUITE 550
HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(713) 940-6100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
FORMER ADDRESS: P.O. BOX 4240, HOUSTON, TEXAS 77210-4240
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE>
I
tem 5.Other Events
In connection with its decision to retain its marine protein operations which
had previously been reported as a discontinued operation, Zapata Corporation
(the "Company") has reclassified its consolidated financial statements for the
fiscal years ended September 30, 1992, 1993 and 1994 as set forth herein to
reflect those marine protein operations as continuing operations for those
periods.
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS AS PRESENTED HEREIN HAVE BEEN UPDATED SOLELY AS IT RELATES TO THE
RECLASSIFICATION OF THE COMPANY'S MARINE PROTEIN OPERATIONS TO CONTINUING
OPERATIONS ON MAY 5, 1995. SEE NOTE 14 TO THE CONSOLIDATED FINANCIAL STATEMENTS
INCLUDED HEREIN FOR FURTHER INFORMATION REGARDING SUCH RECLASSIFICATION.
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 herein and the
Company's Form 10-Q's for the periods ended December 31, 1994 and March 31,
1995 and Form 10-Q/A for the period ended June 30, 1995.
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.
2
<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. On May 5, 1995, Zapata decided to retain the marine
protein operations which had previously been reported as a discontinued
operation. Zapata had previously announced that an agreement to sell its marine
protein operations had been reached. However, the acquisition group failed to
close the transaction. The Company concluded that the value of its marine
protein operations could be more effectively realized by retaining these
operations as part of Zapata's ongoing operations, rather than pursuing another
sale transaction.
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
3
<PAGE>
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 were estimated
to equal or exceed the net book value of the properties.
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 $69.1 million compares favorably
to working capital of $60.6 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 $3.0 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 $88.8 million
during fiscal 1993 and totalled $119.1 million as of September 30, 1993. In
fiscal 1993, cash and restricted cash components increased $54.8 million and
current maturities of long-term debt were reduced by $16.9 million to $2.7
million.
Net cash provided by operating activities during fiscal 1994 totalled $11.1
million as compared to $15.6 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 $15.6 million
and compared unfavorably to the $11.5 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 $13.3 million during fiscal 1994 and $4.7 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.
4
<PAGE>
Net cash used by investing activities of $6.0 million in fiscal 1993 compared
to the $9.1 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 major oil and gas production and marine protein capital projects
in 1992. Reflecting the Norex Refinancing, net cash provided by financing
activities of $1.4 million in fiscal 1993 compared favorably to the net use of
cash in fiscal 1992 of $10.7 million.
RESULTS OF OPERATIONS
General
The results of operations have been reclassified to reflect the marine
protein operations as a continuing operation.
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. The fiscal 1994 loss from
discontinued operations reflects the estimated loss on disposition of the
marine protein operations of $8.9 million. The fiscal 1994 loss also includes 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 $337.8 million and an operating loss of $24.7 million in fiscal
1994 compared to revenues of $265.0 million and operating income of $3.0
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
improvement was due to the $32.9 million pretax gain from the sale of Tidewater
common stock in June 1993.
The Company's operating income of $3.0 million for fiscal 1993 compared
unfavorably to the fiscal 1992 operating income of $10.9 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.
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
5
<PAGE>
revenues, high expenses and low margins. Revenues of $265.0 million for fiscal
1993 (including $186.3 million in revenues from Cimarron) were significantly
higher than the $106.4 million of revenues reported for fiscal 1992.
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 were originally reported under
the discontinued operations classification in the Company's 1994 Form 10-K.
However, on May 5, 1995, the Company decided to retain the marine protein
operation and as a result these operations have been reclassified to continuing
operations. See Note 14.
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.
6
<PAGE>
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>
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).
7
<PAGE>
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.
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.
8
<PAGE>
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 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.
9
<PAGE>
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 $4.3 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 $10.6 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 $4.4 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 provisions for U.S. income tax for 1994, 1993 and 1992 reflect expenses
resulting from pretax consolidated income.
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).
10
<PAGE>
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.
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, except for Note 14,
as to which the date is May 5, 1995
11
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
Zapata Corporation:
We have audited the accompanying 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. 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
12
<PAGE>
ZAPATA CORPORATION
CONSOLIDATED BALANCE SHEET(1)
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........................ $ 13,094 $ 15,273
Restricted cash.................................. 779 75,083
Receivables...................................... 39,595 28,321
Inventories:
Fish products.................................. 34,143 33,504
Compressor equipment and components............ 17,629 --
Gas liquids products........................... 414 1,271
Materials, parts and supplies.................. 3,601 3,392
Prepaid expenses and other current assets........ 2,609 2,280
-------- --------
Total current assets......................... 111,864 159,124
-------- --------
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......................................... 26,105 7,781
Deferred income taxes............................ 2,915 --
Other assets..................................... 16,149 18,842
-------- --------
Total investments and other assets........... 61,565 85,756
-------- --------
Property and equipment:
Marine protein................................... 60,188 56,611
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
-------- --------
217,523 141,393
Accumulated depreciation, depletion and
amortization.................................... (99,913) (41,156)
-------- --------
117,610 100,237
-------- --------
Total assets................................. $291,039 $345,117
======== ========
</TABLE>
- --------
(1) The Consolidated Balance Sheet has been reclassified to present the marine
protein operations as continuing operations. See Note 14.
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
ZAPATA CORPORATION
CONSOLIDATED BALANCE SHEET(1)
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............. $ 3,009 $ 2,714
Accounts payable................................. 16,882 20,674
Accrued liabilities:
Compensation and employee benefits............. 11,148 6,181
Other.......................................... 19,165 9,695
Income taxes payable............................. 1,076 783
-------- --------
Total current liabilities.................... 51,280 40,047
-------- --------
Long-term debt..................................... 69,078 139,646
-------- --------
Deferred income taxes.............................. 3,686
-------- --------
Other liabilities.................................. 16,139 15,474
-------- --------
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... $291,039 $345,117
======== ========
</TABLE>
- --------
(1) The Consolidated Balance Sheet has been reclassified to present the marine
protein operations as continuing operations. See Note 14.
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
ZAPATA CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS(1)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues........................................ $337,826 $265,045 $106,413
-------- -------- --------
Expenses:
Operating..................................... 294,330 235,069 70,385
Provision for oil & gas property valuation.... 29,152 -- --
Depreciation, depletion and amortization...... 18,196 13,036 14,923
Selling, general and administrative........... 20,848 13,934 10,204
-------- -------- --------
362,526 262,039 95,512
-------- -------- --------
Operating income (loss)......................... (24,700) 3,006 10,901
-------- -------- --------
Other income (expense):
Interest income............................... 2,043 2,404 2,644
Interest expense.............................. (9,356) (15,811) (16,270)
Gain on sale of Tidewater common stock........ 37,457 32,928 --
Equity in income of unconsolidated affiliates. -- 1,125 1,497
Other......................................... (4,292) (10,629) 4,419
-------- -------- --------
25,852 10,017 (7,710)
-------- -------- --------
Income from continuing operations before income
taxes.......................................... 1,152 13,023 3,191
Provision for income taxes...................... 574 3,650 760
-------- -------- --------
Income (loss) from continuing operations........ 578 9,373 2,431
-------- -------- --------
Discontinued marine protein operations (Notes 2
and 14):
Loss on disposition, net of income taxes...... (8,897) -- --
-------- -------- --------
(8,897) -- --
-------- -------- --------
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...... $ 0.01 $ 0.33 $ 0.08
Loss from discontinued operations............. (0.29) -- --
-------- -------- --------
Net income (loss) per share................... $ (0.28) $ 0.33 $ 0.08
======== ======== ========
</TABLE>
- --------
(1) The Consolidated Statement of Operations has been reclassified to present
the marine protein operations as continuing operations. See Note 14.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
ZAPATA CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS(1)
<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................................. $ 578 $ 9,373 $ 2,431
-------- --------- --------
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Depreciation, amortization and valuation
provision................................ 47,348 13,036 14,923
Gain on sale of assets, net............... (37,457) (27,303) (46)
Equity in income of unconsolidated
affiliates............................... -- (1,125) (1,497)
Cash dividends received................... -- 1,238 620
Changes in assets and liabilities:
Receivables............................. (4,771) 8,330 569
Inventories............................. (38) (10,883) 5,369
Accounts payable and accrued
liabilities............................ 5,505 (6,189) (5,659)
Deferred income taxes................... (3,608) 3,006 680
Other assets and liabilities............ 3,533 (5,099) (5,852)
-------- --------- --------
Total adjustments..................... 10,512 (24,989) 9,107
-------- --------- --------
Net cash provided (used) by continuing
operations............................. 11,090 (15,616) 11,538
-------- --------- --------
Cash flow provided (used) by investing
activities:
Proceeds from disposition of investments and
other........................................ 88,533 85,244 106
Restricted cash investments................... 74,304 (75,083) --
Proceeds from notes receivable................ 1,061 994 2,359
Business acquisitions, net of cash acquired... (73,222) (12,600) --
Capital expenditures.......................... (28,251) (4,569) (11,595)
-------- --------- --------
Net cash provided (used) by investing
activities............................. 62,425 (6,014) (9,130)
-------- --------- --------
Cash flow provided (used) by financing
activities:
Borrowings.................................... 16,873 101,375 --
Proceeds from issuance of Common Stock........ -- 11,250 --
Principal payments of long-term obligations... (88,756) (108,333) (10,672)
Preferred stock redemption.................... (2,245) -- --
Dividend payments............................. (1,566) (2,933) --
-------- --------- --------
Net cash provided (used) by financing
activities............................. (75,694) 1,359 (10,672)
-------- --------- --------
Net decrease in cash and cash equivalents....... (2,179) (20,271) (8,264)
Cash and cash equivalents at beginning of year.. 15,273 35,544 43,808
-------- --------- --------
Cash and cash equivalents at end of year........ $ 13,094 $ 15,273 $ 35,544
======== ========= ========
</TABLE>
- --------
(1) The Consolidated Statement of Cash Flows has been reclassified to present
the marine protein operations as continuing operations. See Note 14.
The accompanying notes are an integral part of the financial statements.
16
<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.
17
<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. THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED
HEREIN HAVE BEEN UPDATED SOLELY AS IT RELATES TO THE RECLASSIFICATION OF THE
COMPANY'S MARINE PROTEIN OPERATIONS TO CONTINUING OPERATIONS ON MAY 5, 1995.
SEE NOTE 14 TO THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED HEREIN FOR
FURTHER INFORMATION REGARDING SUCH RECLASSIFICATION.
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 marine protein inventory is calculated
on a standard cost basis each month and adjusted to an actual cost basis
quarterly. The costs incurred during the off season 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. The offseason deferred cost was
approximately $1.9 million at September 30, 1994 and 1993.
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
18
<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.
19
<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.
20
<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. This determination resulted
in the consolidated financial statements being restated to present the net
assets and operating results of the marine protein operations as a discontinued
operation. Additionally, based on preliminary offers to purchase the marine
protein operations, the Company has recorded an $8.9 million after tax book
loss to reflect the estimated loss on disposition of the marine protein
operations. In the third quarter of fiscal 1995, the Company announced its
decision to retain the marine protein operations. See Note 14 of Notes to the
Consolidated Financial Statements.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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>
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. ACQUISITIONS--(CONTINUED)
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............................................... $343,840 $328,317
Income from continuing operations before taxes......... 1,450 19,594
Income from continuing operations...................... 772 13,564
Income per share from continuing operations............ 0.01 0.44
</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
increasing income 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 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>
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. ACQUISITIONS--(CONTINUED)
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 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
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. UNCONSOLIDATED AFFILIATES--(CONTINUED)
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.
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
U.S. government guaranteed obligations:
Amounts due in installments through 2009, interest from
6.63% to 6.85%............................................ 7,961 8,276
Amounts due in installments through 2014, interest at
Eurodollar rates plus .45%, 5.51% at September 30, 1994... 1,588 --
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%........................................... 400 116
------- --------
46,224 116,497
------- --------
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..................................................... 72,087 142,360
------- --------
Less current maturities........................................ 3,009 2,714
------- --------
Long-term debt................................................. $69,078 $139,646
======= ========
</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 $144.7 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.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. DEBT--(CONTINUED)
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 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.
During 1993, marine protein refinanced its U.S. government guaranteed debt in
order to achieve lower interest rates; other significant terms were unchanged.
Interest rates ranged from 10.0% to 10.2% prior to the refinancing and ranged
from 6.6% to 6.8% afterwards. The U.S. government guaranteed debt is
collateralized by a first lien on all of the vessels refurbished by the
financing proceeds and certain plant assets.
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
------ ------- ------- ------ ------
$3,009 $19,451 $21,104 $5,509 $5,538
</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....................................... $7,719 $13,680 $16,190
Income tax payments (refund)................... 5,960 37 204
</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.
26
<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
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. PREFERRED, PREFERENCE AND COMMON STOCK--(CONTINUED)
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 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.
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. INCOME TAXES--(CONTINUED)
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............................................... $ 882 $ 75 $280
U.S. ............................................... 3,902 619 --
Deferred:
State............................................... 150 -- --
U.S. ............................................... (4,360) 2,956 480
------ ------ ----
$ 574 $3,650 $760
====== ====== ====
</TABLE>
Income tax expense (benefit) was allocated to operations as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------ ----
(IN THOUSANDS)
<S> <C> <C> <C>
Continuing Operations................................ $ 574 $3,650 $760
Discontinued Operations.............................. (3,710) -- --
------- ------ ----
Total............................................ $(3,136) $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................................ $ 897 $(1,344) $(2,452)
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....... 8,044 12,528 1,678
Amortization of intangibles.................. 452 -- --
Charge off uncollectible note................ 2,790 -- --
-------- ------- -------
$ (4,210) $ 2,956 $ 480
======== ======= =======
</TABLE>
For federal income tax purposes, Zapata has $17.6 million of investment tax
credit carryforwards expiring in 1995 through 2001, and has $11.7 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 continuing
operations 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........................... $ 403 $4,427 $1,085
Recovery of nondeductible book losses............. -- (259) --
Amortization of intangibles not deductible for
tax.............................................. 196 -- --
Other............................................. (881) (26) (159)
Equity/dividend income not recognized for tax pur-
poses............................................ (176) (567) (446)
State taxes....................................... 1,032 75 280
----- ------ ------
$ 574 $3,650 $ 760
===== ====== ======
</TABLE>
29
<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................ $ 5,150
Investment tax credit carryforwards................. 17,639
Alternative minimum tax credit carryforwards........ 11,683
Other............................................... 2,555
-------
Total deferred tax assets......................... 37,027
Valuation allowance................................. (19,429)
-------
Net deferred tax assets........................... 17,598
-------
Deferred Tax Liabilities:
Property and equipment.............................. (3,477)
Basis difference on stock investment................ (1,650)
Pension............................................. (3,356)
Unrealized investment gain on Tidewater common
stock.............................................. (2,302)
Other............................................... (3,898)
-------
Total deferred tax liabilities.................... (14,683)
-------
Net deferred tax asset............................ $ 2,915
=======
</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 $10.7
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........................ $3,292 $1,567 $1,353 $1,194 $992
</TABLE>
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
The Company has an operating lease agreement with a purchase option that
totals $2.1 million. The purchase option price includes a nonrefundable deposit
of $1.2 million that is currently classified with other assets. The Company
intends to exercise this purchase option during 1995, therefore, operating
lease payments totalling $3.7 million related to this lease have not been
included in the future minimum payments under operating lease obligations noted
above.
Rental expenses for operating leases were $4.5 million, $2.7 million and $1.9
million 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 16,
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 two noncontributory pension plans covering certain U.S. employees.
Plan benefits are generally based on employees' years of service and
compensation level. All of the costs of these plans are borne by Zapata. Each
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.. $ 692 $ 660 $ 945
Interest cost on projected benefit obligations. 2,278 1,982 2,395
Actual loss (gain) on plan assets.............. (2,730) 1,028 (4,950)
Amortization of transition asset and other
deferrals..................................... (546) (5,445) 22
------ ------- -------
Net pension credit........................... $ (306) $(1,775) $(1,588)
====== ======= =======
</TABLE>
31
<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 plans' 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.............................. $38,899 $38,053
------- -------
Actuarial present value of benefit obligations:
Vested benefits...................................... 31,503 28,362
Nonvested benefits................................... 782 903
------- -------
Accumulated benefit obligation....................... 32,285 29,265
Additional benefits based on projected salary
increases........................................... 2,126 1,943
------- -------
Projected benefit obligations........................ 34,411 31,208
------- -------
Excess of plan assets over projected benefit
obligations........................................... 4,488 6,845
Unrecognized transition asset.......................... (6,698) (7,535)
Unrecognized prior service cost........................ 151 179
Unrecognized net loss.................................. 11,547 11,054
------- -------
Prepaid pension cost................................... $ 9,488 $10,543
======= =======
</TABLE>
The unrecognized transition asset at October 1, 1987 was $15.8 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 $11.5 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.
32
<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.
33
<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. DISCONTINUED MARINE PROTEIN OPERATIONS SUBSEQUENTLY RETAINED
On May 5, 1995, the Company decided to retain the marine protein operations
which had previously been reported as a discontinued operation. Zapata had
previously announced that an agreement to sell its marine protein operations
had been reached. However, the acquisition group failed to close the
transaction.
The Company concluded that the value of its marine protein operations could
be more effectively realized by retaining these operations as part of Zapata's
ongoing operations, rather than pursuing another sale transaction. As a result,
marine protein's net assets and results of operations and cash flows for all
periods have been reclassified from discontinued operations to continuing
operations.
The following is a summary of certain selected financial data for the marine
protein operations for the periods in which these operations were reported as a
discontinued operation:
<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................................... 30,527 44,010
-------- -------
87,565 92,723
-------- -------
Debt.......................................................... 9,749 8,392
Other liabilities and deferred income taxes................... 26,526 15,633
-------- -------
36,275 24,025
-------- -------
Net book value................................................ 51,290 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.
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. 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 16
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 $2,194 $77,066
Accumulated depreciation, depletion and amortization.... 60,794 55 60,849
------- ------ -------
Net capitalized costs................................... $14,078 $2,139 $16,217
======= ====== =======
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>
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>
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
UNITED
STATES BOLIVIA TOTAL
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
1994
Revenues........................................... $ 8,432 $ 4,117 $ 12,549
Production costs................................... 5,750 518 6,268
Depreciation, depletion and amortization........... 33,715 55 33,770
-------- ------- --------
Income before income taxes*........................ (31,033) 3,544 (27,489)
Income taxes....................................... (10,551) 1,205 (9,346)
-------- ------- --------
Net income *....................................... $(20,482) $ 2,339 $(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.
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.
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
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.
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. 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.
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. 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>
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. 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>
NOTE 16. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION (UNAUDITED)
Zapata's continuing businesses are comprised of four industry segments
operating in the U.S. and one foreign country. The marine protein segment is
engaged in menhaden fishing for the production of fish meal and fish oil in the
U.S. The 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 fish oil and fish meal were approximately
$25.8 million, $12.8 million and $16.2 million in 1994, 1993 and 1992,
respectively. Such sales were made primarily to European markets. In 1992 net
sales to one customer by the marine protein segment were approximately $12.4
million. Export sales of compressors and related equipment in 1994 totalled
$9.9 million. Such sales were made primarily to Canadian markets.
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION (UNAUDITED)--(CONTINUED)
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
Marine protein.......... $ 96,614 $ 5,445 $ 87,565 $ 4,535 $ 3,671
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) 44,044(1) 2,321 67
-------- -------- -------- ------- -------
$337,826 $(24,700) $291,039 $47,348 $28,251
======== ======== ======== ======= =======
1993
Marine protein.......... $ 58,565 $ 4,295 $ 92,728 $ 4,510 $ 1,477
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
-------- -------- -------- ------- -------
$265,045 $ 3,006 $345,117 $13,036 $ 4,569
======== ======== ======== ======= =======
1992
Marine protein.......... $ 76,319 $ 4,729 $ 84,082 $ 4,248 $ 4,614
Oil and gas............. 30,094 11,248 50,191 10,303 3,963
Corporate............... (5,076) 170,066(1) 372 3,018
-------- -------- -------- ------- -------
$106,413 $ 10,901 $304,339 $14,923 $11,595
======== ======== ======== ======= =======
</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.
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17. 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................. $80,228 $75,200 $ 86,496 $ 95,902
======= ======= ======== ========
Operating income (loss).. $ 2,154 $ 1,303 $(16,058)(3) $(12,099)(4)
Other income (expense),
net..................... 24,622 (1) 2,544 (2) 1,578 (2,892)
Provision (benefit) for
income taxes............ 9,448 1,575 (4,906) (5,543)
------- ------- -------- --------
Income (loss) from con-
tinuing operations...... 17,328 2,272 (9,574) (9,448)
Loss on disposition, net
of income taxes......... -- -- -- (8,897)(5)
------- ------- -------- --------
Net income (loss)........ $17,328 $ 2,272 $ (9,574) $(18,345)
======= ======= ======== ========
Per share:
Income (loss) from con-
tinuing operations...... $ 0.56 $ 0.05 $ (0.31) $ (0.29)
Loss on disposition, net
of income taxes......... -- -- -- (0.29)
------- ------- -------- --------
Net income (loss)........ $ 0.56 $ 0.05 $ (0.31) $ (0.58)
======= ======= ======== ========
FISCAL 1993
Revenues................. $70,925 $71,854 $ 58,173 $ 64,093
======= ======= ======== ========
Operating income (loss).. $ 2,496 $ (291) $ (569) $ 1,370
Other income (expense),
net..................... (1,479) (2,456) 16,482 (6) (2,530)
Provision (benefit) for
income taxes............ (21) (1,205) 5,423 (547)
------- ------- -------- --------
Net income (loss)........ $ 1,038 $(1,542) $ 10,490 $ (613)
======= ======= ======== ========
Net income (loss) per
share................... $ 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, net of taxes.
(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.
42
<PAGE>
I
TEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) EXHIBITS:
<TABLE>
<C> <S>
27 --Financial Data Schedule.
</TABLE>
43
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED HEREUNTO DULY AUTHORIZED.
ZAPATA CORPORATION
/s/ Joseph L. von Rosenberg III
By: _________________________________
Joseph L. von Rosenberg III
Vice President, General Counsel and
Corporate Secretary
Date: November 13, 1995
44
<PAGE>
FRONT SIDE OF PROXY
ZAPATA CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned, hereby revoking all prior proxies, hereby appoints Messrs.
Malcolm I. Glazer, Avram A. Glazer and Joseph L. von Rosenberg, III, and each
of them, as proxies and attorneys-in-fact of the undersigned, with full and
several power of substitution, to represent and to vote all the shares of
Common Stock or $2 Noncumulative Convertible Preference Stock of ZAPATA
CORPORATION (the "Company"), standing in the name of the undersigned and with
respect to which the undersigned would be entitled to vote if personally
present at the Special Meeting of Stockholders of the Company to be held on
December 15, 1995 (the "Special Meeting"), and at any adjournment(s) or
postponement(s) thereof, with respect to the following proposals:
1. To approve and authorize the sale of the Company's natural gas compression
business conducted by its wholly owned subsidiaries, Energy Industries, Inc.
and Zapata Energy Industries, L.P., all as more particularly described in the
Proxy Statement relating to the Special Meeting (the "Energy Industries Sale
Proposal").
FOR [_]AGAINST [_]ABSTAIN [_]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ENERGY INDUSTRIES SALE
PROPOSAL.
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting or any adjournment(s)
or postponement(s) thereof, all as more particularly described in the Proxy
Statement relating to the Special Meeting.
(CONTINUED AND TO BE DATED AND SIGNED ON THE OTHER SIDE)
BACK SIDE OF PROXY
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFIC INDICATIONS ON THE REVERSE SIDE. IN THE ABSENCE OF SUCH INDICATIONS,
THIS PROXY WILL BE VOTED FOR THE ENERGY INDUSTRIES SALE PROPOSAL, AND IN
ACCORDANCE WITH THE JUDGMENT OF THE PERSON VOTING THE PROXY WITH RESPECT TO ANY
OTHER BUSINESS PROPERLY BEFORE THE SPECIAL MEETING.
THE UNDERSIGNED ACKNOWLEDGE(S) RECEIPT OF THE NOTICE OF THE AFORESAID SPECIAL
MEETING AND THE PROXY STATEMENT ACCOMPANYING THE SAME, EACH DATED NOVEMBER 13,
1995.
----------------------------------------
PRINTED NAME
----------------------------------------
SIGNATURE
----------------------------------------
DATE
(Please sign exactly as your name
appears hereon. When signing as
attorney, executor, administrator,
trustee, guardian, etc., give your full
title as such. For joint accounts, each
joint owner should sign.)
PLEASE MARK, SIGN, DATE AND RETURN THE
PROXY CARD USING THE ENCLOSED ENVELOPE
