Harbinger Group Inc. – ‘S-4’ on 6/25/96

As of:  Tuesday, 6/25/96   ·   Accession #:  950129-96-1313   ·   File #:  333-06729

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Registration of Securities Issued in a Business-Combination Transaction   —   Form S-4
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: S-4         Zapata Corporation - Form S-4                        388   2.07M 
 2: EX-10.18    Standstill Agreement - Malcolm I. Glazer              14     59K 
 3: EX-10.19    Irrevocable Proxy - Malcolm I. Glazer                  2     10K 
 4: EX-10.20    Supplemental Agreement - Malcolm I. Glazer             2     11K 
 5: EX-10.22    Form of Indemnification Agreement                      7     44K 
 6: EX-21       Subsidiaries of the Registrant                         1      8K 
 7: EX-23.1     Consent of Arthur Andersen LLP                         1      7K 
 8: EX-23.2     Consents of Coopers & Lybrand L.L.P.                   2     11K 
 9: EX-23.3     Consent of Deloitte & Touche LLP                       1      7K 
10: EX-24       Powers of Attorney                                     5     20K 
11: EX-99.1     Form of Zapata Proxy                                   2±    11K 
12: EX-99.2     Form of Houlihan's Proxy                               2±     9K 

S-4   —   Zapata Corporation – Form S-4
Document Table of Contents

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1996 

                                                 REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------- 
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 
--------------------- 

ZAPATA CORPORATION
(Exact name of registrant as specified in its charter)

                                                                [Download Table]
                                                                                 
           DELAWARE                         2077                  C-74-1339132   
 (State or other jurisdiction   (Primary Standard Industrial    (I.R.S. Employer 
               of               Classification Code Number)   Identification No.)
incorporation or organization)                                                   

1717 ST. JAMES PLACE, SUITE 550 
HOUSTON, TEXAS 77056
(713) 940-6100
(Address, including zip code, and telephone number, including area code, of 
registrant's principal executive offices) 
--------------------- 

JOSEPH L. VON ROSENBERG III 
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE SECRETARY 
ZAPATA CORPORATION
1717 ST. JAMES PLACE, SUITE 550 
HOUSTON, TEXAS 77056
(713) 940-6100
(Name, address, including zip code, and telephone number, including area code,
of agent for service) 
--------------------- 
    APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes        
effective.                                                                      

If the securities being registered on this Form are being offered in  
connection with the formation of a holding company and there is compliance with 
General Instruction G, check the following box:  / /                            
--------------------- 
CALCULATION OF REGISTRATION FEE 

                                                        [Enlarge/Download Table]

================================================================================================= 
                                                   PROPOSED         PROPOSED                      
                                                    MAXIMUM          MAXIMUM                      
TITLE OF EACH CLASS OF          AMOUNT TO BE    OFFERING PRICE      AGGREGATE       AMOUNT OF     
SECURITIES TO BE REGISTERED      REGISTERED        PER SHARE    OFFERING PRICE(1) REGISTRATION FEE
------------------------------------------------------------------------------------------------- 
                                                                                                  
Common Stock, par value                                                                           
  $.25 per share..............        (2)             (3)          $34,993,042       $12,067      
================================================================================================= 

(1) Estimated in accordance with Rule 457(f) solely for the purpose of          
calculating the registration fee. Pursuant to Rule 457(f), the proposed 
  maximum aggregate offering price for the Common Stock, par value $0.25 per
   share ("Zapata Common Stock"), of Zapata Corporation ("Zapata") is based on
  (i) the maximum number of shares of Common Stock, par value $.01 per share
("Houlihan's Common Stock"), of Houlihan's Restaurant Group, Inc.       
("Houlihan's") that may be converted into the right to receive shares of
   Zapata Common Stock in the proposed merger (the "Merger") described in this
 Registration Statement and (ii) the average of the bid and asked price in
 the over-the-counter market for shares of Houlihan's Common Stock on June
20, 1996.                                                               

(2) Such presently indeterminable number of shares of Zapata Common Stock as may
 be issued in the Merger. Pursuant to the terms of the Merger, one-half of
 the total outstanding shares of Houlihan's Common Stock will be converted
   into the right to receive shares of Zapata Common Stock, with the remaining
   shares of Houlihan's Common Stock being converted into the right to receive
$8.00 per share in cash. On a per share basis, each share of Houlihan's 
  Common Stock to be converted into the right to receive Zapata Common Stock
   will be converted into the right to receive such number of shares of Zapata
Common Stock as will have a market value (defined as the average of the 
  closing price of Zapata Common Stock over a specified period of 20 trading
days) of $8.00.                                                         

(3) Presently indeterminable, as the number of shares is not determinable. See  
(2) above.                                                              
--------------------- 

  THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION       
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF  
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION SHALL BECOME EFFECTIVE ON  
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY          
DETERMINE.                                                                      
=============================================================================== 

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CROSS REFERENCE SHEET 

PURSUANT TO RULE 501(b) OF REGULATION S-K 

                                                        [Enlarge/Download Table]

                                                          CAPTION IN JOINT PROXY          
         FORM S-4 ITEM NUMBER AND HEADING                  STATEMENT/PROSPECTUS           
    ------------------------------------------  ------------------------------------------

                         A. INFORMATION ABOUT THE TRANSACTION                             

                                                                                          
 1. Forepart of Registration Statement and                                                
      Outside Front Cover Page of                                                         
      Prospectus..............................  Forepart of Registration Statement;       
                                                Outside Front Cover Page of Joint Proxy   
                                                  Statement/Prospectus                    
 2. Inside Front and Outside Back Cover Pages                                             
      of Prospectus...........................  Inside Front Cover Page of Joint Proxy    
                                                  Statement/Prospectus; Available         
                                                  Information; Incorporation of Documents 
                                                  by Reference; Table of Contents         
 3. Risk Factors, Ratio of Earnings to Fixed                                              
      Charges and Other Information...........  Summary; Risk Factors; Approval of the    
                                                Merger and Related Transactions           
 4. Terms of the Transaction..................  Summary; Approval of the Merger and       
                                                Related Transactions; The Merger          
                                                  Agreement; Description of Zapata Capital
                                                  Stock; Comparative Rights of            
                                                  Stockholders                            
 5. Pro Forma Financial Information...........  Summary; Unaudited Pro Forma Combined     
                                                  Condensed Financial Statements          
 6. Material Contracts with the Company Being                                             
      Acquired................................  Summary; Risk Factors; Approval of the    
                                                Merger and Related Transactions           
 7. Additional Information Required for                                                   
      Reoffering by Persons and Parties Deemed                                            
      to be Underwriters......................  Not Applicable                            
 8. Interests of Named Experts and Counsel....  Not Applicable                            
 9. Disclosure of Commission Position on                                                  
      Indemnification for Securities Act                                                  
      Liabilities.............................  Not Applicable                            

                          B. INFORMATION ABOUT THE REGISTRANT                             

10. Information with Respect to S-3                                                       
      Registrants.............................  Not Applicable                            
11. Incorporation of Certain Information by                                               
      Reference...............................  Not Applicable                            
12. Information with Respect to S-2 or S-3                                                
      Registrants.............................  Incorporation of Certain Documents by     
                                                  Reference; Summary; Risk Factors;       
                                                  Unaudited Pro Forma Combined Condensed  
                                                  Financial Statements; Description of    
                                                  Zapata Capital Stock; Comparative Rights
                                                  of Stockholders                         
13. Incorporation of Certain Information by                                               
      Reference...............................  Incorporation of Certain Documents by     
                                                  Reference                               
14. Information with Respect to Registrants                                               
      Other than S-3 or S-2 Registrants.......  Not Applicable                            

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                                                          CAPTION IN JOINT PROXY          
         FORM S-4 ITEM NUMBER AND HEADING                  STATEMENT/PROSPECTUS           
    ------------------------------------------  ------------------------------------------

                    C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED                       

                                                                                          
15. Information with Respect to S-3                                                       
      Companies...............................  Not Applicable                            
16. Information with Respect to S-2 or S-3                                                
      Companies...............................  Incorporation of Documents by Reference;  
                                                  Summary; Risk Factors; Unaudited Pro    
                                                  Forma Combined Condensed Financial      
                                                  Statements; Comparative Rights of       
                                                  Stockholders; Additional Information    
                                                  Concerning Houlihan's                   
17. Information with Respect to Companies                                                 
      Other than S-3 or S-2 Companies.........  Not Applicable                            

                         D. VOTING AND MANAGEMENT INFORMATION                             

18. Information if Proxies, Consents or                                                   
      Authorizations are to be Solicited......  Summary; The Zapata Annual Meeting; The   
                                                  Houlihan's Special Meeting; Approval of 
                                                  the Merger and Related Transactions; The
                                                  Merger Agreement; Comparative Rights of 
                                                  Stockholders; Additional Information    
                                                  Concerning Houlihan's; Additional       
                                                  Proposals for a Vote of Zapata          
                                                  Stockholders                            
19. Information if Proxies, Consents or                                                   
      Authorizations are not to be Solicited                                              
      or in an Exchange Offer.................  Not Applicable                            

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********************************************************************************
*     THIS PRELIMINARY OFFICIAL STATEMENT AND THE INFORMATION CONTAINED        *
*     HEREIN ARE SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY      *
*     NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE      *
*     OFFICIAL STATEMENT IS DELIVERED IN FINAL FORM. UNDER NO CIRCUMSTANCES    *
*     SHALL THIS PRELIMINARY OFFICIAL STATEMENT CONSTITUTE AN OFFER TO SELL    *
*     OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF    *
*     THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION   *
*     OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER   *
*     THE SECURITIES LAWS OF ANY SUCH JURISDICTION.                            *
********************************************************************************

SUBJECT TO COMPLETION, DATED JUNE 25, 1996

[ZAPATA CORPORATION LOGO] 

July   , 1996 

To Our Stockholders:                                                            

     You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of Zapata Corporation, a Delaware corporation ("Zapata"), to  
be held on August 22, 1996, at 10:00 a.m., New York time, at the offices of     
Bloomberg Financial Markets Commodity News, 499 Park Avenue, New York, New York.

At the Annual Meeting, you will be asked to consider and vote upon the
issuance of shares of Zapata common stock, $0.25 par value, in connection with  
the merger (the "Merger") of Houlihan's Restaurant Group, Inc., a Delaware      
corporation, with and into Zapata Acquisition Corp., a Delaware corporation and 
wholly owned subsidiary of Zapata, which will then change its name to Houlihan's
Restaurant Group, Inc. (the "Merger Proposal"). In addition, you will be asked  
to vote upon three other proposals (the "Additional Proposals") relating to the 
(i) election of members of the Zapata Board of Directors, (ii) approval of the  
1996 Long-Term Incentive Plan of Zapata and (iii) a stockholder proposal to     
request the Zapata Board of Directors to take the steps necessary to provide for
cumulative voting of Zapata Common Stock (the "Stockholder Proposal").          

   The Merger Proposal and the Additional Proposals are more fully described
in the accompanying Joint Proxy Statement/Prospectus and the appendices thereto,
including discussions therein concerning Zapata's reasons for the Merger and    
factors which should be considered in connection with your vote on the Merger.  
Please review this information carefully.                                       

 AFTER CAREFUL CONSIDERATION, A SPECIAL COMMITTEE OF THE ZAPATA BOARD OF
DIRECTORS CONSISTING OF MESSRS. R. C. LASSITER, CHAIRMAN, ROBERT V. LEFFLER, JR.
AND W. GEORGE LOAR (THE "ZAPATA SPECIAL COMMITTEE") HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE MERGER PROPOSAL AND UNANIMOUSLY RECOMMENDS THAT YOU    
VOTE FOR THE MERGER PROPOSAL. THE ZAPATA SPECIAL COMMITTEE HAS RECEIVED THE     
OPINION OF ITS FINANCIAL ADVISER, CS FIRST BOSTON CORPORATION, THAT, AS OF THE  
DATE OF SUCH OPINION AND BASED UPON AND SUBJECT TO CERTAIN MATTERS STATED       
THEREIN, THE CONSIDERATION TO BE PAID BY ZAPATA IN THE MERGER IS FAIR, FROM A   
FINANCIAL POINT OF VIEW, TO ZAPATA. IN ADDITION, THE ZAPATA BOARD OF DIRECTORS  
RECOMMENDS A VOTE FOR THE ELECTION OF EACH NOMINEE TO THE BOARD OF DIRECTORS    
NAMED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS AND A VOTE FOR THE   
ADOPTION OF THE 1996 LONG-TERM INCENTIVE PLAN OF ZAPATA. THE ZAPATA BOARD OF    
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST THE STOCKHOLDER PROPOSAL.       

  The members of the Zapata Special Committee have been granted a proxy to
vote the approximately 35.2% of the outstanding shares of Zapata Common Stock   
beneficially owned by Malcolm I. Glazer on the Merger Proposal, and have        
determined to vote such shares pursuant to the proxy on the Merger Proposal in  
the same manner as the votes cast on the matter by a majority of the shares of  
Zapata Common Stock not beneficially owned by Malcolm I. Glazer present and     
voting on the matter.                                                           

Whether or not you plan to attend the Annual 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      
Annual Meeting, even if you send in your proxy.                                 

We appreciate your continued interest in Zapata.                      

                  Sincerely,

                       Avram A. Glazer
                                     President and Chief Executive
               Officer

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ZAPATA CORPORATION
1717 ST. JAMES PLACE, SUITE 550 
HOUSTON, TEXAS 77056
(713) 940-6100

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 22, 1996 

To the Stockholders of Zapata Corporation:                                      

     Notice is hereby given that the Annual Meeting of Stockholders (the "Annual
Meeting") of Zapata Corporation, a Delaware corporation ("Zapata"), will be held
at the offices of Bloomberg Financial Markets Commodity News, 499 Park Avenue,  
New York, New York, on August 22, 1996, at 10:00 a.m., New York time, for the   
following purposes:                                                             

      1. To consider and vote upon a proposal to approve the issuance of
 shares of Zapata common stock, $0.25 par value ("Zapata Common Stock"),
    pursuant to the Agreement and Plan of Merger dated as of June 4, 1996 (the
"Merger Agreement"), by and among Zapata, Zapata Acquisition Corp., a 
 Delaware corporation and wholly owned subsidiary of Zapata ("Sub"), and
   Houlihan's Restaurant Group, Inc., a Delaware corporation ("Houlihan's"),
  providing for the merger (the "Merger") of Houlihan's with and into Sub.
   The Merger and Merger Agreement and the transactions contemplated thereby
   are described in detail in the attached Joint Proxy Statement/Prospectus.

        2. The election of two directors as members of Class I of the Zapata
Board of Directors.                                                   

      3. To consider and vote upon the proposed 1996 Long-Term Incentive
Plan of Zapata covering 5,000,000 shares of Zapata Common Stock.      

      4. To consider and vote upon a stockholder proposal to request the
Zapata Board of Directors to take the steps necessary to provide for  
cumulative voting of Zapata Common Stock.                             

         5. Such other business as may properly come before the Annual Meeting
or any adjournment or postponement thereof.                           

   Only stockholders of record at the close of business on July 17, 1996 are
entitled to notice of and to vote at the Annual Meeting and any adjournment or  
postponement thereof. A list of such stockholders will be available for         
inspection at least ten days prior to the Annual Meeting during normal business 
hours at the offices of Zapata.                                                 

    Stockholders are cordially invited to attend the Annual Meeting in person.
Those who do not plan to 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,

             [SIG]

                                   Joseph L. von Rosenberg III
                                         Executive Vice President, General
               Counsel
                               and Corporate Secretary

Houston, Texas                                                                  
July   , 1996                                                                   

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WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE THE      
ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.            

HOULIHAN'S RESTAURANT GROUP, INC. 
TWO BRUSH CREEK BOULEVARD 
KANSAS CITY, MISSOURI 64112 

JULY   , 1996 

To Our Stockholders:                                                            

    You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of Houlihan's Restaurant Group, Inc., a Delaware corporation 
("Houlihan's"), to be held on August 21, 1996, at 10:00 a.m. (local time) at    
Houlihan's offices located at Two Brush Creek Boulevard, Kansas City, Missouri. 

At the Special Meeting, you will be asked to consider and vote upon an
Agreement and Plan of Merger dated as of June 4, 1996 (the "Merger Agreement")  
by and among Zapata Corporation ("Zapata"), Zapata Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Zapata ("Sub"), and Houlihan's and 
the transactions contemplated thereby. Pursuant to the Merger Agreement,        
Houlihan's will be merged with and into Sub (the "Merger") which will then      
change its name to Houlihan's Restaurant Group, Inc., and stockholders of       
Houlihan's will receive a combination of cash and Zapata common stock valued at 
$8.00 per share, as more fully set forth in the Merger Agreement.               

Attached is a Notice of Special Meeting and Joint Proxy               
Statement/Prospectus of Houlihan's and Zapata which also is a prospectus of     
Zapata for the shares of Zapata common stock to be issued in connection with the
Merger. The Merger Agreement and the Merger are more fully described in the     
Joint Proxy Statement/Prospectus and the appendices thereto, including          
discussions therein concerning Houlihan's reasons for the Merger, the           
consideration to be received in the Merger, and other information about the     
parties to the Merger and other factors which should be considered in connection
with your vote on the Merger. Please review this information carefully.         

  Stockholders of Zapata will consider the Merger proposal at a meeting on
August 22, 1996. A special committee of the Zapata Board of Directors (the      
"Zapata Special Committee") has unanimously approved the Merger Agreement and   
has recommended that Zapata's stockholders vote to approve the issuance of the  
shares of Zapata common stock issuable in connection with the Merger (the       
"Merger Proposal"). The members of the Zapata Special Committee have been       
granted a proxy to vote the approximately 35.2% of the outstanding shares of    
Zapata common stock beneficially owned by Malcolm I. Glazer on the Merger       
Proposal at the Zapata stockholders meeting, and have determined to vote such   
shares pursuant to the proxy on the Merger Proposal in the same manner as the   
votes cast on the matter by a majority of the shares of Zapata common stock not 
beneficially owned by Malcolm I. Glazer present and voting on the matter.       

     Your Board of Directors has carefully reviewed and considered the terms and
conditions of the Merger Agreement, and, based solely on the recommendation of  
the Houlihan's Special Committee, has approved the proposed Merger. A special   
committee of your Board of Directors (the "Houlihan's Special Committee") has   
unanimously approved the Merger Agreement and unanimously recommends that you   
vote in favor of it. In addition, the Houlihan's Special Committee has received 
the opinion of its financial advisers, Donaldson, Lufkin & Jenrette Securities  
Corporation, that the consideration to be received by the stockholders of       
Houlihan's pursuant to the Merger (other than Malcolm I. Glazer and his         
affiliates) is fair to such stockholders from a financial point of view.        

Consummation of the Merger is subject to certain conditions, including
approval by the affirmative vote at the meeting of the holders of a majority of 
Houlihan's outstanding common stock. Malcolm I. Glazer beneficially owns,       
through a trust of which he is the trustee and the sole beneficiary, an         
aggregate of 7,325,815 shares, or approximately 73.3% of the outstanding        
Houlihan's Common Stock, which is sufficient to approve and adopt the Merger    
Agreement and approve the Merger. Malcolm I. Glazer has indicated that, subject 
to obtaining appropriate consents from banks to which certain of those shares   
are pledged, those shares will be voted in favor of the approval and adoption of
the Merger Agreement and the approval of the Merger. Your vote is important     
regardless of the number of shares that you own. Whether or not you are planning
to attend the meeting, it is important that your shares be represented. Please  
complete, sign and date the enclosed proxy and mail it at your earliest         
convenience in the return envelope provided.                                    

                  Sincerely,

                         Frederick R. Hipp
                                     President and Chief Executive
               Officer

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HOULIHAN'S RESTAURANT GROUP, INC. 
TWO BRUSH CREEK BOULEVARD 
KANSAS CITY, MISSOURI 64112 
--------------------- 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS 

TO BE HELD AUGUST 21, 1996
--------------------- 

To the Stockholders of Houlihan's Restaurant Group, Inc.:                       

     NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of Houlihan's Restaurant Group, Inc., a Delaware corporation          
("Houlihan's"), will be held on August 21, 1996, at 10:00 a.m. (local time) at  
Houlihan's offices located at Two Brush Creek Boulevard, Kansas City, Missouri, 
for the purpose of considering and voting upon the following matters:           

   1. A proposal to approve an Agreement and Plan of Merger dated as of June
4, 1996 (the "Merger Agreement") by and among Zapata Corporation, a Delaware    
corporation ("Zapata"), Zapata Acquisition Corp., a Delaware corporation and    
wholly owned subsidiary of Zapata ("Sub") and Houlihan's, providing for the     
merger of Houlihan's with and into Sub (the "Merger"), pursuant to which        
stockholders of Houlihan's will receive a combination of cash and Zapata common 
stock valued at $8.00 per share, as more fully set forth in the Merger          
Agreement. The Merger Agreement and the Merger are more fully described in the  
Joint Proxy Statement/Prospectus and appendices.                                

2. Such other business as may properly be brought before the Special  
Meeting or any adjournment or postponement thereof.                             

  Only stockholders of record as of the close of business on July 17, 1996
will be entitled to notice of, and to vote at, the Special Meeting, and any     
adjournment or postponement thereof. For a period of at least ten days prior to 
the Special Meeting, a complete list of stockholders entitled to vote at the    
Special Meeting will be available for inspection during ordinary business hours 
at Houlihan's principal executive offices.                                      

Consummation of the Merger is subject to certain conditions, including
approval by the affirmative vote at the meeting of the holders of a majority of 
the outstanding shares of Houlihan's common stock entitled to vote thereon. Your
vote is important regardless of the number of shares that you own. Whether or   
not you are planning to attend the Special Meeting, please mark, sign and date  
the enclosed proxy and return it as soon as possible in the enclosed stamped    
envelope. You may revoke the proxy at any time prior to its exercise, but only  
by delivering written notice of revocation or a duly executed proxy bearing a   
later date to the Corporate Secretary of Houlihan's at Houlihan's principal     
executive offices prior to the Special Meeting or to the Secretary of the       
Special Meeting while the meeting is in progress, or by appearing at the Special
Meeting and voting in person.                                                   

                                          By Order of the Board of Directors

                          William W. Moreton
                                          Executive Vice President/Secretary

Kansas City, Missouri                                                           
July   , 1996                                                                   

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******************************************************************************* 
*    INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A    * 
*    REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED       * 
*    WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT    * 
*    BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE          * 
*    REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT      * 
*    CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR   * 
*    SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH   * 
*    OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR   * 
*    QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.               * 
******************************************************************************* 

SUBJECT TO COMPLETION, DATED JUNE 25, 1996

ZAPATA CORPORATION

AND 

HOULIHAN'S RESTAURANT GROUP, INC. 

JOINT PROXY STATEMENT 

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

ZAPATA CORPORATION

PROSPECTUS
--------------------- 

This Joint Proxy Statement/Prospectus is being furnished to the       
stockholders of Zapata Corporation, a Delaware corporation ("Zapata"), in       
connection with the solicitation of proxies by the Zapata Board of Directors for
use at the Annual Meeting of Stockholders of Zapata (the "Zapata Annual         
Meeting") to be held on August 22, 1996, at 10:00 a.m., New York time, at the   
offices of Bloomberg Financial Markets Commodity News, 499 Park Avenue, New     
York, New York, and at any adjournment or postponement thereof.                 

This Joint Proxy Statement/Prospectus also is being furnished to the  
stockholders of Houlihan's Restaurant Group, Inc., a Delaware corporation       
("Houlihan's"), in connection with the solicitation of proxies by the Houlihan's
Board of Directors for use at the Special Meeting of Stockholders of Houlihan's 
(the "Houlihan's Special Meeting") to be held on August 21, 1996, at 10:00 a.m.,
local time, at Houlihan's offices located at Two Brush Creek Boulevard, Kansas  
City, Missouri, and at any adjournment or postponement thereof.                 

    This Joint Proxy Statement/Prospectus constitutes the prospectus of Zapata
with respect to shares of Zapata common stock, $0.25 par value ("Zapata Common  
Stock"), to be issued in connection with the merger (the "Merger") of Houlihan's
with and into Zapata Acquisition Corp., a Delaware corporation and wholly owned 
subsidiary of Zapata ("Sub"), pursuant to the Agreement and Plan of Merger dated
as of June 4, 1996 by and among Zapata, Sub and Houlihan's attached hereto as   
Appendix A (the "Merger Agreement").                                            
--------------------- 

THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY         
STATEMENT/PROSPECTUS. STOCKHOLDERS ARE URGED TO READ AND CONSIDER CAREFULLY THIS
JOINT PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY, INCLUDING THE MATTERS REFERRED
TO BEGINNING ON PAGE 20 UNDER "RISK FACTORS."                                   
--------------------- 
THE SECURITIES ISSUABLE PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS       
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE      
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE            
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES        
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS       
JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO   
THE CONTRARY IS A CRIMINAL OFFENSE.                 
--------------------- 

    This Joint Proxy Statement/Prospectus and the accompanying proxy cards are
first being mailed or delivered to the stockholders of Zapata and Houlihan's on 
or about July   , 1996.                                                         
--------------------- 

THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS JULY   , 1996. 

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AVAILABLE INFORMATION 

    Zapata and Houlihan's are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in        
accordance therewith Zapata files reports, proxy statements and other           
information with the Securities and Exchange Commission (the "Commission") and  
Houlihan's files reports and other information with the Commission. Such        
reports, proxy statements and other information filed with the Commission can be
inspected and copied at the Commission's Public Reference Room, Judiciary Plaza,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the public    
reference facilities maintained by the Commission at its regional offices       
located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,     
Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New York, New    
York 10048. Copies of such materials can be obtained from the Commission at     
prescribed rates from the Public Reference Section of the Commission at 450     
Fifth Street, N.W., Washington, D.C. 20549. Copies of certain of such           
information may be accessed through the Commission's Internet web site at       
http://www.sec.gov. Additionally, material filed by Zapata can be inspected at  
the offices of The New York Stock Exchange, Inc. (the "NYSE"), 20 Broad Street, 
New York, New York 10005.                                                       

Zapata has filed with the Commission a Registration Statement (the    
"Registration Statement") on Form S-4 under the Securities Act of 1933, as      
amended (the "Securities Act"), with respect to the shares of Zapata Common     
Stock to be issued pursuant to the Merger Agreement. As permitted by the rules  
and regulations of the Commission, this Prospectus, which constitutes a part of 
the Registration Statement, does not contain all information set forth in the   
Registration Statement. Copies of the Registration Statement, including the     
exhibits thereto, may be inspected, without charge, at the offices of the       
Commission referred to above, or obtained at prescribed rates from the Public   
Reference Section of the Commission at the address set forth above. Statements  
contained in this Joint Proxy Statement/Prospectus relating to the contents of  
any contract or other document referred to herein are not necessarily complete, 
and reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, each such         
statement being qualified in all respects by such reference.                    

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

ALL INFORMATION CONCERNING ZAPATA CONTAINED IN THIS JOINT PROXY       
STATEMENT/PROSPECTUS HAS BEEN FURNISHED BY ZAPATA AND ALL INFORMATION CONCERNING
HOULIHAN'S CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS HAS BEEN FURNISHED
BY HOULIHAN'S. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATION WITH RESPECT  
TO THE MATTERS DESCRIBED IN THIS JOINT PROXY STATEMENT/PROSPECTUS OTHER THAN    
THOSE CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ZAPATA, HOULIHAN'S OR ANY  
OTHER PERSON. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES, OR MAKE A   
SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR TO OR FROM ANY PERSON 
TO OR FROM WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER  
THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF   
SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES BE DEEMED TO IMPLY THAT THERE
HAS BEEN NO CHANGE IN THE ASSETS, PROPERTIES OR AFFAIRS OF ZAPATA OR HOULIHAN'S 
SINCE THE DATE HEREOF OR THAT THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF 
ANY TIME SUBSEQUENT TO THE DATE HEREOF.                                         

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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 

The following documents filed with the Commission by Zapata and by    
Houlihan's are incorporated by reference in this Joint Proxy                    
Statement/Prospectus:                                                           

       (a) Zapata's Annual Report on Form 10-K, as amended by Form 10-K/A,
for the fiscal year ended September 30, 1995;                         

      (b) Zapata's Quarterly Reports on Form 10-Q for the quarters ended
December 31, 1995 and March 31, 1996;                                 

     (c) Zapata's Current Reports on Form 8-K dated November 17, 1995,
     December 15, 1995, April 9, 1996, April 30, 1996, June 4, 1996 and June 19,
1996;                                                                 

       (d) Houlihan's Annual Report on Form 10-K for the fiscal year ended
December 25, 1995;                                                    

      (e) Houlihan's Quarterly Report on Form 10-Q for the quarter ended
March 25, 1996; and                                                   

         (f) Houlihan's Current Reports on Form 8-K dated May 9, 1996 and June
4, 1996.                                                              

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

ZAPATA DOCUMENTS DELIVERED HEREWITH 

  Accompanying this Joint Proxy Statement/Prospectus is a copy of Zapata's
(i) Annual Report on Form 10-K, as amended by Form 10-K/A, for the fiscal year  
ended September 30, 1995, (ii) Quarterly Report on Form 10-Q for the quarter    
ended March 31, 1996 and (iii) Current Report on Form 8-K dated June 19, 1996.  

HOULIHAN'S DOCUMENTS DELIVERED HEREWITH 

    Accompanying this Joint Proxy Statement/Prospectus is a copy of Houlihan's
(i) Annual Report on Form 10-K for the fiscal year ended December 25, 1995 and  
(ii) Quarterly Report on Form 10-Q for the quarter ended March 25, 1996.        

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

   THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL 
OWNER, TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON REQUEST.
REQUESTS FOR ZAPATA DOCUMENTS SHOULD BE DIRECTED TO ZAPATA CORPORATION,         
ATTENTION: CORPORATE SECRETARY, 1717 ST. JAMES PLACE, SUITE 550, HOUSTON, TEXAS 
77056 (TELEPHONE: 713-940-6100). REQUESTS FOR HOULIHAN'S DOCUMENTS SHOULD BE    
DIRECTED TO HOULIHAN'S RESTAURANT GROUP, INC., ATTENTION: CORPORATE SECRETARY,  
P.O. BOX 16000, KANSAS CITY, MISSOURI 64112 (TELEPHONE: 816-756-2200). TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, REQUESTS SHOULD BE RECEIVED BY AUGUST 14,     
1996.                                                                           

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TABLE OF CONTENTS 

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                                                                                       PAGE
                                                                                       ----
                                                                                           
AVAILABLE INFORMATION.................................................................   2 
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................................   3 
SUMMARY...............................................................................   7 
  The Companies.......................................................................   7 
  The Zapata Annual Meeting...........................................................   8 
  The Houlihan's Special Meeting......................................................   9 
  The Merger..........................................................................   9 
  Zapata Summary Consolidated Financial Information...................................  15 
  Houlihan's Selected Consolidated Financial Information..............................  16 
  Zapata and Houlihan's Summary Unaudited Pro Forma Combined Condensed Financial           
     Data.............................................................................  17 
  Comparative Per Share Data..........................................................  18 
  Comparative Market Price Data and Dividend Policy...................................  19 
RISK FACTORS..........................................................................  20 
  Uncertainties Relating to Houlihan's Business.......................................  20 
  Uncertainties Relating to Zapata's Business.........................................  21 
  Costs of the Transaction............................................................  22 
  Control by the Glazer Group Following the Merger....................................  22 
  Litigation..........................................................................  23 
THE ZAPATA ANNUAL MEETING.............................................................  25 
  General.............................................................................  25 
  Matters to Be Considered at the Zapata Annual Meeting...............................  25 
  Record Date; Outstanding Shares; Quorum.............................................  25 
  Vote Required; Abstentions and Non-Votes............................................  25 
  Voting of Proxies...................................................................  26 
  Solicitation of Proxies; Expenses...................................................  26 
THE HOULIHAN'S SPECIAL MEETING........................................................  27 
  General.............................................................................  27 
  Matters to Be Considered at the Houlihan's Special Meeting..........................  27 
  Record Date; Outstanding Shares; Quorum.............................................  27 
  Vote Required; Abstentions and Non-Votes............................................  27 
  Voting of Proxies...................................................................  27 
  Solicitation of Proxies; Expenses...................................................  28 
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS.......................................  29 
  Background of the Merger............................................................  29 
  Zapata's Reasons for the Merger; Recommendation.....................................  31 
  Houlihan's Reasons for the Merger; Recommendation...................................  32 
  Opinion of CS First Boston..........................................................  33 
  Opinion of DLJ......................................................................  37 
  Operations Following the Merger.....................................................  40 
  Certain Federal Income Tax Consequences.............................................  41 
  Interests of Certain Persons in the Merger..........................................  43 
  Irrevocable Proxy and Standstill Agreement..........................................  43 
  Regulatory Approvals................................................................  44 
  Accounting Treatment................................................................  45 
  Restrictions on Sales of Stock......................................................  45 
THE MERGER AGREEMENT..................................................................  46 
  Merger Consideration................................................................  46 
  Conversion of Shares; Procedures for Exchange of Certificates; Fractional Shares....  46 
  Appraisal Rights....................................................................  47 

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  Treatment of Stock Options..........................................................  49 
  Conditions to the Merger............................................................  50 
  Representations and Warranties......................................................  51 
  Certain Covenants; Conduct of Business..............................................  51 
  Certain Employment and Indemnification Arrangements.................................  52 
  Additional Agreements...............................................................  52 
  Expenses and Termination Fee........................................................  53 
  Amendment, Waiver and Termination...................................................  53 
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS...........................  54 
DESCRIPTION OF ZAPATA CAPITAL STOCK...................................................  63 
  Common Stock........................................................................  63 
  Preferred Stock.....................................................................  63 
  Preference Stock....................................................................  64 
  Certain Provisions of the Certificate of Incorporation and By-laws..................  65 
  Delaware General Corporation Law....................................................  66 
COMPARATIVE RIGHTS OF STOCKHOLDERS....................................................  67 
  General.............................................................................  67 
  Interested Stockholder Transactions.................................................  67 
  Amendment of Certificate of Incorporation...........................................  67 
  Amendment of By-laws................................................................  68 
  Special Meetings of Stockholders....................................................  68 
  Special Meetings of Directors.......................................................  68 
  Number of Directors.................................................................  68 
  Quorum..............................................................................  68 
  Removal of Directors................................................................  68 
ADDITIONAL INFORMATION CONCERNING HOULIHAN'S..........................................  69 
  Houlihan's Certain Relationships and Related Transactions...........................  69 
  Security Ownership of Certain Beneficial Owners and Management of Houlihan's........  70 
ADDITIONAL PROPOSALS FOR A VOTE OF ZAPATA STOCKHOLDERS................................  71 
  Proposal No. 2                                                                           
     Election of Directors............................................................  71 
     Nominees.........................................................................  71 
     Continuing Directors.............................................................  71 
     Actions in Connection with the Merger............................................  72 
     Committees of the Board; Attendance at Meetings..................................  72 
     Compensation of Directors........................................................  73 
     Management and Executive Compensation............................................  74 
     Summary Compensation Table.......................................................  74 
     Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option            
      Values..........................................................................  75 
     Pension Plan Information.........................................................  75 
     Employment Agreements and Other Incentive Plans..................................  75 
     Section 16(a) Beneficial Ownership Reporting Compliance..........................  76 
     Report of the Compensation Committee.............................................  76 
     Compensation Committee Intellocks and Insider Participation......................  77 
     Certain Relationships and Related Transactions...................................  78 
     Security Ownership of Certain Beneficial Owners and Management of Zapata.........  79 
     Stockholder Return Performance Graph.............................................  80 
  Proposal No. 3                                                                           
     Approval of 1996 Long-Term Incentive Plan of Zapata..............................  81 
     Vote Required....................................................................  83 

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  Proposal No. 4                                                                             
     Stockholder Proposal to Provide for Cumulative Voting............................     83
     Proponent's Statement in Support of Proposal.....................................     83
     Comment by Management............................................................     84
     Vote Required....................................................................     85
  Other Matters.......................................................................     85
  Stockholder Proposals for 1997 Annual Meeting of Stockholders.......................     85
EXPERTS...............................................................................     85
APPENDICES                                                                                   
  Appendix A    -- Agreement and Plan of Merger........................................   A-1
  Appendix B    -- Opinion of CS First Boston Corporation..............................   B-1
  Appendix C    -- Opinion of Donaldson, Lufkin & Jenrette Securities Corporation......   C-1
  Appendix D    -- Section 262 of the Delaware General Corporation Law.................   D-1
  Appendix E    -- 1996 Long-Term Incentive Plan of Zapata.............................   E-1
ANNEXES                                                                                      
  Annex A       -- Zapata's Annual Report on Form 10-K, as amended by Form 10-K/A, for       
                   the fiscal year ended September 30, 1995                                  
  Annex B       -- Zapata's Quarterly Report on Form 10-Q for the quarter ended March        
                   31, 1996                                                                  
  Annex C       -- Zapata's Current Report on Form 8-K dated June 19, 1996                   
  Annex D       -- Houlihan's Annual Report on Form 10-K for the fiscal year ended           
                   December 25, 1995                                                         
  Annex E       -- Houlihan's Quarterly Report on Form 10-Q for the quarter ended March      
                   25, 1996                                                                  

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SUMMARY 

  The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained elsewhere 
in this Joint Proxy Statement/Prospectus and the Appendices and Annexes hereto. 
This Joint Proxy Statement/Prospectus contains forward-looking statements that  
involve risks and uncertainties. Actual results may differ significantly from   
the results discussed in the forward-looking statements. Factors that might     
cause such a difference include, but are not limited to, those discussed in     
"Risk Factors." Stockholders are urged to read this Joint Proxy                 
Statement/Prospectus and its Appendices and Annexes before voting on the matters
discussed herein.                                                               

THE COMPANIES                                                                   

Zapata Corporation                                                          

   Zapata is in the process of implementing a plan to reposition Zapata into
the food packaging, food and food service equipment and supply businesses, from 
the natural gas services and other energy businesses in which it formerly was   
engaged. To date, the companies in the food services business which Zapata's    
Board of Directors or a special committee thereof has evaluated or in which     
Zapata has made investments have been companies in which Malcolm I. Glazer has  
had a substantial ownership position. Zapata currently conducts marine protein  
operations involving the production and sale of a variety of protein and oil    
products from menhaden. In addition, in August 1995, Zapata acquired 4,189,298  
shares (or 28.9%) of the outstanding common stock of Envirodyne Industries, Inc.
("Envirodyne"), a major supplier of food packaging products and food service    
supplies, from the Malcolm Glazer Trust established U/A dated as of March 23,   
1990 (the "Malcolm Glazer Trust") at a price of approximately $4.48 per share   
($18.8 million in the aggregate). On June 19, 1996, Zapata purchased an         
additional 818,006 shares of Envirodyne common stock in a brokerage transaction 
at a purchase price (including commissions) of $4.165 per share and entered into
an agreement with another party to acquire up to an additional 900,000 shares of
Envirodyne common stock at a purchase price of $4.125 per share. The 900,000    
share acquisition transaction is expected to be completed by July 1, 1996 and   
will increase Zapata's ownership of outstanding Envirodyne common stock to      
approximately 40.6%. In 1996, Zapata completed the disposition of its natural   
gas compression operations and its natural gas gathering, processing and        
marketing operations. Zapata retains an interest in natural gas production      
operations in Bolivia.                                                          

 Zapata is a Delaware corporation organized in 1954. As used herein, the
term "Zapata" refers to Zapata Corporation or to Zapata Corporation and its     
consolidated subsidiaries, as applicable. Zapata's principal executive offices  
are located at 1717 St. James Place, Suite 550, Houston, Texas 77056, and its   
telephone number is (713) 940-6100. See the accompanying Annual Report on Form  
10-K of Zapata, as amended by Form 10-K/A, for the fiscal year ended September  
30, 1995 and the accompanying Quarterly Report on Form 10-Q of Zapata for the   
quarter ended March 31, 1996 for additional information relating to Zapata.     

Zapata Acquisition Corp.                                                    

    Sub is a Delaware corporation recently organized by Zapata for the purpose
of effecting the Merger. It has no material assets and has not engaged in any   
activities except those required to effect the proposed Merger. Sub's executive 
offices are located at 1717 St. James Place, Suite 550, Houston, Texas 77056,   
and its telephone number is (713) 940-6100.                                     

Houlihan's Restaurant Group, Inc.                                           

     Houlihan's operates full service casual dining restaurants in 23 states. At
May 20, 1996, it operated 99 restaurants, including 61 Houlihan's, 28 Darryl's, 
four upscale Seafood Grills and six specialty restaurants comprised of four     
dinnerhouses, one upscale steakhouse and the Buena Vista Cafe. At that date,    
Houlihan's also franchised 23 Houlihan's restaurants in ten states and the      
Commonwealth of Puerto Rico.                                                    

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Houlihan's is a Delaware corporation that has succeeded to a business 
started in 1962. As used herein, the term "Houlihan's" refers to Houlihan's     
Restaurant Group, Inc. or to Houlihan's Restaurant Group, Inc. and its          
consolidated subsidiaries, as applicable. Houlihan's principal executive offices
are located at Two Brush Creek Boulevard, Kansas City, Missouri 64112 and its   
telephone number is (816) 756-2200. See the accompanying Annual Report on Form  
10-K of Houlihan's for the fiscal year ended December 25, 1995 and the          
accompanying Quarterly Report on Form 10-Q of Houlihan's for the quarter ended  
March 25, 1996 for additional information relating to Houlihan's.               

THE ZAPATA ANNUAL MEETING                                                       

  The Zapata Annual Meeting will be held on August 22, 1996 at 10:00 a.m.,
New York time, at the offices of Bloomberg Financial Markets Commodity News, 499
Park Avenue, New York, New York.                                                

 At the Zapata Annual Meeting, including any adjournment or postponement
thereof, the stockholders of Zapata will be asked to consider and vote upon the 
approval of the issuance of shares of Zapata Common Stock pursuant to the Merger
Agreement (the "Merger Proposal"). In addition, at the Zapata Annual Meeting,   
the stockholders of Zapata will consider and vote upon the following three      
additional proposals (the "Additional Proposals"): (i) election of members of   
Class I of the Zapata Board of Directors; (ii) approval of the proposed 1996    
Long-Term Incentive Plan of Zapata; and (iii) a stockholder proposal to request 
the Zapata Board of Directors to take the steps necessary to provide for        
cumulative voting of Zapata Common Stock (the "Stockholder Proposal"). THE      
APPROVAL OF ANY OF THE ADDITIONAL PROPOSALS IS NOT CONDITIONED UPON THE APPROVAL
OF ANY OTHER ADDITIONAL PROPOSAL OR THE MERGER PROPOSAL.                        

  The close of business on July 17, 1996 has been fixed as the record date
(the "Zapata Record Date") for the determination of the stockholders of Zapata  
entitled to notice of and to vote at the Zapata Annual Meeting. Holders of      
Zapata Common Stock are entitled to one vote for each share of Zapata Common    
Stock held by them. Holders of Zapata $2 noncumulative convertible preference   
stock ("Zapata $2 Preference Stock") are entitled to one vote for each share of 
Zapata $2 Preference Stock held by them. The holders of a majority of the       
combined outstanding shares of Zapata Common Stock and Zapata $2 Preference     
Stock, present either in person or by properly executed proxies, will constitute
a quorum at the Zapata Annual Meeting. See "The Zapata Annual Meeting."         

The approval of the Merger Proposal requires the affirmative vote of a
majority of the combined votes of the outstanding shares of Zapata Common Stock 
and Zapata $2 Preference Stock entitled to vote, voting together as a single    
class, which are present in person or by proxy at the Zapata Annual Meeting. The
election of members of Class I of the Zapata Board of Directors will be by a    
plurality of the votes cast by the holders of Zapata Common Stock and Zapata $2 
Preference Stock. See "The Zapata Annual Meeting -- Vote Required; Abstentions  
and Non-Votes." As of the Zapata Record Date, 29,548,707 shares of Zapata Common
Stock were issued and outstanding, of which approximately 35.4% were            
beneficially owned by directors, executive officers and affiliates of Zapata    
(excluding 121,132 shares that may be acquired upon exercise of options         
exercisable within 60 days of the Zapata Record Date).                          

In September 1995, Zapata's Board of Directors established a special  
committee (the "Zapata Special Committee") for the purpose of investigating     
merger and acquisition transactions involving Zapata and Houlihan's and         
Specialty Equipment Companies, Inc. ("Specialty"). The Zapata Special Committee 
was appointed in view of the fact that Malcolm I. Glazer, Chairman of Zapata's  
Board of Directors, individually and as trustee of the Malcolm Glazer Trust,    
owns an aggregate of 10,395,384 shares, or approximately 35.2%, of the          
outstanding Zapata Common Stock (excluding 20,000 shares that may be acquired   
upon exercise of options exercisable within 60 days of the Zapata Record Date), 
and the beneficial ownership by Malcolm I. Glazer of a substantial ownership    
interest in Houlihan's and Specialty as described below. Malcolm I. Glazer,     
individually and as trustee of the Malcolm Glazer Trust, has granted an         
irrevocable proxy to the members of the Zapata Special Committee to vote all    
such shares of Zapata Common Stock in connection with the Merger Proposal. THE  
MEMBERS OF THE ZAPATA SPECIAL COMMITTEE HAVE DETERMINED TO VOTE SUCH SHARES     
PURSUANT TO THE PROXY ON THE MERGER PROPOSAL IN THE SAME MANNER AS THE VOTES    
CAST ON THE MATTER BY A MAJORITY OF THE SHARES OF ZAPATA COMMON STOCK NOT       
BENEFICIALLY OWNED BY MALCOLM I. GLAZER PRESENT AND                             

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VOTING ON THE MATTER. See "Approval of the Merger and Related                   
Transactions--Interests of Certain Persons in the Merger," "--Irrevocable Proxy 
and Standstill Agreement" and "Security Ownership of Certain Beneficial Owners  
and Management of Zapata."                                                      

On April 30, 1996, Zapata and Malcolm I. Glazer, individually and as  
trustee of the Malcolm Glazer Trust, entered into an agreement (the "Standstill 
Agreement") providing for certain restrictions on the acquisition, disposition  
and voting of, and other matters relating to, Zapata Common Stock by Malcolm I. 
Glazer and any corporation (excluding Zapata), person, partnership, trust or    
other entity controlled, directly or indirectly, by Malcolm I. Glazer (the      
"Glazer Group") during the term of the Standstill Agreement. See "Approval of   
the Merger and Related Transactions--Irrevocable Proxy and Standstill           
Agreement."                                                                     

THE HOULIHAN'S SPECIAL MEETING                                                  

 The Houlihan's Special Meeting will be held on August 21, 1996 at 10:00
a.m., local time, at Houlihan's offices located at Two Brush Creek Boulevard,   
Kansas City, Missouri.                                                          

At the Houlihan's Special Meeting, including any adjournment or       
postponement thereof, the stockholders of Houlihan's will be asked to consider  
and vote upon the approval and adoption of the Merger Agreement and the approval
of the Merger.                                                                  

  The close of business on July 17, 1996 has been fixed as the record date
(the "Houlihan's Record Date") for the determination of the stockholders of     
Houlihan's entitled to notice of and to vote at the Houlihan's Special Meeting. 
Holders of Houlihan's common stock, $0.01 par value ("Houlihan's Common Stock"),
are entitled to one vote for each share of Houlihan's Common Stock held by them.
The holders of a majority of the outstanding shares of Houlihan's Common Stock, 
present either in person or by properly executed proxies, will constitute a     
quorum at the Houlihan's Special Meeting. See "The Houlihan's Special Meeting." 

The approval and adoption of the Merger Agreement and approval of the 
Merger require the affirmative vote of holders of a majority of the outstanding 
shares of Houlihan's Common Stock. As of the Record Date, 9,998,012 shares of   
Houlihan's Common Stock were issued and outstanding, of which 73.8% were        
beneficially owned by directors, executive officers and affiliates of Houlihan's
(excluding 1,044,000 shares that may be acquired upon exercise of options       
exercisable within 60 days of the Houlihan's Record Date). The Malcolm Glazer   
Trust beneficially owns an aggregate of 7,325,815 shares, or approximately      
73.3%, of the outstanding Houlihan's Common Stock, which is sufficient to       
approve and adopt the Merger Agreement and approve the Merger. Malcolm I. Glazer
has indicated that, subject to obtaining appropriate consents from banks to     
which certain of those shares are pledged, the Malcolm Glazer Trust will vote   
its shares of Houlihan's Common Stock in favor of the approval and adoption of  
the Merger Agreement and the approval of the Merger. See "The Houlihan's Special
Meeting--Vote Required; Abstentions and Non-Votes" and "Security Ownership of   
Certain Beneficial Owners and Management of Zapata."                            

THE MERGER                                                                      

The Merger                                                                  

 Merger Consideration. Under the Merger Agreement, holders of Houlihan's
Common Stock may elect to receive for each share held (i) $8.00 in cash, without
interest ("Cash Election"), (ii) $8.00 in Market Value (as defined below) of    
Zapata Common Stock ("Stock Election"), (iii) $4.00 in cash, without interest,  
and $4.00 in Market Value of Zapata Common Stock ("Cash/Stock Election") or (iv)
a residual combination of cash and Zapata Common Stock (totaling $8.00 in value)
determined so that the aggregate merger consideration to all Houlihan's         
stockholders (assuming that any who exercise their right to dissent from the    
Merger under the Delaware General Corporation Law (the "DGCL") receive $8.00 per
share in cash) is equally divided between cash and (on a Market Value basis)    
Zapata Common Stock ("Residual Election"). Malcolm I. Glazer has agreed to      
exercise, and to the extent within his actual control cause all other members of
the Glazer Group to exercise, the Residual Election with respect to shares of   
Houlihan's Common Stock owned by him and other members of the Glazer Group. If, 
as a result of Cash Elections made by others, members of the Glazer Group would 
own more than 49.9% of the outstanding Zapata Common                            

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Stock following the Merger, the cash received by holders making Cash Elections  
will be reduced on a pro rata basis (and Zapata Common Stock having a Market    
Value equal to the amount of the reduction will be delivered to them in lieu    
thereof) so that the amount of Zapata Common Stock deliverable under the        
Residual Election is reduced to the extent necessary to prevent the 49.9%       
ownership threshold applicable to the Glazer Group from being exceeded. For     
purposes of this Joint Proxy Statement/Prospectus, "Market Value" means the     
average of the closing price of Zapata Common Stock for the 20 trading days     
immediately preceding the second trading day prior to the date of the Houlihan's
Special Meeting.                                                                

     If the Market Value were equal to $3.625 per share (the closing sales price
of the Zapata Common Stock on the NYSE on June 18, 1996), and if all holders of 
Houlihan's Common Stock other than members of the Glazer Group exercised Cash   
Elections, such holders would receive approximately $6.40 per share in cash and 
$1.60 per share in Market Value of Zapata Common Stock by reason of proration   
under the 49.9% ownership limitation. If the Market Value of the Zapata Common  
Stock exceeds $4.61 per share, the 49.9% ownership limitation would not require 
proration and all holders of Houlihan's Common Stock making Cash Elections would
be assured of receiving $8.00 per share in cash upon consummation of the Merger.

Effective Time of the Merger. As promptly as practicable after the    
satisfaction or waiver of the conditions set forth in the Merger Agreement, the 
parties thereto will file a certificate of merger (the "Certificate of Merger") 
with the Delaware Secretary of State. The Merger will become effective upon the 
close of business on the date of such filing (the "Effective Time"), which,     
assuming all conditions are met, is anticipated to occur promptly after the     
conclusion of the Zapata Annual Meeting and the Houlihan's Special Meeting. See 
"The Merger Agreement--Conditions to the Merger."                               

Conditions to the Merger; Termination. The obligations of Zapata and  
Houlihan's to consummate the Merger are subject to the satisfaction of certain  
conditions, including, among others: (i) obtaining requisite Zapata and         
Houlihan's stockholder approvals; (ii) the expiration or early termination of   
the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of    
1976, as amended (the "HSR Act"); (iii) the effectiveness of the Registration   
Statement and the receipt by Zapata of all material approvals necessary under   
applicable state securities laws; (iv) the absence of any restraining order or  
injunction prohibiting consummation of the Merger; (v) the approval for listing 
on the NYSE of the shares of Zapata Common Stock to be issued in the Merger;    
(vi) the receipt of certain legal opinions with respect to the tax consequences 
of the Merger; and (vii) the refinancing of Houlihan's credit facility. Further,
the obligation of Houlihan's to consummate the Merger is subject to Zapata's    
having taken action to appoint two designees of Houlihan's to the Zapata Board  
of Directors, effective immediately following consummation of the Merger, and   
Zapata's having offered employment to William W. Moreton as Executive Vice      
President and Chief Financial Officer. See "The Merger Agreement--Conditions to 
the Merger."                                                                    

The Merger Agreement may be terminated and the Merger may be abandoned
prior to the Effective Time notwithstanding approval by the stockholders of     
Zapata and Houlihan's under the circumstances specified in the Merger Agreement,
including, without limitation: (i) by mutual consent of Zapata and Houlihan's by
action of their respective Boards of Directors or special committees thereof;   
(ii) by either Zapata or Houlihan's if the Merger is not consummated before     
October 1, 1996, despite the good faith effort of such party to effect such     
consummation (unless the failure to so consummate the Merger by such date is due
to a breach of the Merger Agreement by the party seeking to terminate it); (iii)
by either Zapata or Houlihan's if a court of competent jurisdiction shall have  
issued a non-appealable final order, decree or ruling having the effect of      
permanently restraining, enjoining or otherwise prohibiting the Merger; (iv) by 
Houlihan's if it accepts an acquisition proposal from another person and pays   
Zapata's reasonable expenses incurred in connection with the Merger; (v) by     
Zapata if Houlihan's Board of Directors or the special committee thereof        
consisting of the two directors of Houlihan's not affiliated with Malcolm I.    
Glazer (the "Houlihan's Special Committee") shall have withdrawn or modified, in
a manner adverse to Zapata, its recommendation for approval of the Merger       
Agreement and the Merger; (vi) by Houlihan's if the Zapata Special Committee    
shall have withdrawn or modified, in a manner adverse to Houlihan's, its        
recommendation for approval of the issuance of Zapata Common Stock pursuant to  
the Merger Agreement; (vii) by either Zapata or Houlihan's if one of the        
conditions to its obligation to consummate the Merger has not been satisfied; or
(viii) by Zapata if holders of an aggregate of more than 1,000,000 shares of    
Houlihan's Common Stock have provided notice of                                 

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intent to dissent from, and have not voted in favor of, the Merger as of the    
Closing Date. See "The Merger Agreement -- Amendment, Waiver and Termination."  

Treatment of Stock Options                                                  

At the Effective Time, Houlihan's obligations with respect to each    
outstanding option to purchase shares of Houlihan's Common Stock (each a        
"Houlihan's Option") under its 1994 Stock Option Plan for Outside Directors and 
1994 Executive Stock Option Plan (the "Houlihan's Stock Option Plans"), whether 
vested or unvested, will be assumed by Zapata. Each Houlihan's Option so assumed
by Zapata shall continue to have, and be subject to, the same terms and         
conditions set forth in the Houlihan's Stock Option Plans and agreements        
pursuant to which such Houlihan's Option was issued as in effect immediately    
prior to the Effective Time, except that (i) each Houlihan's Option shall be    
exercisable for that number of whole shares of Zapata Common Stock equal to the 
product of the number of shares of Houlihan's Common Stock covered by the       
Houlihan's Option immediately prior to the Effective Time multiplied by the     
ratio of $8.00 to the Market Value (the "Exchange Ratio"), rounded up to the    
nearest whole number of shares of Zapata Common Stock and (ii) the per share    
exercise price for the shares of Zapata Common Stock issuable upon the exercise 
of such Houlihan's Option shall be equal to the quotient determined by dividing 
the exercise price per share of Houlihan's Common Stock specified for such      
Houlihan's Option under the applicable Houlihan's Stock Option Plan or agreement
immediately prior to the Effective Time by the Exchange Ratio, rounding the     
resulting exercise price down to the nearest whole cent.                        

Certain Federal Income Tax Consequences                                     

     The Merger is intended to qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").   
Baker & Botts, L.L.P., counsel for Zapata, is of the opinion that (subject to   
the assumptions and qualifications stated under the caption "Approval of the    
Merger and Related Transactions--Certain Federal Income Tax Consequences") the  
Merger will qualify as a reorganization within the meaning of Section 368(a) of 
the Code and that the material federal income tax effects of the Merger to      
Houlihan's stockholders will be as described herein. A Houlihan's stockholder   
who receives only Zapata Common Stock pursuant to the Merger will (i) not       
recognize gain or loss on the exchange, (ii) have a basis in the Zapata Common  
Stock equal to such stockholder's basis in the Houlihan's Common Stock exchanged
therefor, and (iii) have a holding period for the Zapata Common Stock that      
includes such stockholder's holding period for the Houlihan's Common Stock      
exchanged therefor. A Houlihan's stockholder who receives only cash pursuant to 
the exchange and who does not own, actually or constructively, stock of Zapata  
after the exchange will generally recognize capital gain or loss on the         
exchange. A Houlihan's stockholder who receives both Zapata Common Stock and    
cash pursuant to the Merger, or who receives only cash but actually or          
constructively owns stock of Zapata after the exchange, will (i) generally have 
the consequences with respect to shares of Zapata Common Stock received that are
described above in the case of a Houlihan's stockholder who receives only Zapata
Common Stock, (ii) not be permitted to recognize any loss realized on the       
exchange, and (iii) be required to recognize any gain realized on the exchange  
up to the amount of cash received, some or all of which may under certain       
circumstances be taxable as dividend income. See "Approval of the Merger and    
Related Transactions--Certain Federal Income Tax Consequences."                 

Dissenters' Appraisal Rights                                                

   Under Delaware law, Houlihan's stockholders may exercise appraisal rights
with respect to the Merger. In order to perfect appraisal rights, Houlihan's    
stockholders must comply with certain statutorily prescribed procedures within  
specified time periods. A vote against approval and adoption of the Merger      
Agreement will not fulfill such statutory requirements without other action. A  
Houlihan's stockholder who fails to perfect or who withdraws or otherwise loses 
rights to an appraisal of its shares after the vote of Houlihan's stockholders  
on the Merger and Merger Agreement will, as a result of the Merger, receive     
$4.00 in cash, without interest, and $4.00 in Market Value of Zapata Common     
Stock for each share of Houlihan's Common Stock held by such stockholder. See   
"The Merger Agreement--Appraisal Rights." A copy of Section 262 of the Delaware 

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General Corporation Law regarding appraisal rights is attached as Appendix D to 
this Joint Proxy Statement/Prospectus. Zapata stockholders will not have        
appraisal rights in connection with the Merger.                                 

Resales of Zapata Common Stock                                              

    The shares of Zapata Common Stock to be issued pursuant to the Merger will
be registered under the Securities Act, and therefore may be resold without     
restriction by persons who are not deemed to be "affiliates" (as such term is   
defined under the Securities Act) of either Zapata or Houlihan's. See "Approval 
of the Merger and Related Transactions--Restrictions on Sales of Stock."        

The Zapata Special Committee                                                

 The members of the Zapata Special Committee are Messrs. R. C. Lassiter,
Chairman, Robert V. Leffler, Jr. and W. George Loar. See "Additional Proposals  
for a Vote of Zapata Stockholders--Continuing Directors" for information on the 
background of the committee members. The members of the Zapata Special Committee
previously served as members of a special committee of the Zapata Board of      
Directors formed to evaluate and act in connection with Zapata's acquisition    
from the Malcolm Glazer Trust of stock of Envirodyne.                           

The compensation paid by Zapata to the members of the Zapata Special  
Committee for their service on that committee in connection with the transaction
with Houlihan's was $20,000 in the case of Mr. Lassiter, the chairman of the    
committee, and $15,000 in the case of each of Messrs. Leffler and Loar. Zapata  
has also entered into indemnification agreements with the members of the Zapata 
Special Committee containing provisions for comprehensive indemnification and   
advancement of expenses to the fullest extent permitted by applicable law.      

Messrs. Lassiter, Leffler and Loar have been named as defendants in   
purported derivative actions alleging breaches of fiduciary duty by them and    
other directors of Zapata in connection with Zapata's investment in Envirodyne  
and in connection with its proposed acquisition of Houlihan's in the Merger.    
Among other things, the complaints in these actions allege that the members of  
the Zapata Special Committee lack independence from Malcolm I. Glazer. Zapata   
denies the substantive allegations of these complaints. See "Risk               
Factors--Litigation."                                                           

Recommendation of the Zapata Special Committee                              

    The Zapata Special Committee has unanimously approved the Merger Agreement
and the Merger Proposal and unanimously recommends that Zapata stockholders vote
FOR approval of the Merger Proposal. See "Approval of the Merger and Related    
Transactions--Zapata's Reasons for the Merger; Recommendation." See also "Risk  
Factors" for a discussion of factors that should be considered carefully by     
Zapata stockholders in connection with evaluating and voting on the Merger      
Proposal.                                                                       

Recommendation of the Houlihan's Special Committee                          

The Board of Directors of Houlihan's has, based solely on the         
recommendation of the Houlihan's Special Committee, approved the Merger         
Agreement and the Merger. The Houlihan's Special Committee unanimously          
recommends a vote FOR approval and adoption of the Merger Agreement and approval
of the Merger by the stockholders of Houlihan's. See "Approval of the Merger and
Related Transactions--Houlihan's Reasons for the Merger." See also "Risk        
Factors" for a discussion of factors that should be considered carefully by     
Houlihan's stockholders in connection with evaluating and voting on the approval
and adoption of the Merger Agreement and approval of the Merger.                

Opinion of CS First Boston                                                  

   CS First Boston Corporation ("CS First Boston"), financial adviser to the
Zapata Special Committee, has rendered its written opinion, dated June 4, 1996, 
to the Zapata Special Committee to the effect that, as of such date and based   
upon and subject to certain matters stated in such opinion, the consideration to
be paid by                                                                      

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Zapata in the Merger pursuant to the Merger Agreement (the "Merger              
Consideration") is fair, from a financial point of view, to Zapata. A copy of   
the written opinion of CS First Boston dated June 4, 1996 is attached hereto as 
Appendix B and should be read carefully in its entirety with respect to the     
assumptions made, matters considered and limitations on the review undertaken in
connection with such opinion. The opinion of CS First Boston is directed only to
the fairness of the Merger Consideration from a financial point of view to      
Zapata, does not address any other aspect of the proposed Merger or any related 
transaction and does not constitute a recommendation to any stockholder as to   
how such stockholder should vote at the Zapata Special Meeting. See "Approval of
the Merger and Related Transactions -- Opinion of CS First Boston."             

Opinion of DLJ                                                              

Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), financial
adviser to the Houlihan's Special Committee, has rendered a written opinion,    
dated June 4, 1996, to the Houlihan's Special Committee to the effect that, as  
of such date and based upon and subject to certain matters stated in such       
opinion, the Merger Consideration to be received by Houlihan's stockholders     
(other than Malcolm I. Glazer or his affiliates) in the Merger is fair to such  
stockholders from a financial point of view. See "Approval of the Merger and    
Related Transactions--Opinion of DLJ." The full text of the written opinion of  
DLJ, which sets forth certain assumptions made, matters considered and          
limitations on the review undertaken by DLJ, is attached as Appendix C hereto.  
Houlihan's stockholders are urged to read the opinion carefully in its entirety.
The opinion of DLJ is directed only to the fairness of the Merger Consideration 
from a financial point of view to Houlihan's stockholders, does not address any 
other aspect of the proposed Merger or any related transaction and does not     
constitute a recommendation to any stockholder of Houlihan's as to how such     
stockholder should vote at the Houlihan's Special Meeting. See "Approval of the 
Merger and Related Transactions -- Opinion of DLJ."                             

Sub Operations After the Merger                                             

Sub will be the surviving corporation following the Merger and will be
renamed "Houlihan's Restaurant Group, Inc." Zapata expects that, following the  
Merger, Houlihan's Restaurant Group, Inc. will be operated as a subsidiary      
managed substantially independently of Zapata's other operations. Its           
headquarters are expected to remain in Kansas City, Missouri. See "Approval of  
the Merger and Related Transactions -- Operations Following the Merger."        

    The Houlihan's officers immediately prior to the Effective Time will serve
as the officers of Sub following the Effective Time, each to hold office from   
the Effective Time until his or her successor is duly appointed and qualified.  
The directors of the Sub following the Effective Time shall be Frederick R. Hipp
and such other person or persons as shall be designated by Zapata, each to hold 
office from the Effective Time until his or her successor is duly elected or    
appointed and qualified.                                                        

Interests of Certain Persons in the Merger                                  

Malcolm I. Glazer and other members of the Glazer Group currently     
beneficially own approximately 35.2% of the outstanding shares of Zapata Common 
Stock and approximately 73.3% of the outstanding shares of Houlihan's Common    
Stock. Although the Boards of Directors of Zapata and Houlihan's have each      
formed a special committee to negotiate and otherwise act in connection with the
Merger, stockholders should be aware that, by virtue of such ownership, Malcolm 
I. Glazer and other members of the Glazer Group have interests different from   
stockholders of the respective companies generally. Because of the greater      
percentage ownership of the Glazer Group in the Houlihan's Common Stock than in 
the Zapata Common Stock, the Glazer Group would derive greater benefit from     
terms of the Merger (including the consideration to be paid in exchange for     
Houlihan's Common Stock) considered to favor Houlihan's than from such terms    
considered to favor Zapata. The Standstill Agreement provides for certain       
restrictions on the acquisition, disposition and voting of, and other matters   
relating to, Zapata Common Stock by Malcolm I. Glazer and other members of the  
Glazer Group, which restrictions are not applicable to other holders of Zapata  
Common Stock.                                                                   

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    In considering the recommendation of the Houlihan's Special Committee with
respect to the Merger Agreement and the transactions contemplated thereby,      
stockholders should also be aware that certain members of the Board of Directors
of Houlihan's (including members of the Houlihan's Special Committee) and the   
management of Houlihan's may have interests in the Merger that are in addition  
to the interests of stockholders of Houlihan's generally (including, without    
limitation, accelerated vesting of options and, in the case of certain officers,
termination benefits triggered by the Merger and, in the case of one officer, an
employment agreement to be entered into with Zapata as a condition to           
consummation of the Merger). The Houlihan's Special Committee was aware of these
interests and considered them, among other factors, in approving the Merger. See
"Approval of the Merger and Related Transactions--Interests of Certain Persons  
in the Merger."                                                                 

Regulatory Matters                                                          

     In connection with the Merger, Zapata and Malcolm I. Glazer have each filed
a pre-merger notification form with the Federal Trade Commission and the        
Antitrust Division of the Department of Justice under the HSR Act. The required 
waiting period will expire 30 days after the filing of the pre-merger           
notification forms, unless terminated at an earlier date or unless a request for
additional information is received. Except for the approvals of liquor licensing
authorities in certain jurisdictions in which Houlihan's operates, no other     
material federal or state regulatory approvals must be obtained in order to     
consummate the Merger. See "Approval of the Merger and Related                  
Transactions--Regulatory Approvals."                                            

Accounting Treatment                                                        

For accounting and financial reporting purposes, the Merger will be   
accounted for using the purchase method under generally accepted accounting     
principles.                                                                     

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ZAPATA SUMMARY CONSOLIDATED FINANCIAL INFORMATION 

The following summary financial information has been derived from the 
historical consolidated financial statements of Zapata as restated to reflect   
Zapata's natural gas compression and natural gas gathering, processing and      
marketing operations as discontinued operations. The summary unaudited financial
data for the six months ended March 31, 1996 and 1995 include all adjustments   
(consisting only of normally recurring adjustments) that Zapata considers       
necessary for a fair presentation of consolidated operating results for such    
interim periods. Results for the interim periods are not necessarily indicative 
of results for the full year. The financial information set forth below should  
be read in conjunction with Zapata's consolidated financial statements, related 
notes and other financial information incorporated by reference in this Joint   
Proxy Statement/Prospectus.                                                     

                                                        [Enlarge/Download Table]

                                                                        ZAPATA CORPORATION                                 
                                                             (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)                      
                                             SIX MONTHS                                                                    
                                          ENDED MARCH 31,                    FISCAL YEAR ENDED SEPTEMBER 30,               
                                         ------------------   -------------------------------------------------------------
                                          1996       1995       1995          1994         1993          1992        1991  
                                         -------    -------   --------      --------      -------      --------    --------
                                            (Unaudited)                                                                    
                                                                                                                           
Statement of Operations Data:                                                                                              
  Revenues.............................. $38,742    $44,594   $103,068      $109,163      $78,754      $106,413    $ 93,410
  Operating income (loss)...............   3,792        109     (9,220)(1)   (31,607)(2)    3,559        10,901       3,063
  Income (loss) from continuing                                                                                            
    operations..........................   1,212      2,989     (5,844)         (857)(3)   10,458(4)      2,431       2,087
  Per share income (loss) from                                                                                             
    continuing operations...............    0.04       0.09      (0.19)        (0.04)        0.37          0.08        0.07
  Cash dividends paid on common and                                                                                        
    preferred stock.....................      --      1,153      1,153         1,566        2,933            --          --
  Common stock, dividends declared, per                                                                                    
    share...............................      --         --         --          0.07           --            --          --
  Weighted average common and common                                                                                       
    equivalent shares...................  29,562     31,768     30,706        31,377       27,325        25,723      25,579
Other Financial Data:                                                                                                      
  Capital expenditures (excluding                                                                                          
    acquisitions)....................... $ 2,728    $ 3,715   $  7,341      $ 15,530      $ 2,812      $ 11,595    $  8,730

                                                        [Enlarge/Download Table]

                                                                                  SEPTEMBER 30,                         
                                            MARCH 31,     --------------------------------------------------------------
                                              1996          1995          1994          1993          1992        1991  
                                         ---------------  --------      --------      --------      --------    --------
                                                                                                                        
                                           (Unaudited)                                                                  
Balance Sheet Data:                                                                                                     
  Working capital.......................    $ 107,227     $113,536      $139,526      $136,493(5)   $ 30,281    $ 48,054
  Total assets..........................      229,459      239,391       254,788       322,073       304,339     318,021
  Total debt............................       34,504       53,616        53,112       135,989       139,950     150,622
  Stockholders' equity..................      155,578      145,290       154,542       146,264       124,880     122,853

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

(1) Includes a $12.3 million provision for asset impairment of Zapata's marine  
protein assets.                                                         
(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, Inc. ("Tidewater") common stock and expenses of $7.4 million 
related to the prepayment of 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.  
(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 for the acquisition of Energy    
Industries, Inc.                                                        

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HOULIHAN'S SELECTED CONSOLIDATED FINANCIAL INFORMATION

     The following selected financial information is derived from the historical
consolidated financial statements of Houlihan's. The selected unaudited         
financial data for the thirteen weeks ended March 25, 1996 and March 27, 1995   
include all adjustments (consisting only of normally recurring adjustments) that
Houlihan's considers necessary for a fair presentation of consolidated operating
results for such interim periods. Results for the interim periods are not       
necessarily indicative of results for the full year. The financial information  
set forth below should be read in conjunction with Houlihan's consolidated      
financial statements, related notes and other financial information incorporated
by reference in this Joint Proxy Statement/Prospectus.                          

                                                        [Enlarge/Download Table]

                                                                     HOULIHAN'S RESTAURANT GROUP, INC.                         
                                                            (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)                 

                                       THIRTEEN WEEKS ENDED                       FISCAL YEAR ENDED(1)(2)                      
                                      ----------------------  ---------------------------------------------------------------- 
                                       MARCH 25,   MARCH 27,   DEC. 25,    DEC. 26,   DEC. 27,     DEC. 28,        DEC. 30,    
                                         1996        1995        1995        1994       1993         1992            1991      
                                      -----------  ---------  ----------  ----------  ---------  -------------   ------------- 
                                           (Unaudited)                                           (PREDECESSOR)   (PREDECESSOR) 
                                                                                                                               
Statement of Operations Data:                                                                                                  
  Net sales..........................  $  66,974   $ 67,407   $  267,622  $  259,367  $ 257,225    $ 266,532       $ 287,060   
  Cost of sales, including operating                                                                                           
    expenses exclusive of                                                                                                      
    depreciation and amortization                                                                                              
    shown separately.................     56,708     55,585      222,375     215,562    208,532      228,926         245,580   
                                      ----------   ---------- ----------  ----------  ---------     --------        --------   
    Gross profit.....................     10,266     11,822       45,247      43,805     48,693       37,606          41,480   
  Depreciation and amortization......      3,784      3,615       14,865      16,245     19,610       18,428          19,829   
  General and administrative                                                                                                   
    expenses.........................      4,419      4,492       16,938      17,176     17,736       15,038          14,646   
  Loss on disposition of properties,                                                                                           
    net..............................        139        346          605         847        624          601             587   
  Interest expense...................      1,840      2,261        8,189       6,562      6,428       10,242(3)       24,637(3)
  Other (income), net................     (1,279)      (905 )     (3,531)     (2,883)    (2,700)      (3,606)         (3,712)  
  Reorganization items and                                                                                                     
    restructuring costs..............         --         --           --          --         --        3,612          13,913   
  Income tax provision (benefit).....        691        938        3,916       2,900      4,026       (1,173)         (6,206)  
                                      ----------   ---------- ----------  ----------  ---------     --------        --------   
      Income (loss) before                                                                                                     
        extraordinary item...........        672      1,075        4,265       2,958      2,969       (5,536)        (22,214)  
  Extraordinary gain on discharge of                                                                                           
    prepetition liabilities..........         --         --           --          --         --       31,031              --   
                                      ----------   ---------- ----------  ----------  ---------     --------        --------   
    Net income (loss)................  $     672   $  1,075   $    4,265  $    2,958  $   2,969    $  25,495       $ (22,214)  
                                      ==========   ========== ==========  ==========  =========     ========        ========   
  Earnings per common and common                                                                                               
    equivalent share(4)..............  $    0.07   $   0.11   $     0.43  $     0.30  $    0.30           --              --   
                                      ==========   ========== ==========  ==========  =========     ========        ========   
  Weighted average common and common                                                                                           
    equivalent shares(4).............  9,998,012   9,998,012  10,032,254  10,012,928  9,998,012           --              --   
                                      ==========   ========== ==========  ==========  =========     ========        ========   
Other Financial Data:                                                                                                          
  Capital expenditures...............  $   3,863   $  2,655   $   14,626  $   17,814  $  10,521    $   7,978       $   5,240   

                                                        [Enlarge/Download Table]


                                       MARCH 25,    DEC. 25,    DEC. 26,   DEC. 27,    DEC. 28,       DEC. 30,   
                                         1996         1995        1994       1993        1992           1991     
                                      -----------  ----------  ----------  --------  -------------  -------------
                                      (Unaudited)                                                   (PREDECESSOR)
                                                                                                                 
Balance Sheet Data:                                                                                              
  Working capital surplus                                                                                        
    (deficit)(5).....................  $  (9,250)  $  (15,494) $  (12,270) $ (9,220)   $  (8,947)     $   5,512  
  Total assets.......................    195,048      191,016     192,508   204,235      197,301        235,627  
  Total debt, including capitalized                                                                              
    leases...........................     88,933       83,981      89,553    99,997      103,276        202,033  
  Stockholders' equity (deficit).....     70,864       70,192      65,927    62,969       60,000        (17,951) 

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

(1) Unless otherwise indicated, references herein to years pertain to Houlihan's
  52- or 53-week fiscal years ending the last Monday in December. All fiscal
years presented were 52-week fiscal years.                              

(2) "Predecessor" refers to Houlihan's prior to December 28, 1992, when the     
    Predecessor and certain related entities emerged from bankruptcy proceedings
under Chapter 11 of the U.S. Bankruptcy Code.                           

(3) From November 1991 to December 1992, interest expense attributable to the   
 senior subordinated notes was stayed, resulting in a decrease in interest
expense of $11,767 for 1992 and $1,260 for 1991.                        

(4) Earnings per common share for fiscal years 1992 and 1991 are not meaningful 
    due to reorganization and revaluation entries and the significant changes in
 Houlihan's capital structure upon its reorganization, which was completed
December 28, 1992.                                                      

(5) Houlihan's ability to operate with working capital deficiencies is due to   
 the nature of the restaurant business, which does not require significant
investments in accounts receivable or inventories and which generally   
permits the procurement of food and supplies on trade credit.           

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ZAPATA AND HOULIHAN'S SUMMARY UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
DATA
     The following summary unaudited pro forma combined condensed financial data
present pro forma selected statement of operations data for the twelve months   
ended September 30, 1995 and six months ended March 31, 1996 and 1995, after    
giving effect to (i) the Merger and (ii) the acquisition of (a) 4,189,298 shares
of common stock of Envirodyne in August 1995 (the "Initial Envirodyne Stock     
Purchase") and (b) an aggregate of up to 1,718,006 additional shares of common  
stock of Envirodyne in June 1996 (the "Additional Envirodyne Stock Purchases"   
and, together with the Initial Envirodyne Stock Purchase, the "Envirodyne Stock 
Purchases"), as if such transactions were consummated on October 1, 1994, and   
unaudited pro forma selected balance sheet data at March 31, 1996, giving effect
to the Merger, the Additional Envirodyne Stock Purchases and the sale of        
substantially all of the assets of one of Zapata's subsidiaries, Cimarron Gas   
Holding Company ("Cimarron"), in a series of transactions completed in April and
May 1996 (the "Cimarron Sale"), as if such transactions were consummated on that
date. The Merger will be accounted for using the purchase method of accounting. 
Because the operations of Cimarron were reflected as discontinued operations in 
the historical income statements of Zapata for the periods presented, the pro   
forma selected statement of operations data do not reflect any adjustments to   
give effect to the Cimarron Sale. The summary pro forma combined condensed      
statement of operations data for the fiscal year ended September 30, 1995       
combine the results of operations for Zapata's fiscal year ended September 30,  
1995 with results of operations for Houlihan's twelve months ended September 25,
1995, after giving effect to pro forma adjustments. The summary pro forma       
combined condensed statement of operations data for the six months ended March  
31, 1996 combine the results of Zapata for the six months ended March 31, 1996  
and Houlihan's for the six months ended March 25, 1996 after giving effect to   
pro forma adjustments. The summary pro forma combined condensed statement of    
operations data for the six months ended March 31, 1995 combine the results of  
Zapata for the six months ended March 31, 1995 and Houlihan's for the six months
ended March 27, 1995 after giving effect to pro forma adjustments. The summary  
pro forma combined condensed balance sheet data as of March 31, 1996 combine the
financial position for Zapata as of March 31, 1996 with the financial position  
of Houlihan's as of March 25, 1996, after giving effect to pro forma            
adjustments.                                                                    
     The following summary unaudited pro forma combined condensed financial data
are provided for comparative purposes only and should be read in conjunction    
with the unaudited pro forma combined condensed financial statements and notes  
thereto (which are included elsewhere in this Joint Proxy Statement/Prospectus) 
and the separate audited consolidated financial statements and related notes of 
Zapata and Houlihan's (which are incorporated by reference in this Joint Proxy  
Statement/Prospectus). The following summary unaudited pro forma combined       
condensed financial data have been prepared based on assumptions deemed         
appropriate by Zapata and Houlihan's and may not be indicative of the results   
that actually would have occurred if the Merger had been consummated on the     
dates indicated or that may be obtained in the future. The per share information
has been computed on the assumption that the Market Value of the Zapata Common  
Stock is $3.625 per share (the closing sales price on the NYSE on June 18,      
1996), resulting in the issuance of 11,032,289 shares of Zapata Common Stock in 
the Merger.                                                                     

                                                        [Enlarge/Download Table]

                                                                  SIX MONTHS         SIX MONTHS       TWELVE MONTHS  
                                                                  ENDED MARCH       ENDED MARCH        ENDED SEPT.   
                                                                   31, 1996           31, 1995           30, 1995    
                                                                 -------------     --------------     -------------- 
                                                                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)       
                                                                                                                     
Pro Forma Statement of Operations Data:                                                                              
  Revenues......................................................   $ 172,589          $179,786           $371,602    
  Operating income..............................................       9,572             8,861              5,519    
  Income (loss) from continuing operations......................       2,055             6,175             (1,780)   
  Per share income (loss) from continuing operations............        0.05              0.14              (0.04)   
  Cash dividends paid on common and preferred stock.............          --             1,153              1,153    
  Common stock, dividends declared, per share...................          --                --                 --    
  Weighted average common and common equivalent shares..........      40,809            43,037             41,968    
Other Pro Forma Financial Data:                                                                                      
  EBITDA(1):                                                                                                         
    Zapata......................................................   $   5,345          $  3,427           $ (3,613)(2)
    Houlihan's..................................................      15,353            17,293             32,085    
                                                                   ---------          --------           --------    
        Total...................................................   $  20,698          $ 20,720           $ 28,472    
                                                                   =========          ========           ========    

                                                        [Enlarge/Download Table]

                                                                                MARCH 31, 1996
                                                                                --------------
                                                                                (IN THOUSANDS)
                                                                                              
Pro Forma Balance Sheet Data:                                                                 
  Working capital..............................................................    $ 47,858   
  Total assets.................................................................     385,370   
  Total debt...................................................................     117,937   
  Stockholders' equity.........................................................     195,578   

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

(1) EBITDA (earnings before interest, taxes, depreciation and amortization) is  
used by the management of both Zapata and Houlihan's as a supplemental  
  financial measurement in the evaluation of their respective businesses and
    is presented here to provide additional information about the Merger. EBITDA
   should not be considered as an alternative to net income as an indicator of
the combined operating performance of Zapata and Houlihan's or as an    
alternative to cash flows as a measure of liquidity.                    
(2) Includes a $12.3 million provision for asset impairment to reduce certain   
assets to their fair market value as a result of adopting Statement of  
Financial Accounting Standards ("SFAS") No. 121.                        

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COMPARATIVE PER SHARE DATA

  The following table presents historical and pro forma per share data for
Zapata and historical and equivalent pro forma per share information for        
Houlihan's after giving effect to the Merger using the purchase method of       
accounting, assuming the Merger had been effective during all periods presented.
The pro forma data do not purport to be indicative of future operations or the  
results that would have occurred had the Merger been consummated at the         
beginning of the periods presented. The information set forth below should be   
read in conjunction with the consolidated financial statements and notes thereto
of Zapata incorporated by reference in this Joint Proxy Statement/Prospectus,   
the consolidated financial statements and notes thereto of Houlihan's           
incorporated by reference in this Joint Proxy Statement/Prospectus, and the     
unaudited pro forma combined condensed financial statements included elsewhere  
in this Joint Proxy Statement/Prospectus. The pro forma per share information   
has been computed on the assumption that the Market Value of the Zapata Common  
Stock is $3.625 per share (the closing sales price on the NYSE on June 18,      
1996), resulting in the issuance of 11,032,289 shares of Zapata Common Stock in 
the Merger.                                                                     

ZAPATA                                                                          

                                                        [Enlarge/Download Table]

                                                                     SIX MONTHS       FISCAL YEAR  
                                                                   ENDED MARCH 31,  ENDED SEPT. 30,
                                                                        1996             1995      
                                                                   ---------------  ---------------
                                                                                                   
Income per share from continuing operations                                                        
  Historical......................................................     $  0.04          $ (0.19)   
  Pro forma combined..............................................        0.05            (0.04)   

                                                                [Download Table]

                                                                      MARCH 31,     
                                                                        1996        
                                                                   ---------------  
                                                                                    
Book value per share                                                                
  Historical......................................................     $  5.27      
  Pro forma combined..............................................        4.82(2)   

HOULIHAN'S                                                                      

                                                        [Enlarge/Download Table]

                                                                     SIX MONTHS      TWELVE MONTHS 
                                                                   ENDED MARCH 31,  ENDED SEP. 30, 
                                                                        1996             1995      
                                                                   ---------------  ---------------
                                                                                                   
Income per share from continuing operations                                                        
  Historical......................................................     $  0.21          $  0.51    
  Equivalent pro forma combined per share of Houlihan's(1):                                        
    Stock Election................................................        0.11            (0.09)   
    Cash/Stock Election...........................................        0.06            (0.04)   

                                                                [Download Table]

                                                                      MARCH 25,     
                                                                        1996        
                                                                   ---------------  
                                                                                    
Book value per share                                                                
  Historical......................................................     $  7.09      
  Equivalent pro forma combined per share of Houlihan's(1):                         
    Stock Election................................................       10.65      
    Cash/Stock Election...........................................        5.30      

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

(1) 2.21 or 1.10 shares of Zapata Common Stock is the number of shares that     
 would be received in the Merger per share of Houlihan's Common Stock by a
holder making a Stock Election or a Cash/Stock Election, respectively,  
 assuming the Market Value per share is $3.625 (the closing sales price of
 the Zapata Common Stock on the NYSE on June 18, 1996). The equivalent per
    share data for the Cash/Stock Election excludes the cash amount attributable
to such election.                                                       

(2) Pro forma book value decreases as a result of the issuance of Zapata Common 
Stock in the Merger.                                                    

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COMPARATIVE MARKET PRICE DATA AND DIVIDEND POLICY 

MARKET PRICE DATA                                                               

Zapata Common Stock is listed on the NYSE under the symbol "ZAP" and  
Houlihan's Common Stock trades on the over-the-counter market (the "OTC") under 
the symbol "HOUL." The table below sets forth, for the calendar quarters        
indicated, the high and low sales prices per share for (i) Zapata Common Stock, 
as reported in the consolidated transactions reporting system and (ii)          
Houlihan's Common Stock as reported on the OTC.                                 

                                                        [Enlarge/Download Table]

                                                                   ZAPATA        HOULIHAN'S   
                                                                COMMON STOCK    COMMON STOCK  
                                                               --------------  ---------------
                                                               HIGH      LOW    HIGH      LOW 
                                                               -----    -----  ------    -----
                                                                                              
1994:                                                                                         
  First Quarter............................................... $6.88    $5.63  $11.25    $8.25
  Second Quarter..............................................  6.25     4.00   11.00     9.75
  Third Quarter...............................................  5.50     4.00   10.00     8.00
  Fourth Quarter..............................................  4.50     3.25    9.75     6.25
1995:                                                                                         
  First Quarter............................................... $4.13    $3.25  $ 8.50    $6.50
  Second Quarter..............................................  4.38     2.50    8.88     8.50
  Third Quarter...............................................  4.63     2.88    8.88     7.13
  Fourth Quarter..............................................  4.50     3.00    7.13     4.50
1996:                                                                                         
  First Quarter............................................... $3.75    $3.00  $ 5.50    $3.88
  Second Quarter..............................................                                
  Third Quarter (through July   , 1996).......................                                

     On May 1, 1996, the last full trading day before the public announcement of
Zapata's and Houlihan's intention to effect the Merger, the closing sales price 
per share of (i) the Zapata Common Stock was $3.63 on the NYSE and (ii) the     
Houlihan's Common Stock was $5.31 on the OTC. On June 4, 1996, the last full    
trading day before the public announcement that Zapata and Houlihan's had       
entered into the Merger Agreement, the closing sales price per share of (i) the 
Zapata Common Stock was $3.63 on the NYSE and (ii) the Houlihan's Common Stock  
was $6.50 on the OTC. On July   , 1996, the latest practicable trading day      
before printing of this Joint Proxy Statement/Prospectus, the closing sales     
price per share of (i) the Zapata Common Stock was $          on the NYSE and   
(ii) the Houlihan's Common Stock was $          on the OTC.                     

   STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR ZAPATA AND
HOULIHAN'S COMMON STOCK. Following the Merger, Zapata Common Stock will continue
to trade on the NYSE under the symbol "ZAP" while Houlihan's Common Stock will  
cease to be traded and there will be no further market for such stock.          

DIVIDEND POLICY                                                                 

Neither Zapata nor Houlihan's currently pays or is obligated to pay   
dividends on its common stock. The rights of holders of Zapata Common Stock to  
receive dividends or other payments with respect thereto are subject to the     
prior and superior rights of holders of Zapata Preferred Stock and Zapata $2    
Preference Stock then outstanding. As of the date of this Joint Proxy           
Statement/Prospectus, 2,627 shares of Zapata $2 Preference Stock and no shares  
of Zapata Preferred Stock were outstanding. Zapata has not paid any dividends on
the Zapata $2 Preference Stock for any period subsequent to the fourth quarter  
of fiscal year 1994. The provisions of Zapata's Restated Certificate of         
Incorporation governing the Zapata $2 Preference Stock restrict Zapata from     
paying dividends on the Zapata Common Stock unless dividends on the Zapata $2   
Preference Stock for the then-current quarter have been paid. Zapata currently  
intends to retain its earnings for development of its businesses and not to     
distribute earnings to holders of Zapata Common Stock as dividends.             

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RISK FACTORS

     The following factors should be considered carefully by the stockholders of
Zapata and Houlihan's in connection with voting upon the Merger and the         
transactions contemplated thereby. The discussion in this Joint Proxy           
Statement/Prospectus contains forward-looking statements that involve risks and 
uncertainties. Actual results may differ significantly from the results         
discussed in the forward-looking statements. Factors that could cause or        
contribute to such differences include, but are not limited to, those discussed 
below.                                                                          

UNCERTAINTIES RELATING TO HOULIHAN'S BUSINESS                                   

Expansion Strategy                                                          

Houlihan's ability to achieve its expansion plans, as described in the
accompanying Annual Report on Form 10-K for the fiscal year ended December 25,  
1995, will depend on a variety of factors, many of which may be beyond          
Houlihan's control, including Houlihan's ability to locate suitable restaurant  
sites, negotiate suitable lease (or purchase) terms, obtain required            
governmental approvals and licenses, construct new restaurants in a timely      
manner without significant construction cost overruns, and attract, train and   
retain qualified and experienced personnel and management. The ability of       
Houlihan's to operate its existing restaurants profitably and, at the same time,
expand its concepts also will depend upon, among other things, general and local
economic conditions, competition, and the ability of Houlihan's to finance its  
expansion from cash flow from operations, or, if necessary, additional          
financing. Unexpected difficulties encountered during expansion could adversely 
affect Houlihan's business, financial condition and results of operations.      
Houlihan's plans to increase the number of its franchised restaurants, but there
can be no assurance that it will be able to attract and retain suitable         
franchisees, or that it will be successful in achieving its more general        
expansion objectives.                                                           

Franchising                                                                 

Franchising operations present numerous risks, and Houlihan's faces   
vigorous competition from other restaurant chains in attracting and retaining   
suitable franchisees. Houlihan's is subject to regulation by the Federal Trade  
Commission and must comply with certain state laws that govern the offer, sale  
and termination of franchises and the refusal to renew franchises. Houlihan's   
has limited experience in franchising restaurants. Franchisees' failure to      
maintain Houlihan's high standards could adversely affect customer attitudes    
towards Houlihan's restaurants. Granting exclusive territory agreements may also
limit future expansion opportunities for company-owned restaurants. Franchise   
developers or franchisees may leave the franchise system at the end of the term 
of their development or franchise agreements or may attempt to terminate their  
agreements before the end of their terms. While Houlihan's agreements contain   
noncompetition and confidentiality covenants, such covenants may not prevent the
loss of royalty revenues. Further, while franchising permits Houlihan's to      
increase the geographic coverage of its restaurant system without substantial   
investments of capital, it also presents certain other risks that result from   
Houlihan's not having direct operational control over franchised Houlihan's     
restaurants. See "Houlihan's Business -- Business Development" in the           
accompanying Annual Report on Form 10-K of Houlihan's for the fiscal year ended 
December 25, 1995.                                                              

Factors Affecting the Restaurant Industry                                   

   Houlihan's future performance will be subject to a number of factors that
affect the restaurant industry generally, including (i) the highly competitive  
nature of the restaurant industry, (ii) general and local economic conditions,  
(iii) changes in tastes and eating and drinking habits, including the trend of  
declining alcohol consumption, (iv) changes in tax laws that affect the         
deductibility of business-related meals, (v) changes in food costs due to       
shortages, inflation or other causes, (vi) population and traffic patterns,     
(vii) demographic trends, (viii) general employment and wage and benefit levels 
in the restaurant industry, which may be affected by changes in federal and     
local minimum wage requirements or by federally or locally mandated health      
insurance benefits, and (ix) the number of people willing to work at or near the
minimum wage.                                                                   

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  The restaurant business is highly competitive and the competition can be
expected to increase. Price, restaurant location, food quality, service and     
attractiveness of facilities are important aspects of competition and the       
competitive environment is often affected by factors beyond Houlihan's or a     
particular restaurant's control. Houlihan's restaurants compete with a wide     
variety of restaurants ranging from national and regional restaurant chains     
(some of which have substantially greater financial resources than Houlihan's)  
to locally-owned restaurants. There is also active competition for liquor       
licenses in certain markets and for advantageous commercial real estate sites   
suitable for restaurants.                                                       

Each of Houlihan's restaurants is subject to state and local laws and 
regulations governing health, sanitation and safety and the sale of alcoholic   
beverages. The selection of new restaurant sites is affected by federal, state  
and local laws and regulations regarding environmental matters, zoning and land 
use and the sale of alcoholic beverages. The failure to receive or retain, or a 
delay in obtaining, a liquor license in a particular location could adversely   
affect or cause Houlihan's to terminate its operations at that location. In the 
past, none of these laws and regulations have had a significant negative effect 
on operations, nor has Houlihan's experienced any significant difficulties in   
obtaining necessary licenses and approvals. More stringent and varied           
requirements (particularly at the local level), however, may result in increases
in the cost and time required for opening new restaurants, as well as increases 
in the cost of operating restaurants, and difficulties in obtaining necessary   
license or permits could result in delays in or cancellations of new restaurant 
openings.                                                                       

UNCERTAINTIES RELATING TO ZAPATA'S BUSINESS                                     

   Marine Protein Operations. Zapata's marine protein operations involve the
production and sale of a variety of protein and oil products from menhaden, a   
species of fish found in the Gulf of Mexico and along the Atlantic coast.       
Because the magnitude of the fish catch depends on the availability of the      
natural resource, which is affected by various factors beyond Zapata's control, 
and because the prices for its products are established by worldwide supply and 
demand relationships over which Zapata has no control, Zapata cannot predict the
profitability of this business segment in any given year.                       

   Zapata's marine protein operations are subject to significant competition
from other protein sources such as soybean meal and other vegetable or animal   
products. In addition, Zapata competes against domestic, privately owned        
menhaden fishing companies as well as international producers of fish meal and  
fish oil.                                                                       

  Zapata's marine protein operations are also subject to numerous 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.    

Bolivian Oil and Gas Operations. Zapata'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, 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 Zapata 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, Zapata's investment in 
its Bolivian oil and gas properties is that of a minority interest owner.       
Accordingly, the majority owner has the right to determine the details of any   
exploration and development drilling program.                                   

Zapata's Bolivian oil and gas operations are also subject to various  
political risks. For several decades, Bolivia experienced periods of slow or    
negative growth, high inflation, large devaluations of the Bolivian currency and
imposition of exchange controls. Limited availability of foreign exchange       
required the Bolivian government to restructure its foreign currency denominated
indebtedness. Since 1985, the Bolivian government has pursued economic          
stabilization and reform policies which have significantly reduced inflation and
budget deficits and which have eliminated exchange controls. There are currently
no restrictions on the transfer of funds out of Bolivia. Since 1986, the        
exchange rate for Bolivian currency has been relatively stable. A recurrence of 
adverse economic conditions, high levels of inflation, the imposition of        
exchange controls or restrictions on payments to non-Bolivians could adversely  
affect Zapata's Bolivian operations. Foreign operations and investments may also
be subject to laws and policies of the United States affecting foreign          

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trade, investment and taxation which could affect the conduct or the            
profitability of Zapata's Bolivian operations.                                  

    Transition to Food Services Business. As a result of Zapata's transitional
status, an investment in Zapata Common Stock is subject to uncertainties        
associated with how its business may evolve as it continues its program of      
redirecting its business.                                                       

     In accordance with its plan to redirect its business into the food services
industry, Zapata plans to make future acquisitions. Such acquisitions may       
include acquisitions of additional interests in, or a combination with,         
Specialty, a company in which members of the Glazer Group own approximately 45% 
of the outstanding common stock. Zapata may also make purchases of the common   
stock of Envirodyne in addition to its existing position or may seek to acquire 
Envirodyne in a merger or other business combination transaction. Zapata can    
provide no assurance as to whether any such future acquisitions, or acquisitions
of other companies in the food services business, can be accomplished, the      
timing or terms thereof (including the amount of cash or stock consideration    
that would be involved in any such transaction), or the degree to which other   
acquisitions in the food services industry can be successfully integrated with  
Zapata's other operations. Because Zapata has not historically had operations in
the food services business, it will, at least initially, be substantially       
reliant on management expertise of Houlihan's and other companies it may        
acquire.                                                                        

     Zapata has considered from time to time transactions that would involve its
marine protein operations, including the acquisition of related businesses that 
would be combined with the marine protein operations and the sale or spin-off to
its stockholders of these operations. R. C. Lassiter, a director of Zapata and  
Chairman of the Zapata Special Committee, is Chairman and Chief Executive       
Officer of Zapata Protein, Inc. and could leave Zapata and continue with the    
marine protein operations in case of their disposition by Zapata.               

Zapata also may consider the disposition of its Bolivian oil and gas  
operations.                                                                     

COSTS OF THE TRANSACTION                                                        

 Zapata and Houlihan's estimate that costs related to the Merger will be
approximately $3,000,000. These transaction costs principally include fees for  
financial advisers, accounting and legal services and printing and other related
costs likely to be incurred in connection with combining the operations of the  
respective companies. A significant portion of these costs will be incurred     
prior to the date of the Zapata Annual Meeting and the Houlihan's Special       
Meeting, and will therefore be incurred whether or not the Merger proposal is   
approved.                                                                       

CONTROL BY THE GLAZER GROUP FOLLOWING THE MERGER                                

Following consummation of the Merger, members of the Glazer Group will
beneficially own between 38.27% and 49.9% of the Zapata Common Stock, assuming a
Market Value of the Zapata Common Stock of $3.625 per share and depending on    
elections made by other holders of Houlihan's Common Stock. Accordingly, members
of the Glazer Group will likely continue to be in a position to exercise        
effective control of the management of Zapata and to determine the outcome of   
decisions requiring stockholder approval. In this connection, however, Zapata   
and Malcolm I. Glazer have entered into a Standstill Agreement (the "Standstill 
Agreement"), which, among other things, contains certain restrictions on        
acquisitions, sales and voting of Zapata Common Stock by members of the Glazer  
Group during the term of the Standstill Agreement.                              

    Under the Standstill Agreement, Malcolm I. Glazer has agreed, on behalf of
himself and other members of the Glazer Group, not to increase his beneficial   
ownership of voting securities of Zapata beyond 49.9% of Zapata's outstanding   
voting securities during the term of such agreement, unless, among other things,
such increases are approved by a majority of the Zapata Board (excluding members
of the Glazer family) or are made in response to a tender offer or similar      
proposal by others to acquire more than 20% of Zapata's outstanding voting      
securities. Malcolm I. Glazer may also exceed the 49.9% limitation if a holder  
of greater than 5% of Zapata's outstanding voting securities discloses an intent
to acquire control of Zapata.                                                   

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  So long as the Standstill Agreement remains in effect, Malcolm I. Glazer
will have right of first purchase to maintain his proportionate ownership       
position in Zapata. Conversely, the Standstill Agreement provides that Zapata   
has a right to acquire any voting securities sought to be transferred by the    
Glazer Group. Malcolm I. Glazer is permitted under the Standstill Agreement to  
sell his voting securities free of Zapata's right of first refusal in a number  
of circumstances, including sales or transfers to purchasers that agree to be   
bound by the terms of the Standstill Agreement, pursuant to a public            
distribution, in response to a tender offer by an unaffiliated third party for  
at least 14.9% of Zapata's outstanding voting securities, in connection with    
certain corporate reorganizations or upon conversion, exchange or exercise of   
outstanding securities. The Standstill Agreement prohibits Zapata from          
soliciting proposals for the acquisition of Zapata so long as the Glazer Group  
holds more than 9.9% of Zapata's outstanding voting securities; however, Zapata 
has reserved the right to respond to unsolicited proposals from other parties.  

  If the Zapata Board of Directors decides to pursue a combination between
Zapata and any entity in which the Glazer Group owns 15% or more of the voting  
equity (such as Houlihan's), the Zapata Board of Directors is required under the
Standstill Agreement to appoint a special committee to negotiate and act in     
connection with any such transaction. In the event of a proposed acquisition of 
any such Glazer controlled entity, Malcolm I. Glazer has agreed to grant the    
special committee an irrevocable proxy to vote all of the Zapata shares owned by
the Glazer Group in such manner as a majority of the committee members may      
determine.                                                                      

    The Standstill Agreement terminates upon, among other events, the first to
occur of 18 months after Zapata's acquisition of Houlihan's, Zapata's           
announcement that it does not intend to acquire Houlihan's, the acquisition by  
another party of securities representing 20% or more of the voting power        
attributable to Zapata's outstanding capital stock, a breach of the Standstill  
Agreement by Zapata, or Malcolm I. Glazer's acquisition of more than 50% of     
Zapata's outstanding voting securities in accordance with the terms of the      
Standstill Agreement. In the event that Zapata announces its intention to       
acquire another entity controlled by Glazer prior to the expiration of the      
Standstill Agreement, the term of the Standstill Agreement will be automatically
extended until the first to occur of 18 months after the acquisition of such    
entity or Zapata's announcement that it does not intend to acquire such entity. 

LITIGATION                                                                      

  On August 11, 1995, a purported derivative and class action (the "Harwin
Case") was filed by Elly Harwin against Zapata and its then directors in the    
Court of Chancery of the State of Delaware, New Castle County. On January 18,   
1996, a second purported derivative action (the "Crandon Case") was filed by    
Crandon Capital Partners against Zapata and its directors in the same court. The
complaint filed in the Harwin Case alleges that Zapata's directors engaged in   
conduct constituting breach of fiduciary duty and waste of Zapata's assets in   
connection with Zapata's investment in Envirodyne. The complaint filed in the   
Crandon Case makes similar allegations concerning Zapata's investment in        
Envirodyne and makes more general allegations of breach of fiduciary duty and   
waste in connection with the decision to shift Zapata's business focus from     
energy to food services. Both complaints allege, among other things, that the   
purchase of the Envirodyne common stock from Malcolm I. Glazer's affiliate was a
wrongful expenditure of Zapata's funds and was designed to permit Malcolm I.    
Glazer to obtain personal financial advantage to the detriment of Zapata. The   
complaints also allege that Zapata's Board of Directors is controlled by Malcolm
I. Glazer, and in that connection, one or both complaints variously allege that 
Mr. Loar lacks independence from Malcolm I. Glazer because he was employed until
his retirement (which occurred more than five years ago) by a corporation       
indirectly controlled by Malcolm I. Glazer, that Mr. Leffler lacks such         
independence because he has served as a paid consultant to Malcolm I. Glazer,   
that Avram A. Glazer lacks such independence because of familial relationship   
and that Mr. Lassiter and Peter M. Holt lack such independence by reason of     
employment or consulting relationships with Zapata. The complaint filed in the  
Harwin Case seeks relief including, among other things, rescission of Zapata's  
purchase of the shares of Envirodyne common stock from the trust controlled by  
Malcolm I. Glazer, voiding of the election of Messrs. Leffler and Loar as       
directors at Zapata's Annual Meeting of Stockholders held on July 27, 1995 and  
an award of unspecified compensatory damages and expenses, including attorneys' 
fees. The complaint filed in the Crandon Case seeks relief                      

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including, among other things, an accounting from the individual defendants for 
unspecified damages and profits and an award of costs and disbursements,        
including attorneys' fees. Zapata believes that these complaints and the        
allegations contained therein are without merit and intends to defend the cases 
vigorously. Zapata and the directors have filed motions to dismiss the          
complaints in the Harwin Case and the Crandon Case on the basis that the        
plaintiffs failed to make the requisite demand on the Board of Directors prior  
to filing the lawsuits, that the plaintiffs also failed to allege sufficient    
grounds for failure to make a demand, and that the complaints fail to state     
proper claims for relief.                                                       

  On May 7, 1996, a third purported derivative action (the "Harwin/Crandon
Case") was filed by Elly Harwin and Crandon Capital Partners against Zapata and 
its directors in the Court of Chancery of the State of Delaware, New Castle     
County. The complaint alleges that Zapata's directors engaged in conduct        
constituting breach of fiduciary duty and waste of Zapata's assets in connection
with Zapata's investments in food and food related businesses and that Zapata's 
directors engaged in conduct constituting a breach of fiduciary duty in         
connection with the proxy statement for Zapata's Annual Meeting held on July 27,
1995 that nominated Messrs. Leffler and Loar for election as directors of       
Zapata. As with the Harwin Case and the Crandon Case, the Harwin/Crandon Case   
complaint also alleges that Zapata's Board of Directors is controlled by Malcolm
I. Glazer and seeks injunctive relief to enjoin the consummation of the         
transaction with Houlihan's and further consideration of transactions with food 
businesses owned by Malcolm I. Glazer, to void the election of Messrs. Leffler  
and Loar as directors at Zapata's Annual Meeting of Stockholders held on July   
27, 1995 and to enjoin the submission of the Houlihan's transaction to the Board
of Directors of Zapata until a Zapata Board of Directors is elected on the basis
of a new proxy statement. The complaint also seeks unspecified damages and an   
award of costs and expenses, including attorneys' fees. On June 4, 1996, a      
fourth purported derivative and class action (the "Pasternak Case") was filed by
Arnold Pasternak against Zapata and its current directors in the same court. The
complaint alleges that Zapata's directors engaged in conduct constituting breach
of fiduciary duty and waste of Zapata's assets in connection with Zapata's      
proposed Merger. The complaint further alleges that the Merger consideration is 
unfair and that the proposed Merger will result in excessive cash value and     
voting power dilution, unfairly benefitting Malcolm I. Glazer. The complaint in 
the Pasternak Case seeks relief including, among other things, an injunction to 
prevent the merger with Houlihan's, unspecified compensatory damages, and costs 
and expenses, including attorneys' fees. Zapata believes that these complaints  
and the allegations contained therein are without merit and intends to defend   
the cases vigorously.                                                           

   On November 16, 1995, a petition was filed in the 148th Judicial District
Court of Nueces County, Texas by Peter M. Holt, a former director of Zapata, and
certain of his affiliates who sold their interests in Energy Industries to      
Zapata in November 1993 (collectively, with Mr. Holt, the "Holt Affiliates").   
The petition lists Zapata, Malcolm I. Glazer and Avram A. Glazer as defendants  
and alleges several causes of action based on alleged misrepresentations on the 
part of the defendants concerning Zapata's intent to follow a long-term         
development strategy focusing its efforts on the natural gas services business. 
The petition does not allege a breach of any provision of the purchase agreement
pursuant to which Zapata acquired Energy Industries from the Holt Affiliates,   
but alleges that various representatives of Zapata and Malcolm I. Glazer made   
representations to Mr. Holt regarding Zapata's intention to continue in the     
natural gas services industry. Among the remedies sought by the petition are the
following requests: (i) Zapata's repurchase of the approximately 2.8 million    
shares of Zapata Common Stock owned by the Holt Affiliates for $15.6 million    
(which relief is no longer possible because the Holt Affiliates sold most of    
their Zapata Common Stock in March and April 1996); (ii) the disgorgement to the
Holt Affiliates of Zapata's profit made on the sale of Energy Industries; or    
(iii) the money damages based on the alleged lower value of the Zapata Common   
Stock had the alleged misrepresentations not been made. Zapata believes that the
petition and the allegations therein are without merit and intends to defend the
case vigorously.                                                                

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THE ZAPATA ANNUAL MEETING 

GENERAL                                                                         

This Joint Proxy Statement/Prospectus is being furnished to the       
stockholders of Zapata in connection with the solicitation of proxies by the    
Zapata Board of Directors for use at the Zapata Annual Meeting to be held on    
Thursday, August 22, 1996, at 10:00 a.m., New York time, at the offices of      
Bloomberg Financial Markets Commodity News, 499 Park Avenue, New York, New York,
and at any adjournment or postponement thereof.                                 

   This Joint Proxy Statement/Prospectus, the attached Notice of Meeting and
the accompanying form of proxy are first being mailed to stockholders of Zapata 
on or about July   , 1996.                                                      

MATTERS TO BE CONSIDERED AT THE ZAPATA ANNUAL MEETING                           

 At the Zapata Annual Meeting, including any adjournment or postponement
thereof, the stockholders of Zapata will be asked to consider and vote upon the 
Merger Proposal. In addition, at the Zapata Annual Meeting, the stockholders of 
Zapata will consider and vote upon the three Additional Proposals. The approval 
of any of the Additional Proposals is not conditioned upon the approval of any  
other Additional Proposal or the Merger Proposal.                               

RECORD DATE; OUTSTANDING SHARES; QUORUM                                         

   Stockholders of record at the close of business on the Zapata Record Date
are entitled to vote at the meeting and at any adjournment or postponement      
thereof. On that date, the issued and outstanding capital stock of Zapata       
consisted of 29,548,707 shares of Zapata Common Stock and 2,627 shares of Zapata
$2 Preference Stock, each of which 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 Zapata is necessary to constitute a quorum for the    
transaction of business at the Zapata Annual Meeting. If there are not          
sufficient shares represented in person or by proxy at the meeting to constitute
a quorum, the meeting may be adjourned or postponed in order to permit further  
solicitations of proxies by Zapata. Proxies given pursuant to this solicitation 
and not revoked will be voted at any adjournment or postponement of the Zapata  
Annual Meeting in the manner set forth below.                                   

VOTE REQUIRED; ABSTENTIONS AND NON-VOTES                                        

    Two directors to serve in Class I of the Zapata Board of Directors will be
elected by a plurality of the votes cast by the holders of Zapata Common Stock  
and Zapata $2 Preference Stock. There will be no cumulative voting in the       
election of directors. The Merger Proposal requires the affirmative vote of a   
majority of the votes cast on the matter by holders of shares of Zapata Common  
Stock and Zapata $2 Preference Stock. The proposal to approve the 1996 Long-Term
Incentive Plan of Zapata and the Stockholder Proposal require the affirmative   
vote of holders of a majority of the shares of Zapata Common Stock and Zapata $2
Preference Stock present in person or represented by duly executed proxies at   
the Zapata Annual Meeting and entitled to vote on the subject matter.           

Under Delaware law and Zapata's Restated Certificate of Incorporation,
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 and   
the vote on the Merger Proposal, 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 and    
will have no effect on the outcome of the vote on the Merger Proposal or any of 
the Additional Proposals.                                                       

    Article Seventh of Zapata's Restated Certificate of Incorporation contains
a requirement that certain transactions involving Zapata and a beneficial owner 
of 5% or more of the outstanding shares of Zapata's voting stock are subject to 
the approval of the holders of 80% of the outstanding shares of Zapata's voting 

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stock. Among the transactions subject to this supermajority voting requirement  
are (i) a merger or consolidation with or into any other corporation and (ii)   
any sale or lease to Zapata or any subsidiary thereof of any assets (with       
certain exceptions) in exchange for voting securities of Zapata by any other    
corporation, person or entity, in either case if the other corporation, person  
or entity that is party to such transaction is the beneficial owner, directly or
indirectly, of 5% or more of the outstanding shares of Zapata's voting stock.   
Malcolm I. Glazer and Houlihan's (because of its affiliation with Malcolm I.    
Glazer) may be deemed to be beneficial owners of more than 5% of the outstanding
shares of Zapata's voting stock under this provision. Zapata believes that the  
supermajority provision does not apply to the Merger, for the reasons, among    
others, that insofar as the provision is applicable to mergers, its express     
language does not state that it is applicable to mergers of subsidiaries, and   
insofar as the provision applies to sales of assets, statutory mergers do not   
constitute sales of assets under recognized principles of Delaware law. Zapata  
expects to receive an opinion of Richards, Layton & Finger, special Delaware    
counsel to Zapata, to the effect that although such counsel are aware of no     
decision of a Delaware court that directly addresses the question and           
consequently the matter is not completely free from doubt, subject to the       
qualifications and assumptions set forth in such opinion, the Merger is not     
subject to the supermajority vote requirement of Article Seventh. If, contrary  
to Zapata's position, the supermajority requirement of Article Seventh of       
Zapata's Restated Certificate of Incorporation were held to apply to the Merger,
and if the Merger were consummated without the 80% vote specified by the        
supermajority provision having been obtained, there would be a risk that the    
Merger would be held to be void. If, however, the Merger is consummated, Zapata 
does not believe that it would be likely, even assuming the supermajority       
provision were held to apply (which Zapata does not believe would be the case), 
that any relief granted would include invalidation of the Merger.               

VOTING OF PROXIES                                                               

     Shares represented by properly executed proxies will be voted as specified.
If no specifications have been given in a proxy and authority to vote has not   
been withheld, the shares represented thereby will be voted: FOR the Merger     
Proposal (Proposal 1) (see "Approval of the Merger and Related                  
Transactions--Zapata's Reasons for the Merger; Recommendation"); FOR the        
election of nominees listed herein as directors (Proposal 2); FOR the approval  
of the 1996 Long-Term Incentive Plan (Proposal 3); AGAINST the stockholder      
proposal to request the Board of Directors to take the steps necessary to       
provide for cumulative voting of Zapata Common Stock (Proposal 4); 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 Zapata's Corporate Secretary, at Zapata'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 Zapata  
are located at 1717 St James Place, Suite 550, Houston, Texas 77056. The mailing
address of Zapata is P.O. Box 4240, Houston, Texas 77210-4240. For a period of  
at least ten days prior to the Zapata Annual Meeting, 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    
Zapata's principal executive offices.                                           

SOLICITATION OF PROXIES; EXPENSES                                               

  Solicitation of proxies by mail is expected to commence on or about July
22, 1996, and the cost thereof will be borne by Zapata. In addition to such     
solicitation by mail, certain of the directors, officers and regular employees  
of Zapata may, without extra compensation, solicit proxies by telephone,        
telecopy or personal interview. Arrangements also will be made with certain     
brokerage houses, custodians, nominees and other fiduciaries for the forwarding 
of solicitation materials to the beneficial owners of Zapata Common Stock and   
Zapata $2 Preference Stock held of record by such persons, and such brokers,    
custodians, nominees and fiduciaries will be reimbursed by Zapata for reasonable
out-of-pocket expenses incurred by them in connection therewith. Zapata also has
engaged Georgeson & Company, Inc. ("Georgeson") to assist in the solicitation of
proxies and will pay Georgeson a fee estimated at $7,500 for such services.     
Zapata also will reimburse Georgeson for out-of-pocket costs and expenses       
incurred in connection with its services.                                       

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THE HOULIHAN'S SPECIAL MEETING

GENERAL                                                                         

This Joint Proxy Statement/Prospectus is being furnished to the       
stockholders of Houlihan's in connection with the solicitation of proxies by the
Houlihan's Board of Directors for use at the Houlihan's Special Meeting to be   
held on Wednesday, August 21, 1996, at 10:00 a.m., local time, at Houlihan's    
offices located at Two Brush Creek Boulevard, Kansas City, Missouri, and at any 
adjournment or postponement thereof.                                            

   This Joint Proxy Statement/Prospectus, the attached Notice of Meeting and
the accompanying form of proxy are first being mailed to stockholders of        
Houlihan's on or about July   , 1996.                                           

MATTERS TO BE CONSIDERED AT THE HOULIHAN'S SPECIAL MEETING                      

At the Houlihan's Special Meeting, including any adjournment or       
postponement thereof, the stockholders of Houlihan's will be asked to consider  
and vote upon a proposal to approve and adopt the Merger Agreement, a proposal  
to approve the Merger and such other matters as may properly be brought before  
such meeting.                                                                   

RECORD DATE; OUTSTANDING SHARES; QUORUM                                         

  Stockholders of record at the close of business on the Houlihan's Record
Date are entitled to vote at the Houlihan's Special Meeting and at any          
adjournment or postponement thereof. On that date the issued and outstanding    
capital stock of Houlihan's consisted of 9,998,012 shares of Houlihan's Common  
Stock, each of which 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   
the Houlihan's Common Stock is necessary to constitute a quorum for the         
transaction of business at the Houlihan's Special Meeting. If there are not     
sufficient shares represented in person or by proxy at the meeting to constitute
a quorum, the meeting may be adjourned or postponed in order to permit further  
solicitations of proxies by Houlihan's. Proxies given pursuant to this          
solicitation and not revoked will be voted at any adjournment or postponement of
the Houlihan's Special Meeting in the manner set forth below.                   

VOTE REQUIRED; ABSTENTIONS AND NON-VOTES                                        

   The approval and adoption of the Merger Agreement and the approval of the
Merger require the affirmative vote of holders of a majority of the outstanding 
shares of Houlihan's Common Stock. THE MALCOLM GLAZER TRUST HOLDS SUFFICIENT    
SHARES OF HOULIHAN'S COMMON STOCK TO SATISFY THIS REQUIREMENT. MALCOLM I. GLAZER
HAS INDICATED THAT, SUBJECT TO OBTAINING APPROPRIATE CONSENTS FROM BANKS TO     
WHICH CERTAIN OF THOSE SHARES ARE PLEDGED, THE MALCOLM GLAZER TRUST WILL VOTE   
ITS SHARES IN FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
APPROVAL OF THE MERGER.                                                         

     Under Delaware law, abstentions and broker non-votes are treated as present
and entitled to vote and thus will be counted in determining whether a quorum is
present. Abstentions and broker non-votes will have the same effect as a vote   
against approval and adoption of the Merger Agreement and the approval of the   
Merger.                                                                         

VOTING OF PROXIES                                                               

     Shares represented by properly executed proxies will be voted as specified.
If no specifications have been given in a proxy and authority to vote has not   
been withheld, the shares represented thereby will be voted in favor of the     
approval and adoption of the approval of the Merger Agreement and the Merger,   
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 Houlihan's Corporate Secretary, at Houlihan'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  
and mailing address of Houlihan's is Two Brush Creek Boulevard, Kansas City,    
Missouri 64112. For a period of at least ten                                    

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days prior to the Houlihan's Special Meeting, 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 Houlihan's      
principal executive offices.                                                    

SOLICITATION OF PROXIES; EXPENSES                                               

  Solicitation of proxies by mail is expected to commence on or about July
22, 1996, and the cost thereof will be borne by Houlihan's. In addition to such 
solicitation by mail, certain of the directors, officers and regular employees  
of Houlihan's may, without extra compensation, solicit proxies by telephone,    
telecopy or personal interview. Arrangements also will be made with certain     
brokerage houses, custodians, nominees and other fiduciaries for the forwarding 
of solicitation materials to the beneficial owners of Houlihan's Common Stock   
held of record by such persons, and such brokers, custodians, nominees and      
fiduciaries will be reimbursed by Houlihan's for reasonable out-of-pocket       
expenses incurred by them in connection therewith.                              

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APPROVAL OF THE MERGER AND RELATED TRANSACTIONS 

(Note: This is PROPOSAL NO. 1 to be considered and voted on by Zapata 
stockholders and it is the only proposal to be considered and voted on by       
Houlihan's stockholders.)                                                       

BACKGROUND OF THE MERGER                                                        

Background of Zapata's Entry into the Merger Agreement                      

   In late 1994 and early 1995, members of senior management of Zapata began
to develop a strategic plan for Zapata that involved repositioning Zapata in the
food packaging, food and food service equipment and supply (collectively, "food 
services") businesses and exiting the energy business in which Zapata had       
historically operated. Zapata publicly announced its decision to exit the energy
business in April 1995. At a meeting held in May 1995, there emerged a consensus
among the members of the Zapata Board of Directors to pursue the redirection of 
Zapata into the food services industry. Zapata's plan to pursue entry into the  
food services business did not result from a comprehensive assessment of all    
possible business opportunities, but was developed in the context of Malcolm I. 
Glazer's interests in Houlihan's and other businesses in the food services      
industry and with the recognition that companies in which Malcolm I. Glazer had 
interests would be considered for acquisition in connection with the redirection
of Zapata's business.                                                           

 At the May 30, 1995 meeting of the Zapata Board, Avram A. Glazer made a
presentation of a plan to reposition Zapata into the food services industry. As 
part of that presentation, Avram A. Glazer referred to potential acquisition    
candidates, including Houlihan's. At that meeting, there emerged a consensus    
among the members of the Zapata Board to pursue the redirection of Zapata's     
business into the food services industry. The proposed new direction for Zapata 
was also discussed at Zapata's annual meeting of stockholders held on July 27,  
1995.                                                                           

     Avram A. Glazer requested that the agenda for a meeting of the Zapata Board
to be held on September 20, 1995 include consideration of the formation of a    
special committee to consider the legal and financial considerations applicable 
to one or more merger or acquisition transactions involving Houlihan's and      
Specialty. At the September 20, 1995 meeting, the Zapata Board created the      
Zapata Special Committee and charged it with determining what further steps, if 
any, should be taken by Zapata to pursue any such transactions. On the same     
date, the Zapata Special Committee engaged CS First Boston as its financial     
adviser with respect to the evaluation of one or more potential merger and      
acquisition transactions involving Zapata, including transactions involving     
Houlihan's, Specialty and/or Envirodyne, and also engaged independent legal     
counsel and special Delaware counsel. Legal counsel for the Zapata Special      
Committee and representatives of CS First Boston were present for substantially 
all the deliberations of the Zapata Special Committee with respect to the       
Merger. On October 5, 1995, the Zapata Special Committee met with               
representatives of CS First Boston to discuss the engagement and to review      
potential acquisition candidates on a preliminary basis. Thereafter, the Zapata 
Special Committee asked CS First Boston to proceed with a more detailed         
financial analysis of Houlihan's.                                               

    The members of the Zapata Special Committee, Messrs. Lassiter, Leffler and
Loar, previously served as members of a special committee of the Zapata Board of
Directors formed to evaluate and act in connection with Zapata's acquisition    
from the Malcolm Glazer Trust of stock of Envirodyne.                           

The compensation paid by Zapata to the members of the Zapata Special  
Committee for their service on that committee in connection with the transaction
with Houlihan's was $20,000 in the case of Mr. Lassiter, the chairman of the    
committee, and $15,000 in the case of each of Messrs. Leffler and Loar. Zapata  
has also entered into indemnification agreements with the members of the Zapata 
Special Committee containing provisions for comprehensive indemnification and   
advancement of expenses to the fullest extent permitted by applicable law.      

Messrs. Lassiter, Leffler and Loar have been named as defendants in   
purported derivative actions alleging breaches of fiduciary duty by them and    
other directors of Zapata in connection with Zapata's investment in Envirodyne  
and in Houlihan's in connection with the Merger. Among other things, the        
complaints in these                                                             

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actions allege that the members of the Zapata Special Committee lack            
independence from Malcolm I. Glazer. Zapata denies the substantive allegations  
of these complaints. See "Risk Factors--Litigation."                            

Background of Houlihan's Entry into the Merger Agreement                    

    Houlihan's emerged from proceedings for voluntary reorganization under the
U.S. Bankruptcy Code in December 1992. These proceedings, which were filed by a 
predecessor of Houlihan's, resulted primarily from substantial indebtedness     
incurred by the predecessor in a leveraged buyout transaction in 1989. Since    
1992, the Houlihan's Board has considered and pursued a number of transactions  
intended to increase Houlihan's financial and operational flexibility, which    
have been constrained by Houlihan's substantial indebtedness and the restrictive
covenants governing such indebtedness. Houlihan's has been especially limited in
its ability to pursue the expansion of existing and newly developed restaurant  
concepts. The transactions pursued have included a proposed public offering of  
common stock in early 1994, a proposed public offering of $125 million senior   
notes in late 1994 and a proposed public offering of $120 million senior notes  
and warrants to purchase common stock in the summer of 1995. In addition, the   
Houlihan's Board has pursued several significant acquisitions intended to       
substantially increase Houlihan's size. Due to market conditions and other      
factors, Houlihan's was unable to consummate any of the proposed transactions.  

Malcolm I. Glazer and other members of his family serve on both the   
Houlihan's Board and the Zapata Board. Accordingly, the Glazer members of the   
Houlihan's Board have had knowledge of the strategic plans of Zapata regarding  
its entry into the food service business and consideration of an acquisition of 
Houlihan's from their inception. The non-Glazer members of the Houlihan's Board 
and senior management of Houlihan's became aware of such plans in the fall of   
1995. Frederick R. Hipp, Houlihan's President and Chief Executive Officer, and  
William W. Moreton, Houlihan's Executive Vice President and Chief Financial     
Officer, were approached by Ronald C. Lassiter, Chairman of the Zapata Special  
Committee, in November 1995, about developing a proposal for such a merger or   
acquisition. Following this contact, on December 12, 1995 the Houlihan's Board  
appointed the Houlihan's Special Committee consisting of Mr. Hipp and Warren H. 
Gfeller, who are the only members of the Houlihan's Board not affiliated with   
Mr. Glazer, and granted it authority to investigate, consider and negotiate     
definitive agreements relating to any proposals made by the Zapata Special      
Committee and to retain independent financial advisers and legal counsel. The   
Houlihan's Special Committee thereafter engaged independent legal counsel,      
special Delaware counsel and DLJ. Legal counsel and representatives of DLJ were 
present for substantially all the deliberations of the Houlihan's Special       
Committee.                                                                      

The Merger Negotiations                                                     

On December 1, a confidentiality agreement relating to the exchange of
information was entered into between Zapata and Houlihan's and, during December 
1995 and the spring of 1996, representatives of CS First Boston reviewed        
information made available by Houlihan's and visited Houlihan's facilities.     
During the same period, representatives of DLJ reviewed information made        
available by Zapata and visited Zapata's executive offices in Houston. The      
Zapata Special Committee met in person or by telephone four times in January and
February 1996 to consider the business rationale for a transaction with         
Houlihan's, valuation issues, the appropriate mix of stock and cash to be used  
as merger consideration and issues related to ownership by Malcolm I. Glazer of 
stock of both Zapata and Houlihan's. At its telephonic meeting held on February 
22, 1996, the Zapata Special Committee authorized the submission of an informal 
proposal to Houlihan's relating to a merger in which holders of Houlihan's      
Common Stock would receive a combination of cash and Zapata Common Stock having 
a value of $5.75 per share of Houlihan's Common Stock. Following a meeting of   
the Houlihan's Special Committee on March 14, 1996, Houlihan's responded to     
Zapata's proposal with a counter-proposal for all cash consideration            
approximately 90% in excess of the value of Zapata's original proposal. During  
the next few weeks representatives of the respective financial advisers         
exchanged information. On April 9, 1996, the Zapata Special Committee authorized
its Chairman to explore with Houlihan's whether a proposal for a 50% cash/50%   
stock transaction valued at $8 per share would be acceptable to Houlihan's, but 
noted that any final transaction would be subject to receipt from CS First      
Boston of a fairness opinion for such a transaction. Between its initial meeting
on December 12, 1995 and continuing                                             

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through April 12, 1996, the Houlihan's Special Committee held a total of six    
meetings and telephone conferences in which it analyzed various aspects of a    
possible combination of Zapata and Houlihan's, evaluated several proposals made 
by and on behalf of the Zapata Special Committee and formulated its own         
counter-proposals.                                                              

    The Zapata Special Committee held further telephonic meetings on April 16,
1996 and April 30, 1996. At the April 30, 1996 meeting, the Zapata Special      
Committee authorized the execution of a letter of intent relating to a merger   
transaction with Houlihan's in which the aggregate merger consideration would   
consist of $4 in cash and $4 in Zapata Common Stock per share of Houlihan's     
Common Stock. On that date, Zapata and Malcolm I. Glazer entered into the       
Standstill Agreement which provides, among other things, that the Glazer Group  
may not increase its beneficial ownership of voting securities of Zapata beyond 
49.9% of Zapata's outstanding voting securities during the term of the          
Standstill Agreement. The foregoing proposal from the Zapata Special Committee  
was discussed by the Houlihan's Special Committee at meetings on April 18, 1996 
and April 26, 1996 and approved by the Houlihan's Special Committee during a    
telephone conference held on May 1, 1996. A letter of intent was signed by both 
Zapata and Houlihan's and publicly announced on May 1, 1996.                    

     Following the execution of the letter of intent and the announcement of the
transaction, the definitive Merger Agreement was negotiated. The Houlihan's     
Special Committee met via telephone on May 31, 1996 to review the state of the  
transaction and the most recent available draft of the Merger Agreement and to  
receive confirmation from DLJ that it was prepared to issue its formal opinion  
subject only to a review of an executed copy of the Merger Agreement. The       
Houlihan's Board of Directors also met on May 31, 1996 and, based solely on the 
recommendation of the Houlihan's Special Committee, approved the Merger         
Agreement subject to certain final changes. The Zapata Special Committee met by 
telephone on June 3, 1996 to review a near-final draft of the Merger Agreement  
and to review a presentation by CS First Boston relating to the Merger. On June 
3, 1996, the Zapata Board of Directors met by telephone to confirm the authority
of the Zapata Special Committee relating to the Merger and to specifically      
authorize the Zapata Special Committee to authorize the issuance of Zapata      
Common Stock in the Merger. During a telephonic conference on June 4, 1996, the 
Zapata Special Committee again reviewed the status of the transaction, received 
the oral fairness opinion of CS First Boston (subsequently confirmed in writing 
as of such date) and approved the Merger Agreement and related matters. The     
Merger Agreement was signed, and the execution of the Merger Agreement was      
announced, on June 5, 1996.                                                     

ZAPATA'S REASONS FOR THE MERGER; RECOMMENDATION                                 

The Zapata Special Committee has approved the Merger Agreement and the
Merger Proposal as being in the best interests of Zapata and its stockholders   
(other than the Malcolm Glazer Trust, as to which it expressed no judgment). In 
reaching this determination, the Zapata Special Committee consulted with its    
financial adviser and legal counsel and considered, among other factors, the    
matters discussed below.                                                        

     Prior to formation of the Zapata Special Committee, Zapata's management and
board of directors developed a consensus to pursue the redirection of Zapata's  
business into the food services industry. Zapata's plan to pursue entry into the
food services business did not result from a comprehensive assessment of all    
possible business opportunities, but was developed in the context of Malcolm I. 
Glazer's interests in Houlihan's and other businesses in the food services      
industry and with the recognition that companies in which Malcolm I. Glazer had 
interests would be considered for acquisition in connection with the redirection
of Zapata's business.                                                           

Houlihan's was considered by the Zapata Special Committee to have the 
advantages of a strong franchise successfully refined to focus, in the case of  
Houlihan's restaurants, on a strong appeal to adult casual dining guests,       
favorable locations in densely populated and upscale markets and well-developed 
expansion plans. The Darryl's, Seafood Grills and specialty restaurants were    
considered to add benefits of diversification and strength in different markets.
The Zapata Special Committee also considered the need for Zapata to redeploy the
proceeds from the transactions by which it had effected its departure from the  
energy business into operating assets. In this connection, the Zapata Special   
Committee believed that the Zapata Common Stock                                 

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was trading near the company's liquidation value in light of the percentage of  
cash assets and lack of a sufficiently clear corporate focus. The Zapata Special
Committee believed that a combination with Houlihan's would be a good use of a  
portion of Zapata's cash assets and, conversely, would provide Houlihan's with  
greater financial strength and means for financing future growth. The Zapata    
Special Committee also took into account the expectation that the combination   
would be accretive to Zapata's estimated earnings per share for the 1996 and    
1997 fiscal years.                                                              

In reaching its determination, the Zapata Special Committee also      
considered, among other things, (i) information concerning the results of       
operations, performance, financial condition, markets and prospects of Zapata   
and Houlihan's on a company-by-company basis and on a combined basis, (ii)      
information with respect to recent and historical trading prices and trading    
multiples of Zapata Common Stock and Houlihan's Common Stock and (iii) current  
economic, industry and market conditions affecting Zapata and Houlihan's.       

  The Zapata Special Committee also considered (i) the terms of the Merger
Agreement, the Standstill Agreement and the other agreements contemplated       
thereby, including the irrevocable proxy to be granted by Malcolm I. Glazer to  
the members of the Zapata Special Committee, (ii) the structure of the Merger,  
(iii) the tax consequences of the Merger, and (iv) the presentation by, and the 
opinion of, CS First Boston as described below.                                 

The foregoing discussion of the information and factors considered and
given weight by the Zapata Special Committee is not intended to be exhaustive   
but is believed to include all material factors. In reaching its determination  
to approve and recommend the Merger, the Zapata Special Committee did not assign
any relative or specific weights to the foregoing factors that were considered, 
and individual directors may have given differing weights to different factors. 
The Zapata Special Committee is, however, unanimous in its recommendation to the
holders of Zapata Common Stock that the Merger Agreement and the transactions   
contemplated thereby be approved.                                               

THE ZAPATA SPECIAL COMMITTEE UNANIMOUSLY RECOMMENDS THAT ZAPATA       
STOCKHOLDERS VOTE TO APPROVE THE MERGER PROPOSAL. ZAPATA'S STOCKHOLDERS ARE     
URGED TO CAREFULLY REVIEW THE FACTORS DISCUSSED IN "RISK FACTORS--UNCERTAINTIES 
RELATING TO HOULIHAN'S BUSINESS" AND "--CONTROL BY THE GLAZER GROUP FOLLOWING   
THE MERGER" IN CONNECTION WITH EVALUATING AND VOTING ON THE MERGER PROPOSAL.    

HOULIHAN'S REASONS FOR THE MERGER; RECOMMENDATION                               

In reaching its determination to approve the Merger Agreement and the 
Merger, the Houlihan's Special Committee consulted with Houlihan's management,  
as well as its legal counsel and financial advisers, and considered many        
factors, including, without limitation, the following:                          

       1. The Merger Consideration to be received by holders of Houlihan's
Common Stock and recent trading prices for Houlihan's Common Stock and
Zapata Common Stock;                                                  

         2. The opinion of DLJ that the Merger Consideration to be received by
Houlihan's stockholders other than the Glazer Group is fair to such   
stockholders from a financial point of view;                          

          3. The announced business strategy of Zapata to enter the food service
industry and the potential for Houlihan's to become part of a larger  
company with greater financial resources and flexibility, competitive 
    strengths and business opportunities than would be possible for Houlihan's
alone;                                                                

          4. The refinancing of Houlihan's credit facility concurrently with the
Merger and the anticipated increased ability to pursue future growth  
   through the expansion of existing restaurant concepts and the development
of new or complementary restaurant concepts and businesses;           

         5. The fact that the Merger will provide holders of Houlihan's Common
  Stock with the opportunity to receive consideration that is in excess of
recent market prices;                                                 

       6. For those stockholders of Houlihan's not electing to receive all
     cash in the Merger, the option to retain an equity interest in the combined
company with liquidity that will be enhanced because of the           

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     greater public float of Zapata Common Stock compared with Houlihan's Common
  Stock and because of the listing of the Zapata Common Stock on the NYSE;

         7. The assessment by Houlihan's management and the Houlihan's Special
Committee's advisers of the other strategic alternatives available to 
Houlihan's; and                                                       

         8. The relative value being offered to Houlihan's stockholders in the
Merger compared with the value that the Houlihan's Special Committee  
     believes such stockholders would be likely to receive over the coming years
if Houlihan's continued as an independent company.                    

  In approving the Merger and the Merger Agreement, the Houlihan's Special
Committee did not specifically identify any one factor or group of factors as   
being more significant than any other factor in the decision-making process,    
although individual directors may have given one or more factors more weight    
than other factors.                                                             

THE HOULIHAN'S SPECIAL COMMITTEE HAS UNANIMOUSLY APPROVED THE MERGER  
AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF    
HOULIHAN'S VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL  
OF THE MERGER.                                                                  

OPINION OF CS FIRST BOSTON                                                      

CS First Boston has acted as exclusive financial adviser to the Zapata
Special Committee in connection with the Merger and has assisted the Zapata     
Special Committee in its examination of the fairness, from a financial point of 
view, of the Merger Consideration to be paid by Zapata.                         

   On June 4, 1996, CS First Boston delivered its oral opinion to the Zapata
Special Committee (subsequently confirmed in writing as of such date) to the    
effect that as of such date and based upon and subject to certain matters stated
therein, the consideration to be paid by Zapata in the Merger is fair to Zapata 
from a financial point of view. The full text of CS First Boston's written      
opinion dated June 4, 1996, which sets forth the assumptions made, matters      
considered and limitations on review undertaken, is attached as Appendix B to   
this Joint Proxy Statement/Prospectus and is incorporated herein by reference.  
CS First Boston's opinion is directed to the Zapata Special Committee and the   
fairness of the consideration to be paid by Zapata in the Merger from a         
financial point of view and does not address any other aspect of the Merger or  
any related transaction and does not constitute a recommendation to any         
stockholder as to how such stockholder should vote at the Zapata Annual Meeting.
The summary of the opinion of CS First Boston set forth in this Joint Proxy     
Statement/Prospectus is qualified in its entirety by reference to the full text 
of such opinion.                                                                

In connection with its opinion, CS First Boston reviewed the Merger   
Agreement and certain publicly available business and financial information     
relating to Zapata and Houlihan's. CS First Boston also reviewed certain other  
information, including financial forecasts, provided to CS First Boston by      
Zapata and Houlihan's and met with the respective managements of Zapata and     
Houlihan's to discuss the businesses and prospects of Zapata and Houlihan's. CS 
First Boston also considered certain financial and stock market data of Zapata  
and Houlihan's and compared that data with similar data for other publicly held 
companies in businesses similar to those of Zapata and Houlihan's and           
considered, to the extent publicly available, the financial terms of certain    
other business combinations that have recently been effected. CS First Boston   
also considered such other information, financial studies, analyses and         
investigations and financial, economic and market criteria that CS First Boston 
deemed relevant.                                                                

In connection with its review, CS First Boston did not assume any     
responsibility for independent verification of any of the information provided  
to or otherwise reviewed by CS First Boston and relied upon its being complete  
and accurate in all material respects. With respect to the financial forecasts, 
CS First Boston assumed that such forecasts were reasonably prepared on bases   
reflecting the best currently available estimates and judgments of the          
managements of Zapata and Houlihan's as to the future financial performance of  
Zapata and Houlihan's. In addition, CS First Boston did not make an independent 
evaluation or appraisal of the assets or liabilities (contingent or otherwise)  
of Zapata or Houlihan's, nor was CS First Boston furnished                      

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with any such evaluations or appraisals. CS First Boston's opinion was          
necessarily based on information available to it and financial, stock market and
other conditions as they existed and could be evaluated on the date of its      
opinion. CS First Boston expressed no opinion as to what the value of the Zapata
Common Stock actually would be when issued to Houlihan's stockholders pursuant  
to the Merger or the prices at which the Zapata Common Stock would trade        
subsequent to the Merger. Although CS First Boston evaluated the Merger         
Consideration from a financial point of view, CS First Boston was not requested 
to, and did not, recommend the specific consideration payable in the Merger. No 
other limitations were imposed by the Zapata Special Committee on CS First      
Boston with respect to the investigations made or procedures followed by CS     
First Boston in rendering its opinion.                                          

    In preparing its opinion for the Zapata Special Committee, CS First Boston
performed a variety of financial and comparative analyses, including those      
described below. The summary of CS First Boston's analyses set forth below does 
not purport to be a complete description of the analyses underlying CS First    
Boston's opinion. The preparation of a fairness opinion is a complex analytic   
process involving various determinations as to the most appropriate and relevant
methods of financial analyses and the application of those methods to the       
particular circumstances and, therefore, such an opinion is not readily         
susceptible to summary description.                                             

   In arriving at its opinion, CS First Boston made qualitative judgments as
to the significance and relevance of each analysis and factor considered by it. 
Accordingly, CS First Boston believes that its analyses must be considered as a 
whole and that selecting portions of its analyses and factors, without          
considering all analyses and factors, could create an incomplete view of the    
processes underlying such analyses and its opinion. In its analyses, CS First   
Boston made numerous assumptions with respect to Zapata, Houlihan's, industry   
performance, regulatory, general business, economic, market and financial       
conditions and other matters, many of which are beyond the control of Zapata and
Houlihan's. No company, transaction or business used in such analyses as a      
comparison is identical to Zapata, Houlihan's or the Merger, nor is an          
evaluation of the results of such analyses entirely mathematical; rather, it    
involves complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public     
trading or other values of the companies, business segments or transactions     
being analyzed. The estimates contained in such analyses and the ranges of      
valuations resulting from any particular analysis are not necessarily indicative
of actual values or predictive of future results or values, which may be        
significantly more or less favorable than those suggested by such analyses. In  
addition, analyses relating to the value of businesses or securities do not     
purport to be appraisals or to reflect the prices at which businesses or        
securities actually may be sold. Accordingly, such analyses and estimates are   
inherently subject to substantial uncertainty.                                  

   The following is a summary of the material analyses performed by CS First
Boston and presented to the Zapata Special Committee:                           

    Comparable Company Analysis. CS First Boston reviewed and compared certain
actual and forecasted financial, operating and stock market information of      
Houlihan's to selected publicly traded casual dining restaurant companies       
considered by CS First Boston to be reasonably comparable to Houlihan's. These  
companies included Applebee's International Inc., Brinker International Inc.,   
Chart House Enterprises, Inc., Darden Restaurants Inc., Outback Steakhouse Inc.,
and Ruby Tuesday Inc. (collectively the "Comparable Companies"). CS First Boston
calculated a range of market multiples for the Comparable Companies by dividing 
the market capitalization (total common shares outstanding plus "in the money"  
exercisable options multiplied by the closing market price per share on May 17, 
1996 plus latest reported total debt, capitalized leases, preferred stock and   
minority interest, minus cash and cash equivalents and option proceeds, the     
"Market Capitalization") of each of the Comparable Companies by such company's  
sales, earnings before interest, taxes, depreciation and amortization ("EBITDA")
and earnings before interest and taxes ("EBIT"). In addition, CS First Boston   
derived multiples of equity value relative to net income and book value. Such   
multiples were calculated for the latest four quarters ("LTM") as reported in   
publicly available information and the 1996 fiscal year on the basis of         
estimates of selected investment banking firms. This analysis indicated that the
median LTM multiples of sales, EBITDA, EBIT, net income and book value for the  
Comparable Companies were 1.0x, 7.2x, 14.8x, 20.4x and 1.9x, respectively, and  
the median fiscal 1996 multiples of sales, EBITDA, EBIT, net income and book    
value for the Comparable Companies were 0.7x, 6.0x, 11.8x, 17.7x and            

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1.0x, respectively. CS First Boston subsequently derived the appropriate        
multiple range for Houlihan's by comparing Houlihan's business and performance  
to those of the Comparable Companies (specifically considering operating        
performance, dining concept and growth profile). CS First Boston determined that
the relevant ranges of multiples for the 1996 fiscal year derived from the      
Comparable Companies were: (i) sales: 0.4x -- 0.5x; (ii) EBITDA: 4.0x -- 5.0x;  
(iii) EBIT: 7.5x -- 9.5x; (iv) net income: 10.0x -- 14.0x; and (v) book value:  
0.8x -- 1.1x. CS First Boston then calculated an imputed valuation range of     
Houlihan's by applying results for Houlihan's for fiscal year 1996 to the       
multiples derived from its analysis of the Comparable Companies. This analysis  
resulted in an enterprise value reference range for Houlihan's of $137.5 million
to $157.5 million. This reference range was then adjusted for non-operating     
assets and liabilities including (i) total debt of $88.9 million as of March 25,
1996; (ii) cash and cash equivalents of $15.6 million as of March 25, 1996; and 
(iii) proceeds of $0.7 million from the assumed exercise of the options         
outstanding as of March 25, 1996 (collectively, the "Corporate Adjustments") to 
yield an equity value reference range that was then divided by 10,116,012 fully 
diluted shares of Houlihan's Common Stock (including 118,000 shares issuable    
upon exercise of options) outstanding as of March 25, 1996 to yield an equity   
value reference range for Houlihan's of $6.41 to $8.38 per share.               

   Comparable Transaction Analysis. Using publicly available information, CS
First Boston analyzed the purchase prices and multiples paid or proposed to be  
paid in selected merger or acquisition transactions in the restaurant industry  
that occurred between 1986 and 1996 including: Family Restaurant, Inc./Flagstar 
Companies, Inc.; Restaurant Enterprises Group, Inc./Investor Group; Sizzler     
Restaurants Inc./Collins Foods International; Foodmaker Inc./Investor Group;    
Rusty Pelican Restaurants, Inc./Paragon Restaurant Group Inc.; Restaurant       
Enterprises Group, Inc./Investor Group; and Ponderosa Inc./ Investor Group (the 
"Comparable Transactions"). CS First Boston selected these acquisitions based on
the comparability of businesses conducted by the acquired company to that of    
Houlihan's. CS First Boston calculated the adjusted purchase price (purchase    
price plus total assumed debt less acquired cash) as a multiple of sales, EBITDA
and EBIT. In addition, CS First Boston calculated the equity value as a multiple
of net income and book value. Such multiples were calculated for the four       
quarters immediately preceding the announcement of the acquisition of such      
company. CS First Boston determined that the relevant ranges of multiples       
derived from the Comparable Transactions were (i) sales: 0.6x -- 0.7x; (ii)     
EBITDA: 5.0x -- 6.0x; (iii) EBIT: 10.0x -- 12.0x; (iv) net income:              
16.0x -- 19.0x; and (v) book value: 1.1x -- 1.3x. CS First Boston then          
calculated an imputed valuation range of Houlihan's by applying historical      
results for the four quarters immediately preceding the announcement of the     
transaction to the multiples derived from its analysis of the Comparable        
Transactions. Using such information, CS First Boston derived an enterprise     
value reference range for Houlihan's of $145.0 million to $165.0 million. This  
reference range was then adjusted for the Corporate Adjustments and then divided
by 10,116,012 fully diluted shares of Houlihan's Common Stock (including 118,000
shares issuable upon exercise of options) outstanding as of March 25, 1996 to   
yield an equity value reference range for Houlihan's of $7.15 to $9.12 per      
share.                                                                          

    Discounted Cash Flow Analysis. CS First Boston performed a discounted cash
flow analysis of the projected cash flows of Houlihan's for the periods 1996    
through 2005 based in part upon certain operating and financial assumptions,    
forecasts and other information provided by management of Houlihan's. Using the 
financial information set forth by management, CS First Boston calculated       
estimated free cash flows based on forecasted unleveraged net income (earnings  
before interest and after taxes) adjusted for: (i) certain forecasted non-cash  
items (i.e., depreciation and amortization); (ii) forecasted capital            
expenditures; and (iii) forecasted non-cash working capital investment. CS First
Boston subsequently discounted the stream of free cash flows provided in such   
forecast back to January 1, 1996 using discount rates ranging from 12.5% to     
13.5%. To estimate the residual value of Houlihan's at the end of the forecast  
period, CS First Boston applied a range of terminal multiples of 5.0x to 5.5x to
the forecasted fiscal year 2005 EBITDA and discounted such value estimates back 
to January 1, 1996 using discount rates ranging from 12.5% to 13.5%. The range  
of discount rates was selected based on a variety of factors, including analysis
of the estimated cost of capital and capital structures for companies operating 
in businesses similar to that in which Houlihan's operates, and the range of    
terminal year multiples was selected based on the trading multiples for such    
companies. CS First Boston then summed the present values of the free cash flows
and the present values of the residual value to derive an enterprise value      
reference range for Houlihan's of approximately $137.5 million to $157.5        
million.                                                                        

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This reference range was then adjusted for the Corporate Adjustments and then   
divided by 10,116,012 fully diluted shares of Houlihan's Common Stock (including
118,000 shares issuable upon exercise of options) outstanding as of March 25,   
1996 to yield an equity value reference range for Houlihan's of $6.41 to $8.38  
per share.                                                                      

   Relative Contribution Analysis. CS First Boston analyzed the contribution
of Houlihan's to the sales, EBITDA, EBIT, net income, enterprise value and      
equity value of Zapata following the Merger and compared it to the contribution 
of Zapata as currently constituted. This analysis was based upon historical     
results of Houlihan's and Zapata for their respective latest four quarters and  
financial forecasts for Houlihan's 1996 fiscal year provided by the management  
of Houlihan's and for Zapata's 1996 fiscal year provided by the management of   
Zapata. The enterprise value of Houlihan's was assumed to be equal to the number
of Houlihan's shares outstanding multiplied by $8.00, increased by the Corporate
Adjustments. The equity value of Houlihan's was assumed to be equal to the      
number of Houlihan's shares outstanding multiplied by $8.00. This analysis      
indicated that, for Zapata's latest four quarters and 1996 fiscal year,         
Houlihan's would make a contribution in excess of Houlihan's relative enterprise
value and equity value.                                                         

Pro Forma Effect on Zapata Earnings Per Share. CS First Boston also   
analyzed certain pro forma effects resulting from the Merger on the forecasted  
earnings per share ("EPS") of Zapata for its 1996 and 1997 fiscal years, based  
on financial forecasts provided by Houlihan's management for Houlihan's 1996 and
1997 fiscal years and financial forecasts provided by Zapata's management for   
Zapata's 1996 and 1997 fiscal years. CS First Boston was advised by the         
management of Zapata that the Merger will be accounted for as a "purchase" under
generally accepted accounting principles. This analysis indicated that the      
Merger would be accretive to the EPS of Zapata for its 1996 and 1997 fiscal     
years.                                                                          

Other Factors and Analyses. In the course of preparing its opinion, CS
First Boston performed certain other analyses and reviewed certain other        
matters, including, among other things, (i) trading characteristics of          
Houlihan's and Zapata, (ii) financing considerations relating to the Merger and 
(iii) pro forma capitalization of the combined company.                         

  CS First Boston is an internationally recognized investment banking firm
and, as a part of its investment banking business, CS First Boston is regularly 
engaged in the valuation of businesses and 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. The Zapata Special Committee selected CS First Boston as its
financial adviser because of CS First Boston's experience and expertise.        

     Pursuant to the terms of CS First Boston's engagement, Zapata has agreed to
pay CS First Boston for its services in connection with the Merger fees payable 
as follows: (i) a financial advisory fee of $300,000, payable upon delivery by  
CS First Boston of a presentation to the Zapata Special Committee; and (ii) an  
opinion fee of $700,000, payable upon delivery of the opinion. Zapata also has  
agreed to reimburse CS First Boston for its out-of-pocket expenses, including   
the fees and expenses of legal counsel and any other adviser retained by CS     
First Boston, and to indemnify CS First Boston and certain related entities     
against certain liabilities, including liabilities under the federal securities 
laws.                                                                           

    In the ordinary course of business, CS First Boston and its affiliates may
actively trade the equity securities of Zapata and Houlihan's for their own     
account and for accounts of customers and, accordingly, may at any time hold a  
long or short position in such securities. CS First Boston may in the future    
provide financial advisory services to Zapata unrelated to the proposed Merger, 
for which services CS First Boston will receive compensation.                   

  A COPY OF THE WRITTEN OPINION OF CS FIRST BOSTON, DATED JUNE 4, 1996, IS
ATTACHED HERETO AS APPENDIX B. ZAPATA'S STOCKHOLDERS ARE URGED TO READ THE CS   
FIRST BOSTON OPINION CAREFULLY IN ITS ENTIRETY FOR ASSUMPTIONS MADE, MATTERS    
CONSIDERED, SCOPE AND LIMITS OF THE REVIEW AND PROCEDURES FOLLOWED BY CS FIRST  
BOSTON IN CONNECTION WITH SUCH OPINION.                                         

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OPINION OF DLJ                                                                  

   In its role as financial adviser to Houlihan's Special Committee, DLJ was
asked to render an opinion to the Houlihan's Special Committee as to the        
fairness, from a financial point of view, of the consideration to be received by
the stockholders of Houlihan's other than Malcolm I. Glazer and persons         
affiliated with Malcolm I. Glazer ("minority stockholders"), pursuant to the    
Merger. On June 4, 1996, DLJ issued to the Houlihan's Special Committee its     
written opinion (the "DLJ Opinion") that, based upon and subject to the         
provisions set forth in such opinion, the consideration to be received by the   
minority stockholders pursuant to the Merger is fair to the minority            
stockholders from a financial point of view.                                    

A COPY OF THE WRITTEN DLJ OPINION IS ATTACHED HERETO AS APPENDIX C.   
HOULIHAN'S STOCKHOLDERS ARE URGED TO READ THE DLJ OPINION CAREFULLY IN ITS      
ENTIRETY FOR ASSUMPTIONS MADE, OTHER MATTERS CONSIDERED AND LIMITS OF THE REVIEW
BY DLJ IN CONNECTION WITH SUCH OPINION.                                         

The Houlihan's Special Committee selected DLJ as its financial adviser
because DLJ is a nationally recognized investment banking firm that has         
substantial experience in the restaurant industry and is familiar with          
Houlihan's and its business. In addition, DLJ, as part of its investment banking
services, is regularly engaged in the valuation of businesses and securities in 
connection with mergers, acquisitions, underwritings, sales and distributions of
listed and unlisted securities, private placements and valuations for estate,   
corporate and other purposes.                                                   

  The DLJ Opinion was prepared for the Houlihan's Special Committee and is
directed only to the fairness of the consideration to be received by the        
minority stockholders from a financial point of view. The DLJ Opinion does not  
constitute a recommendation to any stockholder as to how such stockholder should
vote at the Houlihan's Special Meeting nor does it constitute an opinion as to  
the price at which the Zapata Common Stock or Houlihan's Common Stock will      
actually trade at any time. The Merger was negotiated at arm's-length by the    
Houlihan's Special Committee and the Zapata Special Committee. No restrictions  
or limitations were imposed by Houlihan's upon DLJ with respect to the          
investigations made or the procedures followed by DLJ in rendering the DLJ      
Opinion. The Houlihan's Special Committee requested that DLJ not solicit, and   
DLJ did not solicit, the interest of any other party.                           

 In arriving at its opinion, DLJ reviewed the Merger Agreement. DLJ also
reviewed financial and other information that was publicly available or         
furnished to it by or on behalf of Houlihan's and Zapata, including information 
provided during discussions with their respective managements, and (i)          
consolidated financial statements and other information of Houlihan's for the   
fiscal years 1991 through 1995 and (ii) consolidated financial statements and   
other information of Zapata for the fiscal years 1993 through 1995. Included in 
the information provided were certain financial projections for Houlihan's for  
the years 1996 to 2001 prepared by the management of Houlihan's. In addition,   
DLJ compared certain financial and securities data of Houlihan's with selected  
companies whose securities are traded in public markets; reviewed the historical
stock prices and trading volumes of Houlihan's Common Stock and Zapata Common   
Stock; reviewed prices and premiums paid in certain other selected business     
combinations; and performed a discounted cash flow analysis of Houlihan's and   
Zapata's continuing operations. DLJ also reviewed with the managements of       
Houlihan's and Zapata the assumptions on which its analyses were based and other
factors, including historical and projected financial results of such companies.
DLJ also conducted such other financial studies, analyses and investigations as 
DLJ deemed appropriate for purposes of rendering its opinion.                   

 In rendering the DLJ Opinion, DLJ relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that was
available to it from public sources, and that was provided to it by Houlihan's  
and Zapata or their respective representatives, or that was otherwise reviewed  
by it. With respect to the financial projections supplied to DLJ, it assumed    
that they had been reasonably prepared on a basis reflecting the best currently 
available estimates and judgments of the management of Houlihan's as to the     
future operating and financial performance of Houlihan's. DLJ has not assumed   
any responsibility for making any independent evaluation of Houlihan's assets or
liabilities or for making an independent verification of any of the information 
reviewed by DLJ. DLJ has relied as to various legal matters on advice of counsel
to Houlihan's and the Houlihan's Special Committee.                             

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 The DLJ Opinion is necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to   
DLJ as of, the date of the DLJ Opinion. It should be understood that, although  
subsequent developments may affect its opinions, DLJ has not updated, reviewed  
or reaffirmed, and has no obligation to update, review or reaffirm, the DLJ     
Opinion.                                                                        

 The following is a summary of factors considered and financial analyses
performed that were included in a presentation to the Houlihan's Special        
Committee.                                                                      

    Analysis of Certain Other Publicly Traded Companies. DLJ compared selected
historical share prices, earnings, and operating and financial ratios for       
Houlihan's to the corresponding data and ratios of certain other companies whose
securities are publicly traded, which companies were selected for comparison    
because as a group they possess business, operating and financial               
characteristics that are generally representative of companies in the industry  
in which Houlihan's operates. The selected companies were: Applebee's           
International, Inc.; Brinker International, Inc.; Chart House Enterprises, Inc.;
Darden Restaurants, Inc.; Ground Round Restaurants, Inc.; Lone Star Steakhouse &
Saloon, Inc.; Ruby Tuesday, Inc.; Sizzler International, Inc. and Vicorp        
Restaurants, Inc. (the "Public Comparables"). Such data and ratios included     
Enterprise Value (defined as the product of the stock price and total shares    
outstanding plus Net Debt (debt and preferred stock less cash and cash          
equivalents)) as a multiple of gross revenue, EBITDA for the latest reported    
twelve months ("LTM"), and as a multiple of projected EBITDA for 1996, and the  
growth rates of revenues, net income and earnings per share for the three most  
recent fiscal years and operating margins for the latest reported twelve months.
Additional ratios examined included the ratios of current stock prices to LTM   
net income and projected calendar year 1996 net income (determined on the basis 
of estimates provided by selected investment banking firms). This analysis      
indicated that the average multiples of Enterprise Value to LTM Revenues, LTM   
EBITDA and projected calendar year 1996 EBITDA were 1.0x, 9.0x and 7.9x,        
respectively. The average multiples of equity value to LTM net income and       
projected calendar year 1996 net income were 20.1x and 17.1x, respectively. DLJ 
derived the valuation range for Houlihan's by concentrating on net income       
multiples, which DLJ determined to be the most relevant basis for valuing       
publicly traded restaurant companies, and by comparing Houlihan's businesses and
performance to the Public Comparables (with particular emphasis on recent       
historical results of operations and margins, age and viability of underlying   
restaurant concepts and prospects for future growth). DLJ determined that the   
relevant range of projected calendar year 1996 net income multiples was 8.6x to 
17.1x. DLJ then calculated the imputed valuation ranges for Houlihan's by       
applying these multiples to Houlihan's projected calendar year 1996 net income, 
which yielded a range of equity values for Houlihan's of $4.74 to $9.42 per     
share.                                                                          

   Control Premium Analysis. DLJ also prepared a comparison of the value per
share of Houlihan's Common Stock to be received in the Merger of $8.00 to the   
implied price per share of Houlihan's Common Stock based on a per share price of
Houlihan's Common Stock of $5.00 and the LTM high and low prices per share of   
$10.00 and $3.75, and assumed control premiums of 25%, 35% and 45%. By          
multiplying the price per share times the applicable control premium, DLJ       
arrived at a range of implied prices of $6.25 to $7.25 based on a price per     
share of $5.00, a range of implied prices of $12.50 to $14.50 based on the LTM  
high price per share of $10.00, and a range of implied prices of $4.69 to $5.44 
based on the LTM low price per share.                                           

Transaction Analysis. DLJ reviewed publicly available information for 
selected transactions completed since February 1988 involving the combination of
restaurant companies. The comparative transactions reviewed (the "Comparative   
Transactions") included 30 transactions that were proposed or completed during  
the period. The Comparative Transactions selected are not intended to represent 
a complete list of restaurant company transactions that have occurred during the
last nine years; rather, they include only transactions involving combinations  
of companies with operating size or financial performance characteristics       
believed to be comparable to Houlihan's characteristics. DLJ reviewed the       
consideration paid in such transactions in terms of the Equity Purchase Price   
(offer price per share multiplied by total common shares outstanding) plus total
debt less cash and cash equivalents ("Adjusted Purchase Price") as a multiple of
gross revenue, EBITDA and EBIT. For the Comparative Transactions, the average   
ratios of Adjusted Purchase Price to LTM revenues, LTM EBITDA and LTM EBIT were 
1.0x, 7.4x and 14.2x, respectively, while the average ratio of Equity Purchase  
Price to LTM net income was 25.0x. DLJ determined that multiples of LTM EBITDA  
provided the most relevant measure for evaluating the Comparative Transactions. 
DLJ concluded                                                                   

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that the relevant range of LTM EBITDA multiples was 5.2x to 5.8x. DLJ then      
calculated the imputed valuation ranges for Houlihan's by applying its LTM      
EBITDA to the relevant multiple ranges. This analysis yielded a range of        
Enterprise Values for Houlihan's of $160.9 to $179.5 million, which results in  
an equity value range of $8.72 to $10.58 per share after subtracting            
approximately $73.7 million in net debt.                                        

  Discounted Cash Flow Analysis. DLJ also performed a discounted cash flow
analysis of Houlihan's using a weighted average cost of capital approach and an 
internal rate of return approach. In conducting this analysis, DLJ relied on    
certain assumptions, financial forecasts and other information provided by      
Houlihan's management. Using the information set forth in the Houlihan's        
forecast, DLJ calculated the estimated "Free Cash Flow" based on projected      
unleveraged operating income adjusted for: (i) taxes; (ii) certain projected    
non-cash items (e.g., depreciation and amortization); (iii) projected changes in
non-cash working capital; and (iv) projected capital expenditures.              

Using the weighted average cost of capital approach, DLJ analyzed     
Houlihan's forecast and discounted the stream of free cash flows from fiscal    
year 1996 to fiscal year 2000 provided in such projections back to January 1,   
1996 using discount rates ranging from 11% to 15%. To estimate the residual     
value of Houlihan's at the end of the forecast period, DLJ applied terminal     
multiples of 4.5x to 6.0x to the projected fiscal year 2000 EBITDA and          
discounted such value back to January 1, 1996 using discount rates ranging from 
11% to 15%. DLJ then summed the present value of the free cash flows and the    
present value of the residual value to derive a range of implied enterprise     
values for Houlihan's of $134.5 million to $191.1 million. The range of implied 
enterprise values of Houlihan's was then adjusted for debt (net of cash and cash
equivalents of $10.3 million) by deducting $73.7 million from implied Enterprise
Value to yield an implied equity value of Houlihan's of $60.9 million to $117.5 
million, which equates to an equity value of $7.10 to $10.33 per share (assuming
a midpoint weighted average cost of capital of 13% and exit multiples ranging   
from 4.5x to 6.0x).                                                             

   Using the internal rate of return approach, DLJ assumed a buyer purchased
Houlihan's for $6 to $10 per share, financing the transaction with $120 million 
of debt and the remainder in the form of new equity and the assumption of       
certain liabilities. To estimate the terminal value of Houlihan's at the end of 
fiscal year 2000, DLJ applied exit multiples of 4.5x to 6.0x Houlihan's         
projected fiscal year 2000 EBITDA. This analysis resulted in an implied internal
rate of return to the buyer in a range from 10.6% to 53.0%. DLJ did not         
attribute to the results of this methodology a meaningful degree of importance  
because consummating a $120 million financing on favorable terms would be       
difficult in light of the current financing environment for leveraged purchases 
of restaurant companies.                                                        

   Zapata Analysis. DLJ prepared a summary valuation of Zapata Common Stock.
The valuation was based on a discounted cash flow analysis for Zapata Protein   
and a liquidation methodology for Zapata's remaining assets. The valuation      
indicated an equity value range for Zapata Common Stock of $4.03 to $5.99 per   
share.                                                                          

   The summary set forth above does not purport to be a complete description
of the analyses performed by DLJ. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of       
financial analysis and the application of these methods to the particular       
circumstances and, therefore, such an opinion is not readily susceptible to     
summary description. Accordingly, notwithstanding the separate factors          
summarized above, DLJ believes that its analyses must be considered as a whole  
and that selecting portions of its analyses and the factors considered by it,   
without considering all analyses and factors, could create an inadequate view of
the evaluation process underlying its opinion. In performing the analyses, DLJ  
made numerous assumptions with respect to industry performance, business and    
economic conditions and other markets. The analyses performed by DLJ are not    
necessarily indicative of actual values or future results, which may be         
significantly more or less favorable than suggested by such analyses.           

Pursuant to the terms of an engagement letter dated December 1, 1995, 
Houlihan's has agreed to pay DLJ a retainer of $100,000, a fee of $400,000 upon 
the delivery of the DLJ Opinion and an additional fee to be paid upon           
consummation of the Merger equal to 0.55% of the total consideration to be paid 
by Zapata in connection with the acquisition of Houlihan's (including the       
assumption or refinancing of any debt), less the amounts paid with respect to   
the retainer and fairness opinion fees. Houlihan's has also agreed to reimburse 
DLJ promptly for all out-of-pocket expenses (including the reasonable fees and  
out-of-pocket expenses of counsel) incurred by DLJ in connection with its       
engagement, and to indemnify DLJ and certain related                            

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persons against certain liabilities in connection with its engagement, including
liabilities under the federal securities laws.                                  

    In the ordinary course of business, DLJ actively trades public securities,
which may include both Houlihan's and Zapata's securities, for its own account  
and for the accounts of its customers and, accordingly, may at any time hold a  
long or short position in such securities.                                      

OPERATIONS FOLLOWING THE MERGER                                                 

     Zapata expects that, following the Merger, Houlihan's will be operated as a
subsidiary managed substantially independently of Zapata's other operations. Its
headquarters are expected to remain in Kansas City, Missouri. Upon the          
effectiveness of the Merger, it is expected that the present management of      
Houlihan's will continue as management of the Zapata subsidiary that will be the
surviving corporation in the Merger.                                            

  Zapata intends to continue to pursue future acquisition opportunities in
the food services business. It expects to retain its corporate headquarters in  
Houston, Texas following the Merger, but may consider relocating its            
headquarters at a later date depending on the course of future development of   
Zapata's business.                                                              

    Two members of the Board of Directors of Houlihan's, Frederick R. Hipp and
Warren Gfeller, will be added to the Zapata Board of Directors upon the         
effectiveness of the Merger and William W. Moreton, currently Executive Vice    
President and Chief Financial Officer of Houlihan's, will be appointed as an    
Executive Vice President and the Chief Financial Officer of Zapata.             

     Following consummation of the Merger, Zapata expects to evaluate whether to
engage Coopers & Lybrand L.L.P., the firm of independent public accountants that
currently audits Zapata's consolidated financial statements, or some other firm 
to report on its consolidated financial statements for the year ended September 
30, 1996. Accordingly, no proposal for ratification of a firm of independent    
accountants to act in such capacity is being presented at the Zapata Annual     
Meeting. Zapata has not had any disagreements with Coopers & Lybrand L.L.P. on  
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure. Representatives of Coopers & Lybrand L.L.P. are 
expected to be present at the Zapata Annual Meeting and will have the           
opportunity to make a statement if they desire to do so and to respond to       
appropriate questions.                                                          

     As a result of Zapata's transitional status, an investment in Zapata Common
Stock is subject to uncertainties associated with how its business may evolve as
it continues its program of redirecting its business.                           

     In accordance with its plan to redirect its business into the food services
industry, Zapata plans to make future acquisitions. Such acquisitions may       
include acquisitions of additional interests in, or a combination with,         
Specialty, a company in which members of the Glazer Group own approximately 45% 
of the outstanding common stock. Zapata may also make purchases of the common   
stock of Envirodyne in addition to its existing position or may seek to acquire 
Envirodyne in a merger or other business combination transaction. Zapata can    
provide no assurance as to whether any such future acquisitions, or acquisitions
of other companies in the food services business, can be accomplished, the      
timing or terms thereof (including the amount of cash or stock consideration    
that would be involved in any such transaction), or the degree to which other   
acquisitions in the food services industry can be successfully integrated with  
Zapata's other operations. Because Zapata has not historically had operations in
the food services business, it will, at least initially, be substantially       
reliant on management expertise of Houlihan's and other companies it may        
acquire.                                                                        

     Zapata has considered from time to time transactions that would involve its
marine protein operations, including the acquisition of related businesses that 
would be combined with the marine protein operations and the sale or spin-off to
its stockholders of these operations. R. C. Lassiter, a director of Zapata and  
Chairman of the Zapata Special Committee, is Chairman and Chief Executive       
Officer of Zapata Protein, Inc. and could leave Zapata and continue with the    
marine protein operations in case of their disposition by Zapata.               

Zapata also may consider the disposition of its Bolivian oil and gas  
operations.                                                                     

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 An increase in the Glazer Group's ownership percentage of Zapata Common
Stock to, or near to as much as 49.9% as a result of the Merger will in all     
likelihood cause Zapata to meet the stock ownership requirement for being       
subject to the personal holding company tax under Sections 541-47 of the Code.  
That requirement is met if, at any time during the last half of a taxable year  
of Zapata, more than 50% in value of its outstanding stock is owned, directly or
indirectly, by five or fewer individuals. The personal holding company tax is a 
tax equal to 39.6% of the "undistributed personal holding company income" of    
either (i) an affiliated group of corporations calculated on a consolidated     
basis or (ii) in certain circumstances, each corporation in the group calculated
on a separate company basis. Personal holding company income subject to the tax 
includes generally passive types of income, such as dividends, interest, rents  
and certain royalties. Such income is subject to the personal holding company   
tax only if 60% or more of the "adjusted ordinary gross income" (as defined in  
Section 543(b)(2) of the Code) of the affiliated group or separate member, as   
the case may be, is personal holding company income. Zapata believes that the   
latter requirement for taxability will not be met because of the character and  
amounts of the income expected to be earned and of the expenses expected to be  
incurred by the members of the Zapata affiliated group, and that liability for  
the personal holding company tax will thus be avoided entirely or limited to    
amounts that are not material.                                                  

CERTAIN FEDERAL INCOME TAX CONSEQUENCES                                         

Scope and Limitations.                                                      

   The following is a summary description of the material federal income tax
consequences of the Merger that should be considered by Houlihan's stockholders 
in voting on the Merger and making the elections offered by the Agreement, but  
does not discuss the tax consequences, if any, to Houlihan's, Sub, Zapata       
stockholders or Zapata. Moreover, it does not describe the actual tax effect    
that any of such matters will have on a particular stockholder in light of his  
tax status and his other income, deductions and credits. In addition, no        
information is provided herein with respect to the tax consequences of the      
Merger under applicable foreign, state or local laws. Consequently, each        
Houlihan's stockholder is advised to consult a tax adviser as to the specific   
tax consequences of the Merger.                                                 

Neither Houlihan's nor Zapata has requested or will request an advance
ruling from the Internal Revenue Service as to the tax consequences of the      
Merger. Zapata has received an opinion from Baker & Botts, L.L.P., counsel for  
Zapata, as to certain material federal income tax consequences of the Merger to 
holders of the Houlihan's stock based upon certain customary factual            
representations made by both Zapata and Houlihan's, which are to be reaffirmed  
at the time of the Merger. The discussion set forth below is included for the   
general information of the Houlihan's stockholders only and is based upon that  
expected opinion and on the Code, as in effect on the date of this Joint Proxy  
Statement/Prospectus, without consideration of particular facts or circumstances
of any holder of Houlihan's stock. The discussion may not be applicable with    
respect to shares acquired pursuant to the exercise of stock options or         
otherwise received as compensation. Such counsel's opinions are not binding on  
either the Internal Revenue Service (the "IRS") or any stockholder.             

Merger as a Reorganization.                                                 

     Based upon the factual representations of Houlihan's and Zapata, the Merger
will constitute a reorganization within the meaning of Section 368(a) of the    
Code. The federal income tax consequences of the Merger to the Houlihan's       
stockholders will depend in part on the form of consideration they receive as   
described below.                                                                

Stock Election-Stock for Stock Only.                                        

    A Houlihan's stockholder who receives only Zapata Common Stock in exchange
for all shares of Houlihan's Common Stock actually owned by him will not        
recognize any gain or loss upon such exchange for federal income tax purposes.  
The tax basis in the shares of Zapata Common Stock received in such exchange    
will be equal to the basis he had in the shares of Houlihan's Common Stock      
surrendered therefor. The holding period of each share of Zapata Common Stock   
will include the holding period of the shares of the Houlihan's Common Stock    
surrendered therefor, provided that the Houlihan's Common Stock surrendered was 
held as a                                                                       

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capital asset at the time of the exchange. See the discussion below for the tax 
consequences of the receipt of cash in lieu of fractional share interests of    
Houlihan's Common Stock.                                                        

Cash/Stock Election, Residual Election or Cash Election-Stock for Stock and 
Cash.                                                                           

A Houlihan's stockholder who makes a Cash/Stock Election or a Residual
Election, or a Houlihan's stockholder who makes a Cash Election which is reduced
pro rata to prevent the Glazer Group's stock ownership in Zapata from exceeding 
49.9%, will receive both shares of Zapata Common Stock and cash in the Merger.  
In any such case, if such stockholder's adjusted basis in the shares of         
Houlihan's Common Stock surrendered in the transaction is less than the value,  
at the Effective Time, of the Zapata Common Stock plus the amount of cash       
received, such stockholder will recognize a gain on the transaction equal to the
excess, if any, of the value, as of the Effective Time, of the Zapata Common    
Stock plus the amount of cash received over the adjusted basis of the shares of 
Houlihan's Common Stock surrendered in the transaction, but not in excess of the
amount of cash received. No loss will be recognized by holders of Houlihan's    
Common Stock who receive both cash and Zapata Common Stock in the Merger. The   
basis of the Zapata Common Stock received in the exchange generally will be the 
same as the adjusted basis of the Houlihan's Common Stock surrendered, decreased
by the amount of cash received and increased by the amount of gain or dividend  
income recognized, and the holding period of such Zapata Common Stock will      
include the period during which the Houlihan's Common Stock surrendered was     
held, assuming such Houlihan's Common Stock constituted a capital asset in the  
hands of the holder.                                                            

     In general, the determination of whether any gain recognized by a holder of
Houlihan's Common Stock as a result of the Merger will constitute capital gain  
or dividend income will be made by reference to the rules set forth in Sections 
356(a)(2) and 302 of the Code. Under Section 356(a)(2) of the Code, the Merger  
will be viewed as if all holders of Houlihan's Common Stock had received only   
Zapata Common Stock in the Merger and as if a portion of that stock had been    
immediately redeemed for the cash received in the Merger. Under Section 302 of  
the Code, all of the cash representing gain recognized to a holder of Houlihan's
Common Stock on the exchange will be taxed as capital gain if the deemed        
redemption from such holder is a "substantially disproportionate redemption" of 
the stock with respect to the holder or is "not essentially equivalent to a     
dividend." These determinations will be made by taking into account the stock   
ownership attribution rules of Section 318 of the Code. If neither of the       
redemption tests described above is satisfied, a Houlihan's stockholder will be 
treated as having received a dividend equal to the lesser of the amount of such 
stockholder's recognized gain or his ratable share of the combined accumulated  
earnings and profits of Zapata and Houlihan's. Because the determination of     
whether a payment will be treated as having the effect of a distribution of a   
dividend will generally depend upon the facts and circumstances of each         
Houlihan's stockholder, the Houlihan's stockholders are strongly advised to     
consult their own tax advisers regarding the tax treatment of cash received in  
the Merger.                                                                     

Cash Election or Exercise of Dissenters' Rights-Stock for Cash Only.        

     A Houlihan's stockholder who receives only cash pursuant to a Cash Election
that is not reduced pro rata to prevent the Glazer Group's stock ownership in   
Zapata from exceeding 49.9%, or pursuant to the exercise of dissenter's rights, 
for his shares of Houlihan's Common Stock will recognize capital gain or loss as
to each share measured by the difference between his tax basis in such share and
the amount of cash received in exchange therefor, provided that the Houlihan's  
Common Stock was a capital asset in his hands, and provided that he does not own
any Zapata Common Stock immediately after the Merger actually or constructively.
If a former holder of Houlihan's Common Stock does own shares of Zapata Common  
Stock, actually or constructively, immediately after the Merger, then such      
holder may be subject to the deemed redemption rules described above in the     
preceding section, and may be required to recognize all or some portion of the  
cash received to be taxable as a dividend and, if a loss is incurred on such    
exchange, such holder may be unable to recognize such loss.                     

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Cash Received for Fractional Shares.                                        

    No fractional shares of Zapata Common Stock will be issued pursuant to the
Merger. A stockholder who receives cash in lieu of a fractional share of Zapata 
Common Stock will be treated as having received such fractional share and then  
as having received cash in redemption of the fractional interest, subject to the
provisions of Section 302 of the Code pursuant to which the holder generally    
will recognize capital gain or loss equal to the difference between the basis   
for the fractional share of Zapata Common Stock and the cash received on its    
sale.                                                                           

Backup Withholding.                                                         

    Houlihan's stockholders will be required properly to provide, as described
in the Form of Election and Letter of Transmittal, their social security number 
or other taxpayer identification number, or in some instances certain other     
information, to the Exchange Agent in order to avoid the "backup withholding"   
requirements that might otherwise apply.                                        

INTERESTS OF CERTAIN PERSONS IN THE MERGER                                      

  Malcolm I. Glazer and other members of the Glazer Group own beneficially
approximately 35.2% of the outstanding shares of Zapata Common Stock and        
approximately 73.3% of the outstanding shares of Houlihan's Common Stock.       
Although the Boards of Directors of Zapata and Houlihan's have each formed a    
special committee to negotiate and otherwise act in connection with the Merger, 
stockholders should be aware that, by virtue of such ownership, Malcolm I.      
Glazer and other members of the Glazer Group have interests different from      
stockholders of the respective companies generally. Because of the greater      
percentage ownership of the Glazer Group in the Houlihan's Common Stock than in 
the Zapata Common Stock, the Glazer Group would derive greater benefit from     
terms of the Merger (including the consideration to be paid in exchange for     
Houlihan's Common Stock) considered to favor Houlihan's than from such terms    
considered to favor Zapata. The Standstill Agreement provides for certain       
restrictions on the acquisition, disposition and voting of, and other matters   
relating to, Zapata Common Stock by Malcolm I. Glazer and other members of the  
Glazer Group, which restrictions are not applicable to other holders of Zapata  
Common Stock.                                                                   

    In considering the recommendation of the Houlihan's Special Committee with
respect to the Merger Agreement and the transactions contemplated thereby,      
stockholders should also be aware that certain members of the Board of Directors
of Houlihan's and the management of Houlihan's (including members of the        
Houlihan's Special Committee) may have interests in the Merger that are in      
addition to the interests of stockholders of Houlihan's generally (including,   
without limitation, accelerated vesting of options and, in the case of certain  
officers, termination benefits triggered by the Merger and, in the case of one  
officer, an employment agreement to be entered into with Zapata as a condition  
to consummation of the Merger). The Houlihan's Special Committee was aware of   
these interests and considered them, among other factors, in approving the      
Merger.                                                                         

IRREVOCABLE PROXY AND STANDSTILL AGREEMENT                                      

Irrevocable Proxy                                                           

     In accordance with the terms of the Standstill Agreement, Malcolm I. Glazer
has delivered to the Zapata Special Committee an irrevocable proxy dated June 4,
1996 ("Irrevocable Proxy"). Under the terms of the Irrevocable Proxy, the       
members of the Zapata Special Committee are authorized to vote all of the shares
of Zapata Common Stock held by him individually and as trustee of the Malcolm   
Glazer Trust with respect to the issuance of Zapata Common Stock in connection  
with the Merger. The Irrevocable Proxy is valid until the first to occur of (i) 
the adjournment of the Zapata Annual Meeting at which the Merger Proposal is    
considered by the stockholders of Zapata or (ii) Zapata's publicly announced    
abandonment of the Merger.                                                      

     On June 13, 1996, a majority of the members of the Zapata Special Committee
met and determined to vote the shares of Zapata Common Stock subject to the     
Irrevocable Proxy in accordance with the vote of a majority of Zapata           
stockholders other than shares held by the Glazer Group such that (i) if a      
majority of the                                                                 

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shares present and voting at the Zapata Annual Meeting (other than shares held  
by the Glazer Group) are voted in favor of the Merger, all shares subject to the
Irrevocable Proxy will be voted in favor of the Merger, and (ii) if a majority  
of the shares present and voting at the Zapata Annual Meeting (other than shares
held by the Glazer Group) are voted in opposition to the Merger, all shares     
subject to the Irrevocable Proxy will be voted in opposition to the Merger.     

Standstill Agreement                                                        

     On April 30, 1996, Zapata and Malcolm I. Glazer entered into the Standstill
Agreement, which, among other things, contains certain restrictions on          
acquisitions, sales and voting of Zapata Common Stock by members of the Glazer  
Group during the term of the Standstill Agreement.                              

    Under the Standstill Agreement, Malcolm I. Glazer has agreed, on behalf of
himself and other members of the Glazer Group, not to increase his beneficial   
ownership of voting securities of Zapata beyond 49.9% of Zapata's outstanding   
voting securities, unless, among other things, such increases are approved by a 
majority of the Zapata Board (excluding members of the Glazer family) or are    
made in response to a tender offer or similar proposal by others to acquire more
than 20% of Zapata's outstanding voting securities. Malcolm I. Glazer may also  
exceed the 49.9% limitation if a holder of greater than 5% of Zapata's          
outstanding voting securities discloses an intent to acquire control of Zapata. 

  So long as the Standstill Agreement remains in effect, Malcolm I. Glazer
will have right of first purchase to maintain his proportionate ownership       
position in Zapata. Conversely, the Standstill Agreement provides that Zapata   
has a right to acquire any voting securities sought to be transferred by the    
Glazer Group. Malcolm I. Glazer is permitted under the Standstill Agreement to  
sell his voting securities free of Zapata's right of first refusal in a number  
of circumstances, including sales or transfers to purchasers that agree to be   
bound by the terms of the Standstill Agreement, pursuant to a public            
distribution, in response to a tender offer by an unaffiliated third party for  
at least 14.9% of Zapata's outstanding voting securities, in connection with    
certain corporate reorganizations or upon conversion, exchange or exercise of   
outstanding securities. The Standstill Agreement prohibits Zapata from          
soliciting proposals for the acquisition of Zapata so long as the Glazer Group  
holds more than 9.9% of Zapata's outstanding voting securities; however, Zapata 
has reserved the right to respond to unsolicited proposals from other parties.  

    If the Zapata Board decides to pursue a combination between Zapata and any
entity in which the Glazer Group owns 15% or more of the voting equity (such as 
Houlihan's), the Zapata Board is required under the Standstill Agreement to     
appoint a special committee to negotiate and approve the transaction. In the    
event of a proposed acquisition of any such entity controlled by Malcolm I.     
Glazer, Malcolm I. Glazer has agreed to grant the special committee an          
irrevocable proxy to vote all of Glazer's Zapata shares in such manner as a     
majority of the committee members may determine.                                

    The Standstill Agreement terminates upon, among other events, the first to
occur of 18 months after Zapata's acquisition of Houlihan's, Zapata's           
announcement that it does not intend to acquire Houlihan's, the acquisition by  
another party of securities representing 20% or more of the voting power        
attributable to Zapata's outstanding capital stock, a breach of the Standstill  
Agreement by Zapata, or Malcolm I. Glazer's acquisition of more than 50% of     
Zapata's outstanding voting securities in accordance with the terms of the      
Standstill Agreement. In the event that Zapata announces its intention to       
acquire another entity controlled by Malcolm I. Glazer prior to the expiration  
of the Standstill Agreement, the Standstill Agreement's term will be            
automatically extended until the first to occur of 18 months after the          
acquisition of such entity or Zapata's announcement that it does not intend to  
acquire such entity.                                                            

REGULATORY APPROVALS                                                            

Under the HSR Act, and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), the Merger may not be consummated until           
notifications have been given and certain information has been furnished to the 
FTC and the Antitrust Division of the Department of Justice (the "Antitrust     
Division"), and specified waiting period requirements have been satisfied. On   
June 21, 1996, each of Zapata and Malcolm I. Glazer filed a premerger           
notification and report form with the FTC and the Antitrust Division.           

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The waiting period under the HSR Act will expire 30 days after the date of      
filing, unless the period is terminated sooner pursuant to a request for early  
termination of the waiting period. If a party receives a request for additional 
information from the FTC or the Antitrust Division prior to the expiration of   
the waiting period, the period will terminate 20 days after such party has      
substantially complied with the request.                                        

     At any time before or after the Effective Time, the Antitrust Division, the
FTC or a private person or entity could seek under the antitrust laws, among    
other things, to enjoin the Merger or to cause Zapata to divest itself, in whole
or in part, of Houlihan's or of other businesses conducted by Zapata. There can 
be no assurance that a challenge to the Merger will not be made or that, if such
a challenge is made, Zapata will prevail. The obligations of Zapata and         
Houlihan's to consummate the Merger are subject to the condition that there be  
no temporary restraining order, preliminary or permanent injunction or other    
order by any court of competent jurisdiction or other legal restraint or        
prohibition preventing the consummation of the Merger. Each party has agreed to 
use its best efforts to have any such injunction or order lifted. See "The      
Merger Agreement -- Conditions to the Merger" and "-- Amendment, Waiver and     
Termination."                                                                   

Except for approvals of liquor licensing authorities in certain       
jurisdictions in which Houlihan's operates, Zapata and Houlihan's are not aware 
of any license or regulatory permit that is material to the businesses of Zapata
or Houlihan's and that is likely to be adversely affected by consummation of the
Merger or of any approval or other action by any state, federal or foreign      
government or governmental agency (other than routine re-licensing procedures)  
that would be required prior to the Merger.                                     

ACCOUNTING TREATMENT                                                            

For accounting and financial reporting purposes, the Merger will be   
accounted for using the purchase method under generally accepted accounting     
principles.                                                                     

RESTRICTIONS ON SALES OF STOCK                                                  

    Shares of Zapata Common Stock to be received in connection with the Merger
by Houlihan's stockholders who are deemed to be "affiliates" (as such term is   
defined in Rule 144 under the Securities Act) of Houlihan's ("Houlihan's        
Affiliates") prior to the Merger (the "Restricted Securities") may be resold by 
them only pursuant to an effective registration statement under the Securities  
Act covering such securities or in transactions permitted by the resale         
provisions of Rule 145(d) under the Securities Act or as otherwise permitted    
under the Securities Act. Under Rule 144 under the Securities Act, an affiliate 
is a person who directly or indirectly controls or is controlled by or is under 
common control with Houlihan's and may include certain officers and directors of
Houlihan's, principal shareholders of Houlihan's and certain other shareholders 
with special relationships with Houlihan's. This Joint Proxy                    
Statement/Prospectus may not be used by such affiliates in connection with any  
resale of their Restricted Securities.                                          

Rule 145 requires that, in a resale of their Restricted Securities,   
Houlihan's Affiliates comply with a volume restriction and other restrictions on
the manner of sale and that certain information about Zapata be currently       
available to the public. The volume restriction limits the number of shares that
an affiliate may transfer, in the aggregate, within any three-month period to   
the greater of (i) one percent of the outstanding Zapata Common Stock or (ii)   
the average weekly reported trading volume in the Zapata Common Stock during the
preceding four calendar weeks. A Houlihan's Affiliate may sell its shares of    
Zapata Common Stock without regard to the volume restrictions and restrictions  
on the manner of sale if it has owned the shares for at least two years, certain
information about Zapata is currently available to the public and the Houlihan's
Affiliate is not then an affiliate of Zapata. A Houlihan's Affiliate may also   
sell its shares of Zapata Common Stock without regard to the foregoing          
restrictions (including the requirement that certain information about Zapata is
currently available to the public) if it has held its shares of Zapata Common   
Stock for a period of at least three years and such person has not been an      
affiliate of Zapata for at least three months. A Houlihan's Affiliate who is    
also an affiliate of Zapata may sell its shares of Zapata Common Stock, subject 
to the volume restrictions and restrictions on the manner of sale, if it has    
held the shares of Zapata Common Stock for a period of at least two years and   
certain information about Zapata is currently available to the public.          

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THE MERGER AGREEMENT

 The detailed terms of and conditions to the Merger are contained in the
Merger Agreement, which is included in full as Appendix A to this Joint Proxy   
Statement/Prospectus and incorporated herein by reference. The following summary
description of the terms of the Merger Agreement is qualified in its entirety   
by, and made subject to, the more complete information set forth in the Merger  
Agreement.                                                                      

MERGER CONSIDERATION                                                            

     Under the Merger Agreement, holders of Houlihan's Common Stock may elect to
receive for each share held (i) $8.00 in cash, without interest ("Cash          
Election"), (ii) $8.00 in Market Value (as defined below) of Zapata Common Stock
("Stock Election"), (iii) $4.00 in cash, without interest, and $4.00 in Market  
Value of Zapata Common Stock ("Cash/Stock Election") or (iv) a residual         
combination of cash and Zapata Common Stock (totaling $8.00 in value) determined
so that the aggregate merger consideration to all Houlihan's stockholders       
(assuming that any who exercise their right to dissent from the Merger under the
DGCL receive $8.00 per share in cash) is equally divided between cash and Zapata
Common Stock ("Residual Election"). Malcolm I. Glazer has agreed to exercise,   
and to the extent within his actual control cause all other members of the      
Glazer Group to exercise, the Residual Election with respect to shares of       
Houlihan's Common Stock owned by him and other members of the Glazer Group. If, 
as a result of Cash Elections made by others, members of the Glazer Group would 
own more than 49.9% of the outstanding Zapata Common Stock following the Merger,
the cash received by holders making Cash Elections will be reduced pro rata (and
Zapata Common Stock having a Market Value equal to the amount of the reduction  
delivered to them in lieu thereof) so that the amount of Zapata Common Stock    
deliverable under the Residual Election is reduced to the extent necessary to   
prevent the 49.9% ownership threshold applicable to the Glazer Group from being 
exceeded. The Cash Election, Stock Election, Cash/Stock Election and Residual   
Election are sometimes referred to in this Joint Proxy Statement/Prospectus,    
individually, as a "Consideration Election" or, collectively, as "Consideration 
Elections." For purposes of this Joint Proxy Statement/Prospectus, "Market      
Value" means the average of the closing price of Zapata Common Stock for the 20 
trading days immediately preceding the second trading day prior to the date of  
the Houlihan's Special Meeting.                                                 

     Based upon the capitalization of Zapata and Houlihan's as of June 18, 1996,
and assuming a Market Value for the Zapata Common Stock of $3.625 per share,    
stockholders of Houlihan's, as such, prior to the Effective Time will hold      
approximately 27.2% of the outstanding Zapata Common Stock immediately after the
Effective Time.                                                                 

CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES

     The conversion of Houlihan's Common Stock into cash and Zapata Common Stock
will occur automatically at the Effective Time.                                 

  Included with the proxy materials mailed to Houlihan's stockholders is a
Form of Election on which each Houlihan's stockholder of record can specify the 
number of shares of Houlihan's Common Stock for which it chooses to make a Cash 
Election, Stock Election, Cash/Stock Election or Residual Election. Houlihan's  
stockholders who do not make an election will be deemed to have made a          
Cash/Stock Election. HOULIHAN'S STOCKHOLDERS WHO DO NOT INTEND TO VOTE IN FAVOR 
OF THE MERGER SHOULD NEVERTHELESS CONSIDER FILING A FORM OF ELECTION IN ORDER TO
AVOID BEING TREATED AS NON-ELECTING STOCKHOLDERS IN THE EVENT THE MERGER IS     
APPROVED AND CONSUMMATED. The filing of a Form of Election will not constitute a
waiver of a stockholder's dissenters' rights. However, Houlihan's stockholders  
who withdraw or fail to perfect dissenters' rights will be deemed to have made  
the Cash/Stock Election with respect to their dissenting shares. See            
"-- Appraisal Rights."                                                          

  In order to be valid, a Form of Election must be completed in accordance
with the instructions contained therein and received by American Stock Transfer 
& Trust Company (the "Exchange Agent") by 5:00 p.m., Houston time, on the date  
one calendar day prior to the date of the Houlihan's Special Meeting (the       
"Election Deadline"). Any record holder of Houlihan's Common Stock may at any   
time prior to the Election Deadline change a previously made Consideration      
Election by written notice to the Exchange Agent accompanied by a               

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properly completed, later-dated Form of Election. Holders exercising their right
to dissent from the Merger under the DGCL may not exercise a Cash Election,     
Stock Election or Residual Election and will be deemed to have made a Cash/Stock
Election.                                                                       

  As soon as practicable after the Effective Time, the Exchange Agent will
send a transmittal form to each Houlihan's stockholder. The transmittal form    
will contain instructions with respect to the surrender of certificates         
representing Houlihan's Common Stock to be exchanged for cash and certificates  
representing Zapata Common Stock based upon the Consideration Election made by  
such Houlihan's stockholder.                                                    

   All cash paid and shares of Zapata Common Stock issued upon conversion of
shares of Houlihan's Common Stock will be deemed to have been paid and issued in
full satisfaction of all rights pertaining to such shares of Houlihan's Common  
Stock.                                                                          

NO FRACTIONAL SHARES OF ZAPATA COMMON STOCK WILL BE ISSUED TO ANY     
HOULIHAN'S STOCKHOLDER UPON CONSUMMATION OF THE MERGER. FOR EACH FRACTIONAL     
SHARE THAT WOULD OTHERWISE BE ISSUED, ZAPATA WILL PAY AN AMOUNT IN CASH (WITHOUT
INTEREST), ROUNDED TO THE NEAREST CENT, DETERMINED BY MULTIPLYING THE MARKET    
VALUE BY THE FRACTIONAL INTEREST TO WHICH SUCH HOLDER WOULD OTHERWISE BE        
ENTITLED (AFTER TAKING INTO ACCOUNT ALL SHARES OF HOULIHAN'S COMMON STOCK THEN  
HELD OF RECORD BY SUCH HOLDER).                                                 

APPRAISAL RIGHTS                                                                

Section 262 of the DGCL (a copy of which is attached as Appendix D)   
entitles any stockholder of record of Houlihan's who objects to the Merger and  
who follows the procedures prescribed by Section 262 to receive, in lieu of     
receiving the consideration proposed under the Merger Agreement, cash equal to  
the fair value of such stockholder's shares as determined by appraisal. Set     
forth below is a summary of the procedures relating to the exercise of appraisal
rights. It does not purport to be a complete statement of the provisions of     
Section 262 and is qualified in its entirety by reference to Appendix D.        

    Houlihan's stockholders who follow the procedures set forth in Section 262
may receive a cash payment equal to the fair value of their shares or Houlihan's
Common Stock upon consummation of the Merger, exclusive of any appreciation or  
depreciation in value arising from the anticipation or consummation of the      
Merger. Houlihan's does not intend to waive compliance with any statutory       
procedures. Unless all of the procedures as set out in Section 262 are followed 
by a stockholder who wishes to exercise appraisal rights, such stockholder will 
be bound by the terms of the Merger Agreement.                                  

 Each Houlihan's stockholder of record who desires to exercise appraisal
rights must satisfy the following conditions and otherwise comply with the      
provisions of Section 262:                                                      

       (i) A separate written demand for appraisal of shares of Houlihan's
    Common Stock must be delivered to Houlihan's before the taking of the vote
     on the Merger. This written demand must reasonably inform Houlihan's of the
identity of the stockholder and that such stockholder thereby demands 
    appraisal of its shares. A proxy or vote abstaining from voting, or voting
     against the Merger, or a failure to vote on the Merger, does not constitute
   such a demand for appraisal within the meaning of Section 262. Houlihan's
will treat only those written demands that are actually received by it
before the taking of the vote on the Merger as being timely.          

      (ii) A stockholder wishing to exercise his or her appraisal rights
     under Section 262 must not vote for or consent to the approval and adoption
     of the Merger Agreement or approval of the Merger. If a stockholder returns
  a signed proxy failing to specify either (a) a vote against the approval
  and adoption of the Merger Agreement and approval of the Merger or (b) a
     direction to abstain from voting on the approval and adoption of the Merger
Agreement and approval of the Merger, the proxy will be voted for the 
   approval and adoption of the Merger Agreement and approval of the Merger,
   which will have the effect of waiving that stockholder's appraisal rights
and nullifying any previously filed written demand for appraisal.     

A demand for appraisal must be made by or for and in the name of the  
stockholder of record, fully and correctly, as such stockholder's name appears  
on the Houlihan's Common Stock certificates. Such demand                        

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cannot be made by the beneficial owner if he does not also hold the shares of   
record. If the Houlihan's Common Stock is owned of record in a fiduciary        
capacity, such as by a trustee, guardian or custodian, such demand must be      
executed by the fiduciary. If the Houlihan's Common Stock is owned of record by 
more than one person, as in a joint tenancy or tenancy in common, such demand   
must be executed by all joint owners. An authorized agent, including an agent   
for two or more joint owners, may execute the demand for appraisal for a        
stockholder of record; however, the agent must identify the record owner and    
expressly disclose the fact that, in exercising the demand, it is acting as     
agent for the record owner.                                                     

  A record owner, such as a broker, who holds Houlihan's Common Stock as a
nominee for others may exercise its right of appraisal with respect to the      
shares held for all or less than all beneficial owners of shares as to which it 
is the record owner. In such case, the written demand must set forth the number 
of shares as to which appraisal is sought. If the number of shares as to which  
appraisal is sought is not expressly mentioned, the demand will be presumed to  
cover all shares of Houlihan's Common Stock outstanding in the name of such     
record owner. Persons whose shares are held by brokers or other nominees and who
desire to exercise dissenters' rights of appraisal should consider either (i)   
arranging to have their shares transferred into their own names of record and   
making the necessary written demand for appraisal or (ii) arranging to have     
their broker or other nominee, as the case may be, take all of the steps        
necessary to comply with Section 262.                                           

 All written demands for appraisal, and any other written communications
which may be required to be given pursuant to the exercise of appraisal rights, 
should be addressed and delivered to Corporate Secretary, Houlihan's Restaurant 
Group, Inc., Two Brush Creek Boulevard, P.O. Box 16000, Kansas City, Missouri   
64112, before the taking of the vote on the Merger Agreement and Merger. In     
addition to informing Houlihan's of the identity of the stockholder and its     
demand for appraisal of its shares, such demand should also specify the mailing 
address of the stockholder and the number of shares of Houlihan's Common Stock  
owned by the stockholder.                                                       

Within ten days after the Effective Date of the Merger, Sub, as the   
surviving corporation in the Merger, must provide notice of the Effective Date  
of the Merger to all stockholders who have complied with Section 262 and have   
not voted for or consented to adoption of the Merger. At any time within 60 days
after the Effective Date of the Merger, any stockholder may withdraw its demand 
for appraisal and accept the terms offered in the Merger Agreement; after this  
60-day period, the stockholder may withdraw its demand for appraisal only with  
the consent of Sub. In either event, the right of such stockholder to appraisal 
ceases upon such withdrawal of demand.                                          

Within 120 days after the Effective Date, either Sub, as the surviving
corporation in the Merger, or any stockholder who has complied with the         
provisions of Section 262, as described above, may file a petition in the       
Delaware Court of Chancery demanding a determination of the fair value of the   
stock of all stockholders entitled to appraisal. If no petition for appraisal is
filed with the Court of Chancery within 120 days after the Effective Date,      
stockholders' rights to appraisal will cease, and all stockholders will become  
entitled to receive the consideration offered pursuant to the Cash Election.    

    If a petition for appraisal is timely filed and a copy thereof served upon
Sub, as the surviving corporation in the Merger, after a hearing on such        
petition the Delaware Court of Chancery will determine which stockholders are   
entitled to appraisal rights and will appraise the shares of Houlihan's Common  
Stock owned by such stockholders, determining the fair value of such shares     
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest to be paid, if any, upon   
the amount determined to be the fair value.                                     

  In determining the fair value, the Delaware court will take into account
all relevant factors. In Weinberger v. UOP, Inc. et al., decided February 1,    
1983, the Delaware Supreme Court expanded the factors that could be considered  
in determining fair value in an appraisal proceeding, stating that "proof of    
value by any techniques or methods which are generally considered acceptable in 
the financial community and otherwise admissible in court" should be considered,
and that "fair price obviously requires consideration of all relevant factors   
involving the value of a company . . ." The Delaware Supreme Court stated that  
in making this determination of fair value, the court must consider market      
value, asset value, dividends, earnings prospects, the nature of the enterprise 
and any other facts that could be ascertained as of the date of the             

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merger that throw any light on future prospects of the merged corporation.      
Section 262 provides that fair value is to be "exclusive of any element of value
arising from the accomplishment or expectation of the merger." In Weinberger,   
the Delaware Supreme Court held that "elements of future value, including the   
nature of the enterprise, which are known or susceptible of proof as of the date
of the merger and not the product of speculation, may be considered."           
Stockholders considering seeking appraisal should be aware that the fair value  
of their shares determined under Section 262 could be more, the same or less    
than the consideration offered in the Merger and that investment banking        
opinions as to fairness from a financial point of view are not necessarily      
opinions as to fair value under Section 262.                                    

The cost of the appraisal proceeding may be determined by the Court of
Chancery and assessed against the parties as the Court deems equitable under the
circumstances. Upon application of a dissenting stockholder, the Court may order
that all or a portion of expenses incurred by a dissenting stockholder in       
connection with the appraisal proceeding, including, without limitation,        
reasonable attorneys' fees and the fees and expenses of experts, be charged pro 
rata against the value of all shares of Houlihan's Common Stock entitled to     
appraisal.                                                                      

    Any stockholder who has duly demanded appraisal in compliance with Section
262 will not, after the Effective Date, be entitled to vote for any purpose the 
shares of Houlihan's Common Stock subject to such demand or to receive payment  
of dividends or other distributions with respect to the shares held by such     
holder, except for dividends or distribution payable to stockholders of record  
at a date prior to the Effective Date.                                          

A VOTE AGAINST THE APPROVAL OF ADOPTION OF THE MERGER AGREEMENT AND   
APPROVAL OF THE MERGER WILL NOT BE DEEMED TO SATISFY THE REQUIREMENTS FOR A     
WRITTEN DEMAND FOR PAYMENT OF THE FAIR VALUE OF THE SHARES OWNED BY A DISSENTING
HOULIHAN'S STOCKHOLDER.                                                         

TREATMENT OF STOCK OPTIONS                                                      

At the Effective Time, Houlihan's obligations with respect to each    
Houlihan's Option under the Houlihan's Stock Option Plans, whether vested or    
unvested, will be assumed by Zapata. Each Houlihan's Option so assumed by Zapata
shall continue to have, and be subject to, the same terms and conditions set    
forth in the Houlihan's Stock Option Plan and agreement pursuant to which such  
Houlihan's Option was issued as in effect immediately prior to the Effective    
Time, except that (i) each Houlihan's Option granted under any Houlihan's Stock 
Option Plan shall become fully vested and exercisable, (ii) each Houlihan's     
Option shall be exercisable for that number of whole shares of Zapata Common    
Stock equal to the product of the number of shares of Houlihan's Common Stock   
covered by the Houlihan's Option immediately prior to the Effective Time        
multiplied by the Exchange Ratio, rounded up to the nearest whole number of     
shares of Zapata Common Stock and (iii) the per share exercise price for the    
shares of Zapata Common Stock issuable upon the exercise of such Houlihan's     
Option shall be equal to the quotient determined by dividing the exercise price 
per share of Houlihan's Common Stock specified for such Houlihan's Option under 
the applicable Houlihan's Stock Option Plan or agreement immediately prior to   
the Effective Time by the Exchange Ratio, rounding the resulting exercise price 
down to the nearest whole cent.                                                 

CONDITIONS TO THE MERGER                                                        

Conditions to Obligations of Each Party to Effect the Merger                

   The respective obligations of each party to effect the Merger are subject
to the satisfaction prior to the closing of the Merger (the "Closing") of the   
following conditions:                                                           

    Houlihan's Stockholder Approval. The Merger Agreement and the Merger shall
have been approved and adopted by the affirmative vote of the holders of a      
majority of the outstanding shares of Houlihan's Common Stock entitled to vote  
thereon.                                                                        

   Zapata Stockholder Approval. The Merger Proposal shall have been approved
by the affirmative vote of a majority of the combined votes of the outstanding  
shares of Zapata Common Stock and Zapata $2 Preference                          

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Stock entitled to vote and voting on the matter, voting together as a single    
class. Malcolm I. Glazer, individually and as trustee of the Malcolm Glazer     
Trust, who beneficially owns an aggregate of 10,395,384 shares, or approximately
35.2%, of outstanding Zapata Common Stock (excluding 20,000 shares that may be  
acquired upon exercise of options exercisable within 60 days of the Zapata      
Record Date), has granted the Irrevocable Proxy to members of the Zapata Special
Committee to vote all such shares in connection with the Merger Proposal. The   
Zapata Special Committee has determined to vote the shares of Zapata Common     
Stock subject to the Irrevocable Proxy in the following manner:                 

     (i) if a majority of the shares present and voting at the meeting
     (other than shares owned by members of the Glazer Group) are voted in favor
     of the Merger Proposal, all shares subject to the Irrevocable Proxy will be
voted in favor of the Merger Proposal; and                            

      (ii) if a majority of the shares present and voting at the meeting
(other than shares owned by members of the Glazer Group) are voted in 
  opposition to the Merger Proposal, all shares subject to the Irrevocable
Proxy will be voted against the Merger Proposal.                      

See "Approval of the Merger and Related Transactions--Irrevocable Proxy and     
Standstill Agreement."                                                          

    Government Approvals. The waiting period applicable to the consummation of
the Merger under the HSR Act must have expired or been terminated, the          
registration statement of which this Joint Proxy Statement/Prospectus is a part,
must have become effective under the Securities Act and must not be the subject 
of any stop order or proceeding seeking a stop order, and Zapata must have      
received all material securities or blue sky permits and other authorizations   
necessary to issue the shares of Zapata Common Stock pursuant to the Merger     
Agreement. See "Approval of the Merger and Related Transactions--Regulatory     
Approvals."                                                                     

Absence of Restraints. No temporary restraining order, preliminary or 
permanent injunction or other order issued by any court of competent            
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Merger may be in effect at the Effective Time.                           

    Listing of Zapata Common Stock. The shares of Zapata Common Stock issuable
to Houlihan's stockholders pursuant to the Merger Agreement shall have been     
approved for listing on the NYSE, subject to official notice of issuance.       

   Credit Facility Resolution. The indebtedness outstanding under Houlihan's
credit facility (approximately $80.6 million at April 30, 1996) shall have been 
refinanced or otherwise repaid.                                                 

  Baker & Botts, L.L.P. Opinion. Zapata and Houlihan's shall have received
the legal opinion of Baker & Botts, L.L.P., dated the date of the Closing,      
reasonably satisfactory in form and substance to Houlihan's and its counsel and 
to Zapata, to the effect that the Merger will be treated for federal income tax 
purposes as a reorganization qualifying under the provisions of Section 368(a)  
of the Code. See "Approval of the Merger and Related Transactions-- Certain     
Federal Income Tax Consequences."                                               

Additional Conditions to Obligations of Zapata and Sub                      

   The obligations of Zapata and Sub to effect the Merger are subject to the
satisfaction of certain other conditions, including Houlihan's having obtained  
all material consents, waivers, approvals, authorizations or orders required to 
be obtained by Houlihan's for the consummation of the Merger.                   

Additional Conditions to Obligations of Houlihan's                          

The obligations of Houlihan's to effect the Merger are subject to the 
satisfaction of certain other conditions, including (i) that Zapata shall have  
taken action, effective immediately after the Effective Time, to appoint        
Frederick R. Hipp and Warren H. Gfeller (or substitute designees by Houlihan's) 
to Zapata's Board of Directors and (ii) Zapata's having offered employment to   
William W. Moreton as Executive Vice President and Chief Financial Officer of   
Zapata pursuant to the terms of an employment agreement. See "--Certain         
Employment and Indemnification Arrangements."                                   

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REPRESENTATIONS AND WARRANTIES                                                  

 The Merger Agreement contains various representations and warranties by
each of Zapata, Sub and Houlihan's relating to, among other things, (i) the     
organization and foreign qualification of it and certain of its subsidiaries,   
(ii) its capital structure, (iii) authorization, execution, delivery,           
performance and enforceability of the Merger Agreement and related matters, and 
the absence of conflicts, violations of or defaults or accelerations under its  
governing documents and material agreements, (iv) the absence of any material   
adverse change or undisclosed material liabilities, (v) compliance with certain 
laws, (vi) truth and correctness of documents and reports filed with the        
Commission and (vii) with respect to Sub, the absence of interim operations of  
Sub.                                                                            

CERTAIN COVENANTS; CONDUCT OF BUSINESS                                          

During the period from the date of the Merger Agreement and continuing
until the Effective Time, each of Zapata and Houlihan's has agreed as to itself 
and its subsidiaries that it will: (i) carry on its business in the ordinary    
course of business consistent with past practice; (ii) not adopt any amendment  
to its charter or bylaws; (iii) not issue, reissue, sell or pledge or authorize 
or propose the issuance, reissuance, sale or pledge of shares of capital stock, 
or securities convertible into capital stock, or any rights, warrants or options
to acquire any convertible securities or capital stock, other than issuances of 
shares of capital stock upon the exercise or conversion of securities           
outstanding on the date of the Merger Agreement and certain issuances involving 
subsidiaries; (iv) not declare, set aside or pay any dividends on or make other 
distributions in respect of any of its capital stock, except for certain        
permitted intercompany transactions; (v) not adjust, split, combine, subdivide, 
reclassify or redeem, purchase or otherwise acquire, or propose to redeem or    
purchase or otherwise acquire, any shares of capital stock; (vi) not incur,     
assume or pre-pay any debt, except as previously disclosed, or assume, guarantee
or otherwise become liable for the obligations of another person, or make any   
loans, advances or capital contributions to, or investments in, any other       
person, except in the ordinary course of business; (vii) not settle or          
compromise any pending or threatened suit or claim relating to the transactions 
contemplated by the Merger Agreement or involving the payment of more than      
$500,000 in cash or property; (viii) not grant any increases in the compensation
of any of its employees, except increases to non-executive officer employees in 
the ordinary course of business consistent with past practice, or establish,    
enter into, terminate or amend any employee benefit plan, except to the extent  
required by law; (ix) not acquire, sell, lease or dispose of any material       
assets; (x) not modify, amend, terminate, release or assign any material        
agreement other than in the ordinary course consistent with past practice; (xi) 
not make any material tax election not required by law or settle or compromise  
any material tax liability, except as previously disclosed; and (xii) not change
any material accounting principle or practice except as required by the         
Commission and the Financial Accounting Standards Board.                        

CERTAIN EMPLOYMENT AND INDEMNIFICATION ARRANGEMENTS                             

    The Merger Agreement provides that as a condition to Houlihan's obligation
to consummate the Merger, Zapata offer to employ William W. Moreton, currently  
Executive Vice President and Chief Financial Officer of Houlihan's, as Executive
Vice President and Chief Financial Officer of Zapata on terms providing         
generally for a minimum annual salary of $250,000 (to be reviewed annually), an 
annual bonus and for indemnification by Zapata of Mr. Moreton to the fullest    
extent permitted by law for all losses, costs, damages and expenses incurred by 
Mr. Moreton in connection with his service as an executive officer of Zapata.   

     Zapata has agreed that immediately following the Merger, Warren H. Gfeller,
currently a director of Houlihan's, and Frederick R. Hipp, currently the        
President and Chief Executive Officer of Houlihan's, will be added to the Zapata
Board.                                                                          

The Merger Agreement also generally requires Zapata to continue or    
otherwise maintain, for two years after the Merger, certain employee benefit    
plans of Houlihan's on terms no less favorable, in the aggregate, than the most 
favorable of (i) those applicable to Zapata's employees, (ii) those applicable  
to Houlihan's employees on the date of the Merger Agreement and (iii) plans     
reasonably competitive in the industry. In addition, Zapata has agreed to (a)   
honor all of Houlihan's existing employment, severance, termination and         

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indemnification agreements in accordance with their terms, (b) for a period of  
two years after the Merger, honor all of Houlihan's severance plans and         
policies, (c) waive any pre-existing condition limitations with respect to      
employees of Houlihan's as of the Effective Time, (d) treat employees of        
Houlihan's as of the Effective Time as similarly situated employees of Zapata   
with respect to post-retirement plans and policies and (e) treat service with   
Houlihan's as service with Zapata for purposes of employee benefit plans. The   
Merger Agreement also provides that at the Effective Time, each share of        
Houlihan's Common Stock subject to restrictions on transfer will become fully   
vested and freely transferrable and will be exchanged for unrestricted shares of
Zapata Common Stock.                                                            

With respect to indemnification, the Merger Agreement provides that   
following the Merger, Zapata will cause Sub to maintain for a period of six     
years from the Effective Time the provisions contained in Houlihan's Restated   
Certificate of Incorporation relating to indemnification with respect to        
directors and officers of Houlihan's as of the Effective Time. Zapata has also  
agreed to provide directors' and officers' liability insurance with comparable  
coverage (with respect to occurrences prior to the Effective Time) as that      
maintained by Houlihan's as of the date of the Merger Agreement for a period of 
six years after the Effective Time, and to indemnify officers and directors of  
Houlihan's serving as of the Effective Time against all losses, claims and      
expenses arising out of each such officer's or director's service to Houlihan's 
at or prior to the Effective Time, to the fullest extent allowed by law.        

ADDITIONAL AGREEMENTS                                                           

  Pursuant to the Merger Agreement, Zapata and Houlihan's have agreed that
(i) Zapata will use its reasonable best efforts to (a) have the Registration    
Statement declared effective as promptly as practicable and (b) obtain all      
necessary state securities laws or "blue sky" permits, approvals and            
registrations; (ii) each will use its reasonable best efforts to have timely    
delivered to the other "comfort" letters from its independent public            
accountants; (iii) each will each afford to the other access to its respective  
officers, properties and other information as the other party may reasonably    
request; (iv) each will call a meeting of its stockholders to be held as        
promptly as practicable; (v) each will comply with all legal requirements       
imposed on it with respect to the Merger and furnish information to the other in
connection with such legal requirements; (vi) Zapata will take all corporate    
action necessary to permit it to issue shares of Zapata Common Stock pursuant to
the Merger Agreement and will use all reasonable efforts to have such shares    
approved for listing on the NYSE, subject to official notice of issuance; (vii) 
each agrees to certain employee benefit matters; (viii) Zapata will assume the  
Houlihan's Options; (ix) Zapata will, subject to certain limitations, maintain  
indemnification for directors and officers of Houlihan's; (x) each will         
cooperate and consult with the other regarding press releases and other         
announcements regarding the Merger; and (xi) neither will take nor omit to take 
any action that would affect the qualification of the Merger as a reorganization
described in Section 368(a) of the Code.                                        

EXPENSES AND TERMINATION FEE                                                    

Except for Compensable Expenses (as defined below), whether or not the
Merger is consummated, all costs and expenses incurred in connection with the   
Merger Agreement and the transactions contemplated thereby will be paid by the  
party incurring such expenses.                                                  

  The Merger Agreement also provides that Houlihan's will reimburse Zapata
for its reasonable and documented expenses incurred in connection with pursuing 
the transactions contemplated by the Merger Agreement ("Compensable Expenses")  
(not to exceed $2,000,000) if (i) Houlihan's accepts a proposal for or otherwise
engages in a merger, acquisition or other change in control transaction with a  
person other than Zapata or Sub or (ii) Houlihan's Board of Directors or the    
Houlihan's Special Committee shall have withdrawn or modified, in any manner    
adverse to Zapata, its recommendation for approval of the Merger Agreement and  
the Merger.                                                                     

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AMENDMENT, WAIVER AND TERMINATION                                               

   The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, whether before or after approval of the   
matters presented in connection with the Merger by the stockholders of Zapata   
and Houlihan's:                                                                 

       (i) by mutual written consent of Zapata and Houlihan's by action of
their respective Boards of Directors or special committees thereof;   

         (ii) by either Zapata or Houlihan's if the Merger shall not have been
  consummated by October 1, 1996 (provided that the right to terminate the
Merger Agreement shall not be available to any party whose failure to 
    fulfill any obligation under the Merger Agreement has been the cause of or
     resulted in the failure of the Merger to occur and such failure constitutes
a breach under the Merger Agreement);                                 

(iii) by either Zapata or Houlihan's if a court of competent
jurisdiction shall have issued an injunction permanently restraining, 
enjoining or otherwise prohibiting consummation of the Merger, which  
injunction has become final and non-appealable;                       

         (iv) by Houlihan's if it accepts an acquisition proposal from another
person and reimburses Zapata for its Compensable Expenses;            

    (v) by Zapata if Houlihan's Board of Directors or the Houlihan's
 Special Committee thereof shall have withdrawn or modified, in a manner
    adverse to Zapata, its recommendation for approval of the Merger Agreement
and the Merger;                                                       

 (vi) by Houlihan's if the Zapata Special Committee shall have
withdrawn or modified, in a manner adverse to Houlihan's, its         
recommendation for approval of the issuance of the Merger Proposal;   

          (vii) by either Zapata or Houlihan's if any of the conditions to their
     respective obligations to consummate the Merger have not been satisfied; or

       (viii) by Zapata if more than 1,000,000 shares of Houlihan's Common
Stock have dissented from the Merger as of the Closing.               

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UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS

The following unaudited pro forma combined condensed balance sheet and
unaudited pro forma combined condensed income statements (collectively, the "Pro
Forma Financial Statements") give effect to (i) the Merger under the purchase   
method of accounting, (ii) the Cimarron Sale and (iii) the Envirodyne Stock     
Purchases. The pro forma combined condensed balance sheet of Zapata at March 31,
1996 sets forth the historical financial position of Zapata and Houlihan's as if
the Merger, the Cimarron Sale and the Additional Envirodyne Stock Purchases had 
been consummated on March 31, 1996. The pro forma combined condensed income     
statements of Zapata for the six months ended March 31, 1996 and March 31, 1995 
and for the twelve months ended September 30, 1995 reflect the historical       
results of Zapata and of Houlihan's for such periods as if the Merger and the   
Envirodyne Stock Purchases had been consummated on October 1, 1994. Houlihan's  
historical balance sheet is as of March 25, 1996 and its historical income      
statements are for the six months ended March 25, 1996 and March 27, 1995, and  
the twelve months ended September 25, 1995. Because the operations of Cimarron  
were reflected as discontinued operations in the historical income statements of
Zapata for the periods presented, the pro forma combined condensed income       
statements of Zapata do not reflect any adjustments to give effect to the       
Cimarron Sale. The Pro Forma Financial Statements should be read in conjunction 
with the historical consolidated financial statements and related notes and     
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations" contained in Zapata's and Houlihan's Annual Reports on Form 10-K for
the years ended September 30, 1995 and December 25, 1995, respectively, which   
are incorporated by reference in this Joint Proxy Statement/Prospectus.         

     The Pro Forma Financial Statements set forth below may not be indicative of
what the actual results of operations would have been had the transaction       
occurred on the date indicated or that may be obtained in the future. Zapata has
not completed the appraisals and evaluation necessary for the final purchase    
price allocation related to the Merger; accordingly, actual adjustments that    
reflect appraisals and other evaluations of the purchased assets and assumed    
liabilities may differ from the pro forma adjustments. The results of Houlihan's
will be included with Zapata's results from the closing date of the Merger.     

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ZAPATA CORPORATION

UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1996
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                               PRO FORMA                                                           
                                              ADJUSTMENTS                                                          
                               HISTORICAL    CIMARRON SALE     PRO FORMA                   PRO FORMA               
                                 ZAPATA      & ENVIRODYNE     TOTAL BEFORE  HISTORICAL      MERGER        PRO FORMA
                               CORPORATION  STOCK PURCHASES    THE MERGER   HOULIHAN'S    ADJUSTMENTS       TOTAL  
                               -----------  ---------------   ------------  ----------    -----------     ---------
                                                                                                                   
Current assets:                                                                                                    
  Cash and cash                                                                                                    
    equivalents..............   $  88,386      $  23,925 (1)    $102,839     $ 15,563      $ (40,000)(3)  $ 69,902 
                                                  (1,002)(1)                                  (3,000)(3)           
                                                  (1,351)(1)                                  (5,500)(5)           
                                                  (7,119)(2)                                                       
  Other current assets.......      33,040          1,152 (1)      34,192        7,330             --        41,522 
  Net assets of discontinued                                                                                       
    operations...............      22,724        (22,724)(1)          --           --             --            -- 
                                 --------       --------        --------     --------       --------      -------- 
        Total current                                                                                              
          assets.............     144,150         (7,119)        137,031       22,893        (48,500)      111,424 
Investments and other                                                                                              
  assets.....................      44,890          7,119 (2)      52,009       66,910         73,532 (4)   128,282 
                                                                                             (61,196)(4)           
                                                                                              (2,973)(3)           
Property and equipment,                                                                                            
  net........................      40,419             --          40,419      105,245                      145,664 
                                 --------       --------        --------     --------       --------      -------- 
        Total assets.........   $ 229,459      $      --        $229,459     $195,048      $ (39,137)     $385,370 
                                 ========       ========        ========     ========       ========      ======== 
Current liabilities:                                                                                               
  Current maturities of long-                                                                                      
    term debt................   $  16,098      $      --        $ 16,098     $ 11,209(5)   $  (5,500)(5)  $ 21,807 
  Accounts payable and                                                                                             
    accrued liabilities......      20,825             --          20,825       20,934             --        41,759 
                                 --------       --------        --------     --------       --------      -------- 
        Total current                                                                                              
          liabilities........      36,923             --          36,923       32,143         (5,500)       63,566 
                                 --------       --------        --------     --------       --------      -------- 
Long-term debt...............      18,406             --          18,406       77,724(5)          --        96,130 
                                 --------       --------        --------     --------       --------      -------- 
Deferred income taxes and                                                                                          
  other liabilities..........      18,552             --          18,552       14,317         (2,973)(3)    30,096 
                                                                                                 200 (4)           
                                 --------       --------        --------     --------       --------      -------- 
Stockholders' equity:                                                                                              
  Preference stock...........           3             --               3           --             --             3 
  Common stock...............       7,387             --           7,387          100           (100)(3)    10,146 
                                                                                               2,759 (3)           
  Capital in excess of par                                                                                         
    value....................     131,962             --         131,962       59,900        (59,900)(3)   169,203 
                                                                                              37,241 (3)           
  Reinvested earnings........      16,226             --          16,226       10,864        (10,864)(3)    16,226 
                                 --------       --------        --------     --------       --------      -------- 
                                  155,578             --         155,578       70,864        (30,864)      195,578 
                                 --------       --------        --------     --------       --------      -------- 
        Total liabilities and                                                                                      
          stockholders'                                                                                            
          equity.............   $ 229,459      $      --        $229,459     $195,048      $ (39,137)     $385,370 
                                 ========       ========        ========     ========       ========      ======== 

(The accompanying notes are an integral part of the Pro Forma Financial 
Statements.)

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NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET 

The following notes set forth the assumptions used in preparing the   
unaudited pro forma combined condensed balance sheet as of March 31, 1996.      

         (1) To record the sale of substantially all of the assets of Cimarron
in a series of transactions for $23,925,000 in April and May 1996. In 
connection with these sales, Zapata repaid $1,002,000 of debt, paid   
     $1,351,000 in commissions, fees, severance and other expenses, and retained
certain assets with a book value of $1,152,000.                       

       (2) To record the Additional Envirodyne Stock Purchases for a total
purchase price of $7,119,000.                                         

(3) To record (i) the Merger for consideration consisting of
   $40,000,000 cash and 11,032,289 shares of Zapata Common Stock at a market
    value of $3.625 per share as of June 18, 1996 (the actual number of shares
of Zapata Common Stock issued in connection with the Merger will be   
  calculated based on the average of the closing price per share of Zapata
    Common Stock on the NYSE for the 20 trading days immediately preceding the
  second trading day prior to the date of the Houlihan's Special Meeting),
     (ii) additional cash consideration of $3,000,000 for estimated advisory and
 other fees associated with the Merger and (iii) the reclassification of
     Zapata's tax asset of $2,973,000 against Houlihan's deferred tax liability.

    (4) To record an estimated excess purchase price over net assets
acquired of $73,532,000 and to eliminate a $61,196,000 balance for the
    reorganization value in excess of amounts allocable to identifiable assets
 recorded on Houlihan's historical balance sheet. Based on a preliminary
    review of the assets to be acquired and the liabilities to be assumed, the
 fair market value of such assets and liabilities approximate historical
recorded values.                                                      

        (5) To reflect the scheduled principal payment made by Houlihan's on
     March 29, 1996. Prior to or concurrent with the consummation of the Merger,
the Houlihan's bank credit facility will be refinanced. The terms and 
conditions of the new credit facility are expected to be materially   
   consistent with the terms and conditions of the existing credit facility,
   with a maturity in 2001. Accordingly, no additional adjustments have been
reflected in the Pro Forma Financial Statements as a result of such   
refinancing.                                                          

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ZAPATA CORPORATION

UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT 
SIX MONTHS ENDED MARCH 31, 1996 
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                        [Enlarge/Download Table]

                                          PRO FORMA                                                              
                           HISTORICAL    ADJUSTMENTS       PRO FORMA                  PRO FORMA                  
                             ZAPATA       ENVIRODYNE     TOTAL BEFORE   HISTORICAL     MERGER       PRO FORMA    
                           CORPORATION  STOCK PURCHASE    THE MERGER    HOULIHAN'S   ADJUSTMENTS      TOTAL      
                           -----------  --------------   -------------  ----------   -----------    ---------    
                                                                                                                 
Revenues..................   $38,742       $     --         $38,742      $ 133,847     $    --      $ 172,589    
                             -------       --------         -------       --------                               
Expenses:                                                                                                        
  Operating...............    29,967             --          29,967        111,542          --        141,509    
  Depreciation, depletion                                                                                        
     and amortization.....     1,553             --           1,553          7,564       1,838 (2)      9,129    
                                                 --                                     (1,826)(2)               
  Selling, general and                                                                                           
     administrative.......     3,430             --           3,430          8,949          --         12,379    
                             -------       --------         -------       --------                               
                              34,950             --          34,950        128,055          12        163,017    
                             -------       --------         -------       --------                               
Operating income..........     3,792             --           3,792          5,792         (12)         9,572    
                             -------       --------         -------       --------                               
Other income (expense):                                                                                          
  Interest expense, net...      (296)            --            (296)        (3,369)         --         (3,665)   
  Equity in loss of                                                                                              
     unconsolidated                                                                                              
     affiliate............    (1,438)        (1,860)(1)      (3,298)            --          --         (3,298)   
  Other...................       (18)            --             (18)         1,728          --          1,710    
                             -------       --------         -------       --------                               
                              (1,752)        (1,860)         (3,612)        (1,641)         --         (5,253)   
                             -------       --------         -------       --------                               
Income (loss) from                                                                                               
  continuing operations                                                                                          
  before taxes............     2,040         (1,860)            180          4,151         (12)         4,319    
                             -------       --------         -------       --------                               
Provision for income                                                                                             
  taxes...................       828           (651)(1)         177          2,087          --          2,264    
                             -------       --------         -------       --------                               
Income from continuing                                                                                           
  operations..............   $ 1,212       $ (1,209)        $     3      $   2,064     $   (12)     $   2,055    
                             =======       ========         =======       ========                               
Per share data:                                                                                                  
  Income from continuing                                                                                         
     operations...........   $  0.04       $  (0.04)        $    --      $    0.21                  $    0.05    
                             =======       ========         =======       ========                               
Average common and common                                                                                        
  equivalent shares                                                                                              
  outstanding.............    29,562         29,562          29,562         10,017                     40,809 (3)
                             =======       ========         =======       ========                               

(The accompanying notes are an integral part of the Pro Forma Financial 
Statements.)

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NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT

The following notes set forth the assumptions used in preparing the   
unaudited pro forma combined condensed income statement for the six months ended
March 31, 1996.                                                                 

         (1) To record additional equity interest in the results of operations
of Envirodyne as a result of the Envirodyne Stock Purchases. Zapata's 
    investment is accounted for under the equity method of accounting. Because
   Envirodyne's financial statements are not available to Zapata on a timely
  basis (primarily as a result of the different fiscal years of Zapata and
Envirodyne), Zapata reports its equity in Envirodyne's results of     
operations on a three-month delayed basis.                            

     (2) To record amortization of the purchase price in excess of net
     assets acquired for the six months ended March 31, 1996 totaling $1,838,000
 related to the Merger and to reverse Houlihan's historical amortization
totaling $1,826,000 related to the reorganization value in excess of  
amounts allocable to identifiable assets.                             

        (3) Assumes the issuance of 11,032,289 shares of Zapata Common Stock
     in connection with the Merger. The actual number of shares of Zapata Common
    Stock issued in connection with the Merger will be calculated based on the
   average of the closing price per share of Zapata Common Stock on the NYSE
    for the 20 trading days immediately preceding the second trading day prior
     to the date of the Houlihan's Special Meeting. Also includes 215,000 common
    equivalent shares associated with Zapata's assumption of Houlihan's Common
Stock Option Plans in connection with the Merger.                     

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ZAPATA CORPORATION

UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT 
SIX MONTHS ENDED MARCH 31, 1995 
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                        [Enlarge/Download Table]

                                           PRO FORMA                                                           
                                          ADJUSTMENTS                                                          
                             HISTORICAL   ENVIRODYNE      PRO FORMA                  PRO FORMA                 
                               ZAPATA        STOCK      TOTAL BEFORE   HISTORICAL     MERGER       PRO FORMA   
                             CORPORATION   PURCHASES     THE MERGER    HOULIHAN'S   ADJUSTMENTS      TOTAL     
                             -----------  -----------   -------------  ----------   -----------    ---------   
                                                                                                               
Revenues....................   $44,594      $    --        $44,594      $ 135,192     $    --      $ 179,786   
                             -----------  -----------   -------------  ----------   -----------    ---------   
Expenses:                                                                                                      
  Operating.................    37,341           --         37,341        110,192          --        147,533   
  Depreciation, depletion                                                                                      
     and amortization.......     3,318           --          3,318          7,240       1,838(2)      10,570   
                                                                                       (1,826)(2)              
  Selling, general and                                                                                         
     administrative.........     3,826           --          3,826          8,996          --         12,822   
                             -----------  -----------   -------------  ----------   -----------    ---------   
                                44,485           --         44,485        126,428          12        170,925   
                             -----------  -----------   -------------  ----------   -----------    ---------   
Operating income............       109           --            109          8,764         (12)         8,861   
                             -----------  -----------   -------------  ----------   -----------    ---------   
Other income (expense):                                                                                        
  Interest expense, net.....      (800)          --           (800)        (3,722)         --         (4,522)  
  Gain on sale of Tidewater                                                                                    
     common stock...........     4,811           --          4,811             --          --          4,811   
  Equity in loss of                                                                                            
     unconsolidated                                                                                            
     affiliate..............        --         (112)(1)       (112)            --          --           (112)  
  Other.....................       568           --            568            770          --          1,338   
                             -----------  -----------   -------------  ----------   -----------    ---------   
                                 4,579         (112)         4,467         (2,952)         --          1,515   
                             -----------  -----------   -------------  ----------   -----------    ---------   
Income (loss) from                                                                                             
  continuing operations                                                                                        
  before taxes..............     4,688         (112)         4,576          5,812         (12)        10,376   
                             -----------  -----------   -------------  ----------   -----------    ---------   
Provision for income                                                                                           
  taxes.....................     1,699          (39)(1)      1,660          2,541          --          4,201   
                             -----------  -----------   -------------  ----------   -----------    ---------   
Income from continuing                                                                                         
  operations................   $ 2,989      $   (73)       $ 2,916      $   3,271     $   (12)     $   6,175   
                             =========    =========      =========       ========   =========       ========   
Per share data:                                                                                                
  Income from continuing                                                                                       
     operations.............   $  0.09      $    --        $  0.09      $    0.33                  $    0.14   
                             =========    =========      =========       ========                   ========   
Average common and common                                                                                      
  equivalent shares                                                                                            
  outstanding...............    31,768       31,768         31,768          9,998                     43,037(3)
                             =========    =========      =========       ========                   ========   

(The accompanying notes are an integral part of the Pro Forma Financial 
Statements.)

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NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT

The following notes set forth the assumptions used in preparing the   
unaudited pro forma combined condensed income statement for the six months ended
March 31, 1995.                                                                 

         (1) To record the acquisition of an equity interest in the results of
 operations of Envirodyne as a result of the Envirodyne Stock Purchases.
    Because Envirodyne's financial statements are not available to Zapata on a
     timely basis (primarily as a result of the different fiscal years of Zapata
and Envirodyne), Zapata reports its equity in Envirodyne's results of 
operations on a three-month delayed basis.                            

     (2) To record amortization of the purchase price in excess of net
     assets acquired for the six months ended March 31, 1995 totaling $1,838,000
 related to the Merger and to reverse Houlihan's historical amortization
totaling $1,826,000 related to the reorganization value in excess of  
amounts allocable to identifiable assets.                             

        (3) Assumes the issuance of 11,032,289 shares of Zapata Common Stock
     in connection with the Merger. The actual number of shares of Zapata Common
    Stock issued in connection with the Merger will be calculated based on the
   average of the closing price per share of Zapata Common Stock on the NYSE
    for the 20 trading days immediately preceding the second trading day prior
     to the date of the Houlihan's Special Meeting. Also includes 237,000 common
   equivalent shares associated with Zapata's assumption of Houlihan's Stock
Option Plans in connection with the Merger.                           

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ZAPATA CORPORATION

UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT 
TWELVE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                        [Enlarge/Download Table]

                                        PRO FORMA                                                            
                                        ADJUSTMENTS                                                          
                           HISTORICAL   ENVIRODYNE     PRO FORMA                   PRO FORMA       PRO       
                             ZAPATA       STOCK       TOTAL BEFORE   HISTORICAL     MERGER        FORMA      
                           CORPORATION  PURCHASES     THE MERGER     HOULIHAN'S   ADJUSTMENTS     TOTAL      
                           -----------  ----------    -----------   ------------  -----------    --------    
                                                                                                             
Revenues.................   $ 103,068    $     --      $ 103,068      $268,534      $    --      $371,602    
                             --------    --------       --------       -------      -------      --------    
Expenses:                                                                                                    
  Operating..............      86,739          --         86,739       222,148           --       308,887    
  Provisions for asset                                                                                       
     write-downs.........      12,341          --         12,341            --           --        12,341    
  Depreciation, depletion                                                                                    
     and amortization....       5,607          --          5,607        14,710        3,676(2)     20,342    
                                                                                     (3,651)(2)              
  Selling, general and                                                                                       
     administrative......       7,601          --          7,601        16,912           --        24,513    
                             --------    --------       --------       -------      -------      --------    
                              112,288          --        112,288       253,770           25       366,083    
                             --------    --------       --------       -------      -------      --------    
Operating income                                                                                             
  (loss).................      (9,220)         --         (9,220)       14,764          (25)        5,519    
                             --------    --------       --------       -------      -------      --------    
Other income (expense):                                                                                      
  Interest expense,                                                                                          
     net.................      (1,789)         --         (1,789)       (7,535)          --        (9,324)   
  Gain on sale of                                                                                            
     Tidewater common                                                                                        
     stock...............       4,811          --          4,811            --           --         4,811    
  Equity in loss of                                                                                          
     unconsolidated                                                                                          
     affiliate...........        (719)     (1,508)(1)     (2,227)           --           --        (2,227)   
  Other..................      (2,106)         --         (2,106)        1,963           --          (143)   
                             --------    --------       --------       -------      -------      --------    
                                  197      (1,508)        (1,311)       (5,572)          --        (6,883)   
                             --------    --------       --------       -------      -------      --------    
Income (loss) from                                                                                           
  continuing operations                                                                                      
  before taxes...........      (9,023)     (1,508)       (10,531)        9,192          (25)       (1,364)   
                             --------    --------       --------       -------      -------      --------    
Provision (benefit) for                                                                                      
  income taxes...........      (3,179)       (528)(1)     (3,707)        4,123           --           416    
                             --------    --------       --------       -------      -------      --------    
Income (loss) from                                                                                           
  continuing                                                                                                 
  operations.............   $  (5,844)   $   (980)     $  (6,824)     $  5,069      $   (25)     $ (1,780)   
                             ========    ========       ========       =======      =======      ========    
Per share data:                                                                                              
  Income (loss) from                                                                                         
     continuing                                                                                              
     operations..........   $   (0.19)   $  (0.03)     $   (0.22)     $   0.51                   $  (0.04)   
                             ========    ========       ========       =======                   ========    
Average common and common                                                                                    
  equivalent shares                                                                                          
  outstanding............      30,706      30,706         30,706         9,998                     41,968 (3)
                             ========    ========       ========       =======                   ========    

(The accompanying notes are an integral part of the Pro Forma Financial 
Statements.)

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NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT

The following notes set forth the assumptions used in preparing the   
unaudited pro forma combined condensed income statement for the twelve months   
ended September 30, 1995.                                                       

         (1) To record the acquisition of an equity interest in the results of
 operations of Envirodyne as a result of the Envirodyne Stock Purchases.
     Zapata's investment is accounted for under the equity method of accounting.
    Because Envirodyne's financial statements are not available to Zapata on a
     timely basis (primarily as a result of the different fiscal years of Zapata
and Envirodyne), Zapata reports its equity in Envirodyne's results of 
operations on a three-month delayed basis.                            

     (2) To record amortization of the purchase price in excess of net
   assets acquired for fiscal 1995 totaling $3,676,000 related to the Merger
and to reverse Houlihan's historical amortization totaling $3,651,000 
related to the reorganization value in excess of amounts allocable to 
identifiable assets.                                                  

        (3) Assumes the issuance of 11,032,289 shares of Zapata Common Stock
     in connection with the Merger. The actual number of shares of Zapata Common
    Stock issued in connection with the Merger will be calculated based on the
   average of the closing price per share of Zapata Common Stock on the NYSE
    for the 20 trading days immediately preceding the second trading day prior
     to the date of the Houlihan's Special Meeting. Also includes 230,000 common
   equivalent shares associated with Zapata's assumption of Houlihan's Stock
Option Plans in connection with the Merger.                           

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DESCRIPTION OF ZAPATA CAPITAL STOCK 

    The following is a description of the capital stock of Zapata as set forth
in the Zapata Restated Certificate of Incorporation.                            

  The authorized capital stock of Zapata consists of 165,000,000 shares of
Zapata Common Stock, 2,000,000 shares of Preferred Stock and 18,000,000 shares  
of Preference Stock, of which the Zapata $2 Preference Stock is the only series 
outstanding. As of June 30, 1996, 29,548,707 shares of Zapata Common Stock, no  
shares of Preferred Stock and 2,627 shares of Zapata $2 Preference Stock were   
outstanding. The following description of the capital stock of Zapata does not  
purport to be complete and is subject to, and qualified in its entirety by      
reference to, the more complete descriptions thereof set forth in Zapata's      
Restated Certificate of Incorporation and By-laws.                              

COMMON STOCK                                                                    

The holders of Zapata Common Stock are entitled to one vote per share,
voting with the holders of any other class of stock entitled to vote, without   
regard to class, on all matters to be voted on by the stockholders of Zapata,   
including the election of directors. All issued and outstanding shares of Zapata
Common Stock are fully paid and nonassessable. The Zapata Common Stock currently
is listed on the NYSE.                                                          

 Subject to the prior and superior rights of any series of the Preferred
Stock or the Preference Stock, the holders of Zapata Common Stock are entitled  
to receive dividends when, as and if declared by the Zapata Board of Directors  
from funds legally available therefor. So long as any shares of Preferred Stock 
or Preference Stock are outstanding, Zapata may not pay or declare any          
dividends, whether in cash, stock or otherwise, or make any distribution on the 
Zapata Common Stock, unless (i) all dividends on the Preferred Stock of all     
series for all past quarterly dividend periods shall have been paid or declared 
and a sum sufficient for the payment thereof set apart and the full dividends   
for the then-current quarterly dividend period have been paid or declared and   
(ii) all dividends on the Preference Stock of all series for all past dividend  
periods and the then-current quarterly dividend period shall have been paid or  
declared and a sum sufficient for the payment thereof set apart if and to the   
extent that the Zapata Restated Certificate of Incorporation or a designating   
resolution adopted by Zapata's Board of Directors (a "Designation Resolution")  
grants such series preferential dividend rights with respect to the Zapata      
Common Stock. The Zapata $2 Preference Stock has such rights that are prior and 
superior to the Zapata Common Stock only with respect to the then-current       
quarterly dividend period.                                                      

   In the event of any liquidation, dissolution or winding up of the affairs
of Zapata, the holders of Zapata Common Stock are entitled to receive, pro rata,
any assets of Zapata remaining after payment has been made in full (i) to the   
holders of the Preferred Stock of the liquidation price established for such    
stock, plus an amount equal to any dividends accrued thereon and paid to the    
payment date and (ii) to the holders of the Preference Stock of each series of  
the liquidation price, if any, established for such series, plus, if so provided
in the Zapata Restated Certificate of Incorporation or the applicable           
Designation Resolution, an amount equal to any dividends accrued thereon and    
unpaid to the payment date for which the holders of stock of such series shall  
have rights that are in such instances prior and superior to those of the       
holders of Zapata Common Stock. The holders of the Zapata $2 Preference Stock   
are entitled to receive only the liquidation price established therefor prior to
such a distribution to the holders of Zapata Common Stock.                      

PREFERRED STOCK                                                                 

The Preferred Stock may be issued in one or more series as may be     
established and designated from time to time by the Zapata Board of Directors.  
Zapata's Restated Certificate of Incorporation authorizes the Zapata Board of   
Directors to establish and designate any unissued shares of Preferred Stock as a
new series of such stock with such rights and preferences as are provided in    
Zapata's Restated Certificate of Incorporation or, to the extent not stated     
therein, adopted by resolution of the Zapata Board of Directors in a Designation
Resolution. If any such Preferred Stock were issued, it would rank senior to the
Zapata Common Stock and the Preference Stock with respect to dividends and      
liquidation rights and would rank on a parity with each other share of Preferred
Stock.                                                                          

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No dividends may be declared or paid or set apart for payment for the 
Preferred Stock of any series unless at the same time a dividend in like        
proportion to the accrued and unpaid dividends upon the Preferred Stock of each 
other series is declared or paid or set apart for payment, as the case may be,  
on Preferred Stock of each other series then outstanding. So long as any shares 
of Preferred Stock are outstanding, Zapata may not pay or declare any dividends,
whether in cash, stock or otherwise, on, or make any distribution of assets upon
liquidation in respect of, or purchase or retire or otherwise acquire for a     
consideration, any shares of stock ranking junior to the Preferred Stock in     
respect of dividends or assets, unless all dividends on the Preferred Stock of  
all series for all past quarterly dividend periods shall have been paid or      
declared and a sum sufficient for the payment thereof set apart, and the full   
dividends thereon for the then-current quarterly dividend period shall have been
paid or declared.                                                               

  In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of Zapata, holders of Preferred Stock are entitled to 
receive the liquidation price established for such stock, plus an amount equal  
to any accrued and unpaid dividends to the payment date, before any distribution
is made to the holders of Preference Stock or Zapata Common Stock. The holders  
of all series of Preferred Stock are entitled to share ratably, in accordance   
with the respective amounts payable thereon, in any such distribution which is  
not sufficient to pay in full the aggregate of the amounts payable thereon.     

     The holders of Preferred Stock are entitled to such voting rights as may be
provided by Zapata's Board of Directors in a Designation Resolution. The holders
of Preferred Stock have special voting rights with respect to certain matters   
affecting the powers, preferences and privileges of the Preferred Stock of each 
respective series.                                                              

PREFERENCE STOCK                                                                

     The Preference Stock may be issued in one or more series, consisting of (i)
the Zapata $2 Preference Stock and (ii) such other series as may be established 
and designated from time to time by the Zapata Board of Directors. The rights   
and preferences of the Zapata $2 Preference Stock are fixed and determined by   
the Zapata Restated Certificate of Incorporation. The Zapata Board of Directors 
is authorized to establish and designate any unissued shares of Preference Stock
as additional shares of any existing series of such stock or as a new series of 
such stock with such voting, dividend, redemption, conversion, liquidation and  
other provisions as are provided in the Zapata Restated Certificate of          
Incorporation or, to the extent not stated therein, adopted by the Zapata Board 
of Directors in a Designation Resolution. As of July 17, 1996, 2,627 shares of  
Zapata $2 Preference Stock were outstanding. No other shares of Preference Stock
were outstanding as of that date.                                               

 Subject to the prior rights of the holders of any outstanding Preferred
Stock, the holders of the Preference Stock of each series shall be entitled to  
receive dividends, when, as and if declared by the Zapata Board of Directors,   
out of any funds legally available therefor. Zapata, at the option of the Zapata
Board of Directors, may redeem the Preference Stock of any series, at the time  
or times and at the price or prices fixed for such series, upon notice duly     
given as provided in the Zapata Restated Certificate of Incorporation.          

  In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of Zapata, holders of Preference Stock are entitled to receive such  
rights as may be fixed for the series. The holders of all series of Preference  
Stock are entitled to share ratably, in accordance with the respective amounts  
payable thereon, in any such distribution which is not sufficient to pay in full
the aggregate of the amounts payable thereon. The holders of Preference Stock   
have special voting rights with respect to certain matters affecting the powers,
preferences and privileges of the Preference Stock of each respective series.   

$2 Preference Stock                                                         

The Zapata $2 Preference Stock ranks senior to Zapata Common Stock and
junior to Preferred Stock with respect to dividends and liquidation rights.     
Subject to the prior and superior rights of the Preferred Stock, the holders of 
the Zapata $2 Preference Stock are entitled to receive, when, as and if declared
by the Zapata Board of Directors, noncumulative cash dividends payable quarterly
on the first day of January, April, July and October at the annual rate of $2.00
per share from funds legally available therefor. So long as any Zapata $2       

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Preference Stock remains outstanding, no dividend may be declared or paid upon  
or set apart for any class of stock or series thereof ranking junior to the     
Zapata $2 Preference Stock in the payment of dividends, nor may any shares of   
any class of stock or series thereof ranking junior to the Zapata $2 Preference 
Stock in payment of dividends be redeemed or purchased by Zapata or any         
subsidiary thereof, nor may any moneys be paid to or made available for a       
sinking fund for the redemption or purchase of any shares of any class of stock 
or series thereof ranking junior to the Zapata $2 Preference Stock in payment of
dividends, unless in each instance dividends on all outstanding shares of Zapata
$2 Preference Stock for the then-current quarterly dividend period have been    
paid or declared and sufficient funds set aside for the payment thereof.        

   No dividend may be declared on any share or shares of any other series of
Preference Stock or any other class of stock or series thereof ranking on a     
parity with the Zapata $2 Preference Stock in respect of payment of dividends   
unless there has been declared on all shares then outstanding of the Zapata $2  
Preference Stock, for the same dividend period, or for the dividend period of   
the Zapata $2 Preference Stock terminating within the dividend period of such   
parity stock, like proportionate dividends, ratably, in proportion to the Zapata
$2 Preference Stock and such parity stock. No shares of any other series of     
Preference Stock or of any such other class or series ranking on a parity with  
the Zapata $2 Preference Stock in respect of payment of dividends may be        
redeemed or purchased by Zapata or any subsidiary thereof nor may any moneys be 
paid to or made available for a sinking fund for any such redemption or purchase
unless dividends at the rate fixed for the Zapata $2 Preference Stock for the   
then current dividend period have been paid or declared and sufficient funds set
aside for payment thereof.                                                      

  In the event of any voluntary or involuntary liquidation, dissolution or
winding up of Zapata, after payment of the debts and other liabilities of Zapata
and any preferential amounts due to holders of Preferred Stock, the holders of  
Zapata $2 Preference Stock are entitled to receive a liquidation price of $30   
per share before any distribution may be made to the holders of Zapata Common   
Stock or any other class of stock or series thereof ranking junior to the Zapata
$2 Preference Stock with respect to the distribution of assets.                 

   In addition to their right to vote with the holders of any other class of
stock entitled to vote, without regard to class, on all matters to be voted on  
by the stockholders of Zapata, including the election of directors, the holders 
of the Zapata $2 Preference Stock have special voting rights with respect to    
certain matters affecting the powers, preferences and privileges of such stock. 
The Zapata Restated Certificate of Incorporation provides that the number of    
directors constituting the Zapata Board of Directors will be increased by two,  
and the holders of the Zapata $2 Preference Stock will have, in addition to     
their other voting rights, the exclusive right, voting separately as one class, 
to elect two directors to fill such newly created directorships if at any time  
the equivalent of six or more full quarterly dividends (whether or not          
consecutive) payable on such stock is in default. This right remains vested     
until dividends on the Zapata $2 Preference Stock have been paid for at least   
four consecutive quarters since the vesting of such right, at which time it will
terminate, subject to revesting. Beginning with the dividend payable for the    
first quarter of fiscal year 1995 and on each succeeding quarterly dividend     
payment date thereafter, Zapata did not pay dividends then due on the Zapata $2 
Preference Stock. Consequently, on April 1, 1996, the right of the holders of   
Zapata $2 Preference Stock to elect two directors vested. As of the date of this
Joint Proxy Statement/Prospectus, the holders of the Zapata $2 Preference Stock 
had not exercised such right.                                                   

    Each share of the Zapata $2 Preference Stock is currently convertible into
2.1 shares of Common Stock upon the terms and conditions specified in the Zapata
Restated Certificate of Incorporation. Subject to the prior rights of the       
holders of any outstanding Preferred Stock, Zapata has the right, at its option,
to redeem at any time all or part of the shares of the Zapata $2 Preference     
Stock outstanding, upon payment in cash of $80 per share.                       

CERTAIN PROVISIONS OF THE ZAPATA RESTATED CERTIFICATE OF INCORPORATION AND      
BY-LAWS                                                                         

No stockholder of Zapata has any preemptive or preferential right to  
purchase or subscribe to any shares of any class of Zapata by reason of his     
holding shares of any class. Cumulative voting in the election of directors is  
not permitted. The Zapata Restated Certificate of Incorporation divides the     
Board of Directors of Zapata into three classes as nearly equal in number as    
possible, with one class of directors to be elected each                        

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year for a term ending with the third succeeding annual meeting of stockholders.
Zapata's By-laws provide that the number of directors shall be fixed from time  
to time by a majority of the members of the Zapata Board. The Zapata By-laws may
be amended by the affirmative vote of the holders of at least 80% of Zapata's   
outstanding voting stock or by a vote of all of the members of Zapata's Board of
Directors.                                                                      

 Zapata's Restated Certificate of Incorporation requires the affirmative
vote of the holders of at least 80% of the outstanding voting stock of Zapata   
entitled to vote in elections of directors to approve any of the following      
transactions involving Zapata and any entity that beneficially owns at least    
five percent of Zapata's voting stock (a "Five Percent Owner"): (a) a merger or 
consolidation of Zapata, (b) any sale or lease of all or any substantial part of
the assets of Zapata or (c) any sale or lease to Zapata or any subsidiary       
thereof of any assets having an aggregate fair market value of at least $2      
million in exchange for voting securities (or securities convertible into voting
securities) of Zapata or any of its subsidiaries. The foregoing requirements do 
not apply if the Zapata Board of Directors has approved a memorandum of         
understanding with respect to such transaction before the time that the Five    
Percent Owner acquired his 5% interest or if the transaction is between Zapata  
and a subsidiary. See "The Zapata Annual Meeting--Vote Required; Abstentions and
Non-Votes" for a discussion of this provision in connection with the Merger.    

    The foregoing provisions respecting transactions with Five Percent Owners,
the classification of directors and voting requirements for an amendment to the 
By-laws may not be amended without the affirmative vote of the holders of 80% of
the outstanding voting stock of Zapata. These provisions may deter any potential
unfriendly offers or other efforts to obtain control of Zapata that are not     
approved by the Zapata Board of Directors and could thereby deprive the         
stockholders of opportunities to realize a premium on their stock and could make
the removal of management more difficult. On the other hand, these provisions   
may induce any persons seeking control of Zapata or a business combination with 
Zapata to negotiate terms acceptable to the Zapata Board of Directors.          

 Prior to giving effect to the shares issuable in the Merger, Zapata has
approximately 135,023,532 authorized shares of Zapata Common Stock unreserved   
and available for issuance. Except for the shares of Zapata Common Stock to be  
issued in the Merger or pursuant to Zapata's employee benefit plans and         
arrangements, there are no present arrangements, understandings or plans        
regarding the issuance of shares of Zapata Common Stock, Preferred Stock or     
Preference Stock. Under certain circumstances, any authorized shares that are   
not issued or reserved for issuance could be used to create voting impediments  
or to frustrate persons seeking to effect a takeover or otherwise gain control  
of Zapata. Such shares could be privately placed with purchasers who might side 
with the Zapata Board of Directors of Zapata in opposing a hostile takeover bid.
Furthermore, allowing for authorized but unissued shares might be considered as 
having the effect of discouraging an attempt by another person or entity,       
through the acquisition of a substantial number of shares, to acquire control of
Zapata with a view to imposing a merger, sale of all or any part of Zapata's    
assets or a similar transaction, because the issuance of new shares could be    
used to dilute the stock ownership of a person or entity seeking to obtain      
control of Zapata.                                                              

Zapata's Restated Certificate of Incorporation limits the liability of
directors of Zapata (in their capacity as directors but not in their capacity as
officers) to Zapata or its stockholders to the fullest extent permitted by      
Delaware law. Specifically, directors of Zapata will not be personally liable   
for monetary damages for breach of a director's fiduciary duty as a director,   
except for liability (i) for any breach of the director's duty of loyalty to    
Zapata or its stockholders, (ii) for acts or omissions not in good faith or     
which involve intentional misconduct or a knowing violation of law, (iii) under 
Section 174 of the DGCL, which relates to unlawful payments of dividends or     
unlawful stock repurchases or redemptions, or (iv) for any transaction from     
which the director derived an improper personal benefit.                        

   Zapata's By-laws provide that any stockholder who intends to nominate any
person for election as a director at a meeting of Zapata's stockholders held for
such purpose must provide Zapata with advance notice of such intent. Such       
stockholder must also provide information with respect to the nominee which is  
required by the Commission to be included in proxy solicitations, as well as    
information as to the stockholder's record ownership of Zapata Common Stock.    

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DELAWARE GENERAL CORPORATION LAW                                                

Section 203 of the DGCL provides that, subject to certain exceptions  
specified therein, a corporation will not engage in any business combination    
with any "interested stockholder" for a three-year period following the time    
that such stockholder becomes an interested stockholder unless (i) prior to such
time, the board of directors of the corporation approved either the business    
combination or the transaction that resulted in the stockholder becoming an     
interested stockholder, (ii) upon consummation of the transaction that resulted 
in the stockholder becoming an interested stockholder, the interested           
stockholder owned at least 85% of the voting stock of the corporation           
outstanding at the time the transaction commenced (excluding stock held by      
directors who are also officers and shares subject to employee stock purchase   
plans in which employee participants do not have the right to determine         
confidentially whether plan shares will be tendered in a tender or exchange     
offer), or (iii) at or subsequent to such time, the business combination is     
approved by the board of directors of the corporation and by the affirmative    
vote at an annual meeting, and not by written consent, of at least 66 2/3% of   
the outstanding voting stock which is not owned by the interested stockholder.  
Except as specified in Section 203 of the DGCL, an interested stockholder is    
defined to include (a) any person that is the owner of 15% or more of the       
outstanding voting stock of the corporation or is an affiliate or associate of  
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation, at any time within three years immediately prior to the     
relevant date and (b) the affiliates and associates of any such person.         

Under certain circumstances, Section 203 of the DGCL may make it more 
difficult for a person who would be an "interested stockholder" to effect       
various business combinations with a corporation for a three-year period,       
although the corporation's certificate of incorporation or stockholders may     
elect to exclude a corporation from the restrictions imposed thereunder. The    
Zapata Restated Certificate of Incorporation does not exclude Zapata from the   
restrictions imposed under Section 203 of the DGCL. Because Malcolm I. Glazer   
was an interested stockholder of Zapata more than three years prior to the date 
of the Merger Agreement, the prohibitions of Section 203 of the DGCL are not    
applicable to the participation by Zapata or Sub in the Merger.                 

COMPARATIVE RIGHTS OF STOCKHOLDERS

GENERAL                                                                         

   As a result of the Merger, holders of Houlihan's Common Stock will become
stockholders of Zapata and the rights of all such former Houlihan's stockholders
will thereafter be governed by the Zapata Restated Certificate of Incorporation,
the Zapata By-laws and the DGCL. The rights of the holders of Houlihan's Common 
Stock are currently governed by the Houlihan's Restated Certificate of          
Incorporation, the Houlihan's By-laws and the DGCL. The following summary, which
does not purport to be a complete statement of the general differences among the
rights of the stockholders of Zapata and Houlihan's, sets forth certain         
differences between the Zapata Restated Certificate of Incorporation and the    
Houlihan's Restated Certificate of Incorporation, the Zapata By-laws and the    
Houlihan's By-laws. This summary is qualified in its entirety by reference to   
the full text of each of such documents and the DGCL. For information as to how 
such documents may be obtained, see "Available Information."                    

INTERESTED STOCKHOLDER TRANSACTIONS                                             

   As described above, Section 203 of the DGCL governs business combinations
with "interested stockholders." Although the Zapata Restated Certificate of     
Incorporation does not exclude Zapata from the restrictions imposed by Section  
203, the Houlihan's Restated Certificate of Incorporation expressly provides    
that Houlihan's shall not be governed by Section 203.                           

AMENDMENT OF CERTIFICATE OF INCORPORATION                                       

   Delaware law provides that an amendment to a corporation's certificate of
incorporation must be approved by the board of directors and by the affirmative 
vote of the holders of a majority of the outstanding stock entitled to vote. The
Zapata Restated Certificate of Incorporation provides that amendments to certain
provisions (classification of directors, amendment of by-laws and certain       
supermajority voting provisions)                                                

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must be approved by the affirmative vote of the holders of 80% of Zapata stock  
entitled to vote generally in the election of directors.                        

AMENDMENT OF BY-LAWS                                                            

  The Zapata By-laws provide that such By-laws may be altered or repealed,
and new by-laws adopted, either by the affirmative vote of the holders of record
of 80% or more of the issued and outstanding stock of Zapata entitled to vote   
generally in the election of directors or by a vote of all of Zapata's          
directors, subject to alteration or repeal by the stockholders. The Houlihan's  
By-laws provide that such By-laws may be amended or repealed by the board at any
meeting or by the stockholders at any meeting so long as the By-laws do not     
contain any provision inconsistent with the Houlihan's Restated Certificate of  
Incorporation or the DGCL.                                                      

SPECIAL MEETINGS OF STOCKHOLDERS                                                

  The Zapata By-laws provide that a special meeting of stockholders may be
called at any time by Zapata's Chairman of the Board or by order of the Zapata  
Board of Directors and shall be called by the Chairman of the Board or the Board
of Directors upon written request of stockholders holding at least 80% of the   
outstanding shares entitled to vote at such meeting. The Houlihan's By-laws     
provide that special meetings of stockholders may be called by the President or 
by the Board of Directors of Houlihan's pursuant to a resolution adopted by a   
majority of the entire Board or by the President at the request in writing of   
stockholders owning more than 50% of the entire capital stock of Houlihan's     
entitled to vote generally in the election of directors.                        

SPECIAL MEETINGS OF DIRECTORS                                                   

 The Zapata By-laws provide that special meetings of the Zapata Board of
Directors may be held at any time upon the call of the Chairman of the Board and
Chief Executive Officer, the Secretary or any two directors of Zapata. The      
Houlihan's By-laws provide that special meetings of the Houlihan's Board may be 
called by one-third of the directors then in office (rounded up to the nearest  
whole number) or by the President of Houlihan's.                                

NUMBER OF DIRECTORS                                                             

     The Zapata By-laws provide that the number of directors on the Zapata Board
of Directors shall be fixed from time to time by a majority of the members of   
the Zapata Board. The Zapata Restated Certificate of Incorporation provides that
Zapata's directors shall be divided into three classes serving staggered        
three-year terms. In connection with the Merger, it is expected that the size of
the Zapata Board of Directors will be increased from five to seven directors to 
permit the addition of two designees of Houlihan's as directors of Zapata. See  
"Approval of the Merger and Related Transactions--Operations Following the      
Merger" and "The Merger Agreement--Certain Employment and Indemnification       
Arrangements." The Houlihan's By-laws provide that the Houlihan's Board of      
Directors shall consist of seven members, with directors serving concurrent     
terms of one year.                                                              

QUORUM                                                                          

The Zapata By-laws provide that a majority of the directors in office 
present at any regular or special meeting shall constitute a quorum, provided   
that a quorum may not be less than one-third of the total number of directors   
authorized. In general, a majority of the directors present at any meeting in   
which there is a quorum shall be the valid act of Zapata's Board of Directors.  
The Houlihan's By-laws provide that five directors shall constitute a quorum for
all purposes.                                                                   

REMOVAL OF DIRECTORS                                                            

   Houlihan's Restated Certificate of Incorporation provides that Houlihan's
stockholders have the right to remove any director or the entire Houlihan's     
Board of Directors at any time, with or without cause, upon the approval of a   
majority of Houlihan's Common Stock outstanding. Zapata's Restated Certificate  
of Incorporation provides that Zapata stockholders may remove one or more       
members of the Zapata Board of Directors only for cause.                        

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ADDITIONAL INFORMATION CONCERNING HOULIHAN'S

HOULIHAN'S CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 

     On January 11, 1995, Houlihan's entered into an option agreement with First
Allied Tampa, which granted Houlihan's the exclusive right to operate a casual  
dining restaurant in the existing Tampa Bay Buccaneers Football Stadium or in a 
new Tampa Bay Stadium, if built. First Allied Tampa is wholly owned by the      
Glazer Group, owners of 73% of Houlihan's stock on a fully diluted basis. After 
performing due diligence, Houlihan's and First Allied Tampa mutually agreed to  
terminate the option on February 6, 1995. Full return of all consideration paid 
under the agreement occurred on April 28, 1995.                                 

     On October 13, 1995, Houlihan's entered into an Advertising and Sponsorship
Agreement (the "Advertising Agreement") with the Buccaneers Limited Partnership 
for the exclusive naming rights to the Tampa Bay Buccaneers Football Stadium    
(the "Stadium"). The Buccaneers Limited Partnership is 100% controlled by the   
Glazer Group. The Advertising Agreement provides Houlihan's with the right to   
name the Stadium "Houlihan's Stadium." Additionally, the Advertising Agreement  
provides Houlihan's with advertising rights inside the Stadium and in Tampa Bay 
Buccaneers programs and brochures. The Advertising Agreement is for a ten-year  
period at a total cost of $10,000,000. The payment terms are $2,000,000 per year
for the first five years of the Advertising Agreement. Houlihan's made the first
payment under the Advertising Agreement on December 5, 1995. If the Tampa Bay   
Buccaneers move to a new stadium and the Buccaneers Limited Partnership retains 
the naming rights, the Advertising Agreement will continue. If the Buccaneers   
Limited Partnership loses the naming rights, the Advertising Agreement will be  
terminated and the monies paid by Houlihan's for future years will be refunded. 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF HOULIHAN'S    

 The following table indicates the number of shares of Houlihan's Common
Stock owned beneficially as of June 15, 1996 by (i) each person known to        
Houlihan's to beneficially own more than 5% of the outstanding shares of        
Houlihan's Common Stock, (ii) each Houlihan's director, (iii) the Chief         
Executive Officer of Houlihan's and the other four most highly compensated      
executive officers of Houlihan's and (iv) all directors and executive officers  
of Houlihan's as a group. The following table also presents pro forma           
information with respect to the Glazer Group's beneficial ownership of Zapata   
Common Stock as a result of the Merger, assuming that the Market Value of the   
Zapata Common Stock is $3.625 per share (the closing sales price on the NYSE on 
June 18, 1996), resulting in the issuance of 11,032,289 shares of Zapata Common 
Stock in the Merger.                                                            

                                                        [Enlarge/Download Table]

                                                  AMOUNT OF SHARES BENEFICIALLY OWNED                       
                            --------------------------------------------------------------------------------
                                                                        PRO FORMA ZAPATA(1)                 
                                                        ----------------------------------------------------
                                   HOULIHAN'S                  MINIMUM(2)                  MAXIMUM(3)       
                            ------------------------    ------------------------    ------------------------
                                         PERCENTAGE                   PERCENTAGE                  PERCENTAGE
   BENEFICIAL OWNER(4)       SHARES      OF CLASS(5)      SHARES       OF CLASS       SHARES       OF CLASS 
--------------------------  ---------    -----------    ----------    ----------    ----------    ----------
                                                                                                            
Glazer Group(6)...........  7,325,815       73.27%      15,530,411      38.27%      20,249,917       49.9%  
1482 S. Ocean Blvd.                                                                                         
Palm Beach, FL 33480                                                                                        

Merrill Lynch & Co.,                                                                                        
  Inc.(7).................  1,154,769       11.55                                                           
World Financial Center, N.                                                                                  
  Tower                                                                                                     
250 Vesey Street                                                                                            
New York, NY 10281                                                                                          

Euram Management, Inc.....    502,596        5.03                                                           
One EAB Plaza                                                                                               
Uniondale, NY 11555                                                                                         

Warren H. Gfeller.........         --          --                                                           

Frederick R. Hipp(8)......     56,129       *                                                               

William W. Moreton(8).....         --          --                                                           

Henry C. Miller(8)........         --          --                                                           

Andrew C. Gunkler(8)......         --          --                                                           

Mark T. Walker(8).........      1,000       *                                                               
All directors and officers                                                                                  
  as a group (11                                                                                            
  persons)................  7,212,042       72.13                                                           

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

*  Less than 1% of outstanding Common Stock.                                  

(1) For the Glazer Group, the number of shares of Zapata Common Stock and       
 percentage of class owned following the Merger will vary depending on the
Consideration Elections of Houlihan's stockholders other than the Glazer
  Group. These figures represent the minimum and maximum number of shares of
Zapata Common Stock and percentage of class, respectively, that will be 
 owned by the Glazer Group following the Merger based on a Market Value of
$3.625 per share of Zapata Common Stock.                                

(2) Assumes all stockholders of Houlihan's other than members of the Glazer     
Group exercise the Stock Election.                                      

(3) Assumes all stockholders of Houlihan's other than members of the Glazer     
Group exercise the Cash Election.                                       

(4) Because Houlihan's is not subject to the provisions of Section 13(d) of the 
  Exchange Act, Houlihan's is unable to ascertain beneficial ownership based
  on statements filed with the Commission pursuant to Section 13(d) or 13(g)
of the Exchange Act.                                                    

(5) Based on 9,998,012 shares of Houlihan's Common Stock outstanding.           

(6) Includes Malcolm I. Glazer, Chairman of the Board of Directors, and his     
   sons, Avram A. Glazer, Kevin E. Glazer, Bryan G. Glazer and Joel M. Glazer,
each a director.                                                        

(7) Based on information contained in a Schedule 13G dated as of January 18,    
1996.                                                                   

(8) Excludes 300,000, 90,000, 82,000, 32,000 and 31,000 shares of Houlihan's    
Common Stock subject to outstanding options granted to Messrs. Hipp,    
Moreton, Miller, Gunkler and Walker, respectively.                      

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ADDITIONAL PROPOSALS FOR A VOTE OF ZAPATA STOCKHOLDERS

PROPOSAL NO. 2
ELECTION OF DIRECTORS 

  Zapata's Restated Certificate of Incorporation, as amended, provides for
the classification of the Zapata 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 I expires at the Zapata Annual Meeting. The
terms of office of the directors in Classes II and III will expire at the annual
meetings of stockholders to be held in 1997 and 1998, respectively. At the      
Zapata Annual Meeting, two Class I directors will be elected to serve for       
three-year terms expiring at the 1999 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. Malcolm I. Glazer and R. C. Lassiter as Class I         
directors to serve until the 1999 annual meeting of stockholders and until their
successors have been duly elected and qualified. 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 Zapata    
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.    

 THE ZAPATA BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED
BELOW.                                                                          

NOMINEES                                                                        

   The following sets forth certain information with respect to the business
experience of each nominee during the past five years.                          

   MALCOLM I. GLAZER, age 67, has been a director of Zapata since July 1993.
Mr. Glazer has served as Chairman of the Board of Directors of Zapata since July
1994, and served as President and Chief Executive Officer of Zapata 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 also the owner of the Tampa Bay Buccaneers,
a National Football League franchise. He is a director and Chairman of the Board
of Houlihan's and also is a director of Specialty and Envirodyne. Malcolm I.    
Glazer is the father of Avram A. Glazer.                                        

   RONALD C. LASSITER, age 63, has been a director of Zapata since 1974. Mr.
Lassiter served as Acting Chief Operating Officer of Zapata from December 1994  
to March 1995. He served as Chairman of the Board of Directors of Zapata 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 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 Plans." 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. In addition, Mr. Lassiter serves as Chairman of Daniel Industries,
Inc.                                                                            

CONTINUING DIRECTORS                                                            

     The following sets forth certain information with respect to all members of
the Zapata Board of Directors whose current terms will continue after the Zapata
Annual Meeting. 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.                                

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CLASS II DIRECTOR -- TERM EXPIRING 1997 

     AVRAM A. GLAZER, age 35, has been a director of Zapata since July 1993. Mr.
Glazer has served as President and Chief Executive Officer of Zapata since March
1995. Prior to that time, he was employed by, and 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. He also serves as a director of Houlihan's, Speciality,
and Envirodyne. Avram A. Glazer is a son of Malcolm I. Glazer.                  

CLASS III DIRECTORS -- TERM EXPIRING 1998 

  ROBERT V. LEFFLER, JR., age 50, has served as a director of Zapata 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 73, has been a director of Zapata since May 1995. Mr.
Loar has been retired for the past six years from his position as Vice President
and General Manager of KQTV, a St. Joseph, Missouri ABC-affiliated television   
station.                                                                        

ACTIONS IN CONNECTION WITH MERGER                                               

    The Merger Agreement provides that if the Merger is consummated, Warren H.
Gfeller, currently a director of Houlihan's, and Frederick R. Hipp, currently   
the President and Chief Executive Officer of Houlihan's, will be appointed to   
the Zapata Board. They will serve in Class II and Class III, respectively. The  
following sets forth certain information with respect to the business experience
of Messrs. Gfeller and Hipp during the past five years.                         

WARREN H. GFELLER, age 43, has been a director of Houlihan's since    
September 16, 1992. Mr. Gfeller is the owner of Clayton-Hamilton Equities and   
was the President, Chief Executive Officer and a director of Ferrellgas, Inc. in
Liberty, Missouri from 1983 through 1991. He is also a director of Synergy Gas  
Corp., the Kansas Wildscape Foundation, House Specialties Corporation, Gardner  
Bancshares, Inc., and Stranger Valley Land Company.                             

     FREDERICK R. HIPP, age 46, has been the President, Chief Executive Officer,
and a director of Houlihan's since August 1988. He has served as                
President/Casual Dining Division of Houlihan's from June 1985 to August 1988 and
as Executive Vice President of Houlihan's from May 1980 to June 1985. Prior to  
joining Houlihan's, Mr. Hipp served as President of Restaurant Data Systems,    
Inc. from 1978 to 1980 and served in a number of operations and support         
positions with the Steak & Ale Corporation from 1973 to 1978.                   

COMMITTEES OF THE ZAPATA BOARD; ATTENDANCE AT MEETINGS                          

 During fiscal 1995, the Zapata Board of Directors held eleven meetings.
During fiscal 1995, Committees of Zapata's Board of Directors included a        
Compensation Committee, Nominating Committee, Executive Committee and Audit     
Committee to oversee specific matters affecting Zapata and the Zapata Special   
Committee and its predecessor special committee which acted in connection with  
Zapata's acquisition of its investment in Envirodyne. The Zapata Board elected  
to assume the responsibilities of the Executive Committee effective December 15,
1995, and elected to assume the responsibilities of the Compensation and        
Nominating Committees effective May 1996.                                       

The Audit Committee is currently composed of Messrs. W. George Loar   
(Chairman) and Robert V. Leffler, Jr. The Audit Committee held two meetings in  
fiscal 1995. The Audit Committee meets with Zapata's independent accountants to 
review Zapata's accounting policies, internal controls and other accounting and 
auditing matters; makes recommendations to the Zapata 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.                  

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The Compensation Committee held three meetings during fiscal 1995. The
functions performed by the Compensation Committee included reviewing Zapata's   
executive salary and bonus structure; reviewing Zapata's stock option plans;    
recommending directors' fees; setting bonus goals; and approving salary and     
bonus awards to key executives.                                                 

The Nominating Committee held two meetings during fiscal 1995. The    
functions performed by the Nominating Committee included proposing candidates to
fill vacancies on the Board of Directors, reviewing the structure and           
composition of the Zapata Board, and considering qualifications requisite for   
continuing Board service.                                                       

The Executive Committee held one meeting in fiscal 1995. The Executive
Committee reviewed and developed strategies and policies of Zapata and          
recommended changes thereto.                                                    

  During the fiscal year ended September 30, 1995, each director of Zapata
attended at least 75% of the aggregate number of meetings of Zapata's Board of  
Directors and respective committees on which he served.                         

COMPENSATION OF DIRECTORS                                                       

   During the year ended September 30, 1995, those members of Zapata's Board
of Directors who were not employees of Zapata were paid an annual retainer of   
$20,000, plus $1,000 for each committee of the Zapata Board on which a Zapata   
Board member served. Effective April 1, 1995, Zapata changed the payment        
schedule of directors' fees from an annual payment of $20,000 to a quarterly    
retainer of $5,000. Those directors who also are Zapata employees do not receive
any additional compensation for their services as directors.                    

Pursuant to Zapata's Amended and Restated Special Incentive Plan, each
nonemployee director of Zapata automatically receives, following initial        
appointment or election to the Zapata Board of Directors, a grant of options to 
purchase 20,000 shares of Zapata'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.                                       

As members of the Zapata Special Committee appointed for purposes of  
considering potential merger transactions with Houlihan's and Specialty, Mr.    
Lassiter, Chairman of the Zapata Special Committee, was paid $20,000 and Messrs.
Leffler and Loar were paid $15,000 each for their work in evaluating the Merger.

In November 1993, Peter M. Holt and Zapata entered into a three-year  
Consulting Agreement pursuant to which Zapata agreed to 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 Zapata engaged  
in the natural gas compression business, and had the title of Chairman and Chief
Executive Officer. The Consulting Agreement provided that, commencing in May    
1995 and for the remaining 18 months of the term of the Consulting Agreement,   
Mr. Holt would serve as Chairman of such divisions and subsidiaries. Mr. Holt   
also served as Chief Executive Officer of such divisions and subsidiaries. In   
November 1995, Mr. Holt resigned from the Board of Directors of Zapata and from 
all of his management and board positions with affiliates of Zapata, thereby    
terminating Zapata's remaining obligations under the Consulting Agreement.      

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MANAGEMENT AND EXECUTIVE COMPENSATION                                           

The following table sets forth information regarding compensation with
respect to the fiscal years ended September 30, 1995, 1994 and 1993 for services
in all capacities rendered to Zapata and its subsidiaries by the persons who    
served as chief executive officer during fiscal 1995, the four most highly      
compensated executive officers of Zapata other than the chief executive officer 
who were serving as executive officers on September 30, 1995 and one additional 
individual who would have been in that category but for the fact that he was not
serving as an executive officer on September 30, 1995 (the "Named Officers").   

SUMMARY COMPENSATION TABLE

                                                        [Enlarge/Download Table]

                                                          ANNUAL COMPENSATION                  
                                                         ---------------------   ALL OTHER     
           NAME AND PRINCIPAL POSITION             YEAR   SALARY       BONUS    COMPENSATION   
-------------------------------------------------  ----  --------     --------  ------------   
                                                                                               
Avram A. Glazer, President and                     1995  $192,634           --            --   
  Chief Executive Officer(1)                                                                   
Malcolm I. Glazer, Chairman(2)                     1995    11,250           --            --   
                                                   1994    29,800           --            --   

Ronald C. Lassiter, Chairman and                   1995   196,220           --            --   
  Chief Executive Officer of                       1994   361,779           --            --   
  Zapata Protein, Inc.(3)                          1993   358,600     $175,000    $    2,100(8)

Robert W. Jackson, President and                   1995   200,000           --            --   
  Chief Executive Officer of                       1994   200,000           --            --   
  Cimarron(4)                                      1993   200,000           --            --   

Joseph B. Mokry, President and                     1995   192,855       83,460            --   
  Chief Operating Officer of                       1994   172,260      100,080         8,512(8)
  Energy Industries, Inc.(5)                                                                   

Lamar C. McIntyre, Vice President,                 1995   131,943           --         7,800(8)
  Chief Financial Officer and                      1994   113,881           --         2,230(8)
  Assistant Secretary (6)                          1993   108,964       18,000         2,382(8)

Bruce K. Williams, Chairman, President             1995   140,434           --        22,645(7)
  and Chief Executive Officer of                   1994   160,824       39,000         3,596(8)
  Zapata Exploration Company (7)                   1993   156,240       54,684         3,193(8)

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

(1) In March 1995, Mr. A. Glazer was elected as President and Chief Executive   
 Officer of Zapata. In addition to regular salary, the amount shown in the
  "Salary" column includes director and board committee fees for the portion
   of the fiscal year during which Mr. A. Glazer was not an executive officer.

(2) Mr. M. Glazer currently serves as Chairman, and served as President and     
Chief Executive Officer of Zapata from August 1994 to March 1995. 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.                                                        

(3) Amounts in the "Salary" column include amounts paid to Mr. Lassiter under   
 the consulting agreement described below under "Employment Agreements and
Other Incentive Plans."                                                 

(4) Mr. Jackson ceased serving as an executive officer of Zapata effective      
December 1, 1995.                                                       

(5) In connection with the sale of the assets of Energy Industries, Mr. Mokry   
ceased serving as an executive officer of Zapata in December 1995.      

(6) Mr. McIntyre ceased serving as an executive officer of Zapata effective     
January 15, 1996.                                                       

(7) In connection with the closing of the sale of the assets of Zapata          
   Exploration Company, Mr. Williams ceased serving as an executive officer of
Zapata on August 14, 1995. The amount included in the "All Other        
 Compensation" column for 1995 includes amounts paid to Mr. Williams under
 the Consulting Agreement described below under "Employment Agreements and
Other Incentive Plans."                                                 

(8) The amounts indicated represent Zapata's contributions to its profit-sharing
plan.                                                                   

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While the officers of Zapata receive benefits in the form of certain  
perquisites, none of the Named Officers has received perquisites which exceed in
value the lessor of $50,000 or 10% of such officer's salary and bonus for any of
the fiscal years shown in the Summary Compensation Table.                       

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION      
VALUES                                                                          

                                                        [Enlarge/Download Table]

                                                                 NUMBER OF                  VALUE OF         
                                                           SECURITIES UNDERLYING           UNEXERCISED       
                                    SHARES                  UNEXERCISED OPTIONS       IN-THE-MONEY OPTIONS   
                                   ACQUIRED     VALUE       AT FISCAL YEAR-END         AT FISCAL YEAR-END    
              NAME                ON EXERCISE  REALIZED  EXERCISABLE/UNEXERCISABLE  EXERCISABLE/UNEXERCISABLE
--------------------------------  -----------  --------  -------------------------  -------------------------
                                                                                                             
Avram A. Glazer.................          0           0         13,333/6,667                      0/0        
Malcolm I. Glazer...............          0           0         13,333/6,667                      0/0        
Ronald C. Lassiter..............    244,000    $289,750                  0/0                      0/0        
Robert W. Jackson...............          0           0                  0/0                      0/0        
Lamar C. McIntyre...............          0           0             42,000/0                $52,000/0        
Joseph B. Mokry.................          0           0                  0/0                      0/0        
Bruce K. Williams...............     98,000    $122,500                  0/0                      0/0        

The options included in the foregoing table were granted in 1990 under
Zapata's 1990 Stock Option Plan, except in the case of Messrs. A. Glazer and M. 
Glazer, whose options were granted in 1993 under Zapata's Amended and Restated  
Special Incentive Plan with respect to their service as nonemployee 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, 1995, the closing price of Zapata Common Stock on the    
NYSE was $4.375 per share. No options were granted to any of the Named Officers 
in fiscal 1995.                                                                 

PENSION PLAN INFORMATION                                                        

     Effective January 15, 1995, Zapata 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, Zapata terminated its Supplemental Pension Plan except with respect to
benefits already accrued. Messrs. A. Glazer, M. 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. McIntyre's estimated annual benefit under the
Pension Plan is $48,941.00 (assuming payments commence after Mr. McIntyre       
reaches age 61 on a single-life annuity basis). Mr. Williams will be eligible to
receive annual benefits under the Pension Plan when he turns 55 years of age.   

EMPLOYMENT AGREEMENTS AND OTHER INCENTIVE PLANS                                 

     Effective as of March 15, 1991, Zapata entered into an employment agreement
with Mr. Lassiter. The agreement 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 (the "Consulting Agreement")   
with Zapata 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 the provisions of the Consulting Agreement   
are included in the "Salary" column of the Summary Compensation Table.          

 Effective as of September 30, 1992, Cimarron entered into an employment
agreement with Robert W. Jackson (the "Jackson Agreement"). The Jackson         
Agreement provided for Mr. Jackson's continuing employment as President, Chief  
Executive Officer and Director of Cimarron for a period of five years and       

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contained provisions requiring salary continuation payments for the remainder of
the term of the agreement in the event of a termination without cause or a      
voluntary resignation for "good reason." On December 1, 1995, Zapata and        
Cimarron entered into a Mutual Release Agreement (the "Mutual Release           
Agreement") with Mr. Jackson, pursuant to which Mr. Jackson resigned from his   
position as Chairman, President and Chief Executive Officer of Cimarron, and the
parties compromised, settled and resolved all rights and obligations pursuant to
all contracts, agreements or benefit plans by or among the parties, as well as  
all controversies among them. Under the Mutual Release Agreement, the Jackson   
Agreement was terminated and Zapata and Cimarron agreed to make a one-time      
payment of $306,534 to Mr. Jackson, representing the present value of the       
continuing payments that would have been due under the Jackson Agreement, less a
negotiated amount reflecting settlement of certain unresolved disputes and early
termination of certain other agreements.                                        

     Effective October 1, 1994, Zapata entered into an employment agreement with
Mr. McIntyre. The agreement provided for continuing employment of Mr. McIntyre  
as Vice President, Treasurer and Chief Financial Officer until December 17, 1998
at a compensation level at least equal to Mr. McIntyre's base salary as of      
October 1, 1994. The agreement provided that if Zapata terminated Mr. McIntyre's
employment for any reason other than for cause, Zapata would be obligated to pay
Mr. McIntyre's base salary in effect on September 30, 1994 (approximately $8,825
per month) until December 17, 1998. Zapata terminated Mr. McIntyre's employment 
effective January 15, 1996, thereby triggering Zapata's obligation to make such 
payments through December 17, 1998.                                             

    Effective March 15, 1991, Zapata entered into an employment agreement with
Mr. Williams. As a result of the termination of his employment on August 14,    
1995, Mr. Williams will receive payments for three years equivalent to his base 
salary in effect at the time of the termination ($163,116 annually). Effective  
August 16, 1995, Zapata Exploration Company, a wholly owned subsidiary of Zapata
("Zapex"), entered into a consulting agreement (the "Consulting Agreement") with
Mr. Williams whereby he agreed to provide services including operational        
oversight for Zapex's Bolivia investment, direction of the winding down of      
Zapex's domestic oil and gas operations, and other services in exchange for a   
monthly payment equal to a retainer plus an hourly fee. The Consulting Agreement
is terminable by either Zapex or Mr. Williams upon written notice of an election
to terminate, which termination shall be effective upon the last day of the     
month following the month during which any such notice is given. Payments to Mr.
Williams under the provisions of the Consulting Agreement during the portion of 
fiscal 1995 following the termination of his employment are included in the "All
Other Compensation" column of the Summary Compensation Table.                   

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE                         

     Section 16(a) of the Exchange Act requires Zapata's directors and executive
officers, and persons who own more than 10% of a registered class of Zapata's   
equity securities, to file with the Commission and the NYSE initial reports of  
ownership and reports of changes in ownership of Common Stock and other equity  
securities of Zapata. Directors, officers and greater than 10% stockholders are 
required by the Commission's regulations to furnish Zapata with copies of all   
Section 16(a) forms they file.                                                  

     To Zapata's knowledge, based solely on review of the copies of such reports
furnished to Zapata and written representations that no other reports were      
required, during the fiscal year ended September 30, 1995 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.                                 

REPORT OF THE COMPENSATION COMMITTEE                                            

The Compensation Committee of Zapata's Board of Directors (the "Zapata
Compensation Committee"), comprised of Avram A. Glazer (until his resignation in
January 1996), Mr. Leffler and Mr. Lassiter (nonvoting until September 1995),   
has been responsible for the approval and administration of compensation        
programs for Zapata's executive officers. The Zapata Compensation Committee has 
endeavored to ensure that the compensation programs for Zapata's executive      
officers are effective in attracting and retaining key executives responsible   
for the success of Zapata and are administered in an appropriate fashion in the 
long-term best interest of Zapata and its stockholders. The Zapata Compensation 
Committee has sought to align                                                   

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total compensation for Zapata's executive officers with the performance of      
Zapata and the individual performance of each executive officer in assisting    
Zapata in accomplishing its goals. Zapata's fiscal year 1995 compensation       
program consisted of (1) an annual component, which included base salary and an 
annual incentive bonus, and (2) a long-term component consisting of stock       
options. Because of recent reductions in the size of Zapata's Board of Directors
(currently consisting of five persons), the Zapata Board determined to assume   
the responsibilities of the Zapata Compensation Committee in May 1996. The      
following is a report of the Zapata Compensation Committee with respect to      
compensation policies and determinations relating to fiscal year 1995.          

BASE SALARY                                                                     

The Zapata Compensation Committee's policy with respect to 1995 base  
salaries for executive officers was generally to keep them at appropriate levels
in light of compensation surveys in which Zapata participated. From August 1994 
until March 1995, Malcolm I. Glazer served as Chairman, President and Chief     
Executive Officer of Zapata and received no compensation for acting in these    
capacities other than director and board committee fees. When Avram A. Glazer   
became President and Chief Executive Officer in March 1995, his annual salary   
was established by the Zapata Board of Directors at $300,000.                   

ANNUAL INCENTIVE BONUS                                                          

 None of Zapata's executive officers, except Joseph B. Mokry, received a
bonus for fiscal year 1995. Mr. Mokry, who served as Vice President and Chief   
Operating Officer of Energy Industries, Inc. in fiscal year 1995, received a    
bonus of $83,460 for 1995.                                                      

STOCK OPTIONS                                                                   

The Zapata Compensation Committee believes that to achieve Zapata's   
long-term growth objectives and to align management and its stockholders'       
interest, it is in Zapata's best interest from time to time to grant stock      
options to key members of its management staff. Zapata's 1990 Stock Option Plan 
and Special Incentive Plan are administered by the Zapata Compensation          
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 Zapata Common Stock on the
date the option is granted. No options were granted under the 1990 Stock Option 
Plan or the Special Incentive Plan during fiscal year 1995.                     

THE ZAPATA COMPENSATION COMMITTEE                                               
Avram A. Glazer (Chairman)                                                      
R. C. Lassiter                                                                  
Robert V. Leffler, Jr.                                                          

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION                     

   For the fiscal year ended September 30, 1995, the Committee was initially
comprised of Malcolm I. Glazer, Avram A. Glazer, Peter M. Holt, Daniel P. Whitty
and Ronald C. Lassiter (as a nonvoting member). Mr. Whitty served on the        
Committee until his resignation from the Board of Directors in November 1994.   
Mr. M. Glazer resigned from the Committee on December 29, 1994 and was replaced 
by Myrl S. Gelb, who served on the committee from that date until his           
resignation from the Board of Directors in May 1995. Mr. Robert V. Leffler, Jr. 
became a member of the Committee in May 1995. Mr. Lassiter became a voting      
member of the Committee in September 1995. Mr. Holt's membership on the         
Committee ceased when he resigned from the Zapata Board in November 1995. Mr. A.
Glazer resigned from the Committee in January 1996. Committee members M. Glazer,
A. Glazer, Holt and Lassiter were officers of Zapata (or one or more of its     
subsidiaries) during the fiscal year ended September 30, 1995.                  

    In November 1993, Zapata purchased the natural gas compression business of
Energy Industries for an aggregate of $74 million in cash and 2,700,000 shares  
of Zapata's Common Stock. At the time of the                                    

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acquisition, Mr. Holt was the chief executive officer of Energy Industries, as  
well as its majority shareholder. In fiscal 1995, Zapata made indemnification   
claims against Mr. Holt and the other sellers aggregating approximately $7      
million under the purchase agreement relating to Zapata's acquisition of Energy 
Industries. As of May 15, 1996, such claims remained unresolved. In connection  
with the acquisition of Energy Industries, Zapata entered into a three-year     
noncompetition agreement and a three-year Consulting Agreement with Mr. Holt.   
These agreements were not affected by the Energy Industries Sale. However, as a 
result of Mr. Holt's resignation in November 1995, Zapata's obligations under   
the Consulting Agreement were terminated. See "Compensation of Directors,"      
above.                                                                          

 During fiscal 1995, Energy Industries purchased Caterpillar engines and
parts from Holt Company of Texas, a corporation owned by Mr. Holt, for          
consideration totaling $10.4 million. Zapata believes that such payments are    
comparable to those that would have been made to nonaffiliated entities for     
comparable products.                                                            

   On February 14, 1995, Zapata entered into a stock purchase agreement with
ZP Acquisition Corp. ("ZP") for the sale of Zapata Protein, Inc. 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. Zapata 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 failure to close the Zapata Protein transaction.               

  In August 1995, Zapata purchased 4,189,298 shares of the common stock of
Envirodyne for $18.8 million from the Malcolm Glazer Trust. As of April 9, 1996,
Zapata held 4,189,298 shares, or 28.9%, of Envirodyne common stock. Malcolm I.  
Glazer is also a director of Envirodyne. Such shares represented all of Malcolm 
I. Glazer's ownership interest in Envirodyne. Zapata paid the purchase price by 
issuing a subordinated promissory note in a principal amount of $18.8 million,  
bearing interest at the prime rate and maturing in August 1997, subject to      
prepayment at Zapata's option. This transaction was approved by a special       
committee of Zapata's Board of Directors comprised of Messrs. Lassiter, Leffler 
and Loar. Zapata prepaid the entire principal amount of the promissory note     
during the first quarter of fiscal 1996.                                        

In September 1995, Zapata's Board of Directors established the Zapata 
Special Committee for the purpose of investigating the legal and financial      
considerations of one or more merger or acquisition transactions involving      
Zapata and Houlihan's and Speciality. Malcolm I. Glazer and members of his      
family beneficially own approximately 73% and 45% of the outstanding common     
stock of Houlihan's and Specialty, respectively, and Malcolm I. Glazer, Avram   
Glazer and other members of their family serve as directors of both of those    
companies. Subsequently, the Committee's authority was expanded to include      
taking action to approve the issuance of Zapata Common Stock and related matters
in connection with the Merger, and the Merger Agreement was entered into on June
4, 1996.                                                                        

  On May 6, 1996, Darcie Glazer became employed by Zapata as an investment
analyst. She is a daughter of Malcolm I. Glazer.                                

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                  

Mr. Kristian Siem served as a director of Zapata from 1993 until his  
resignation in April 1995. 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"), a company of which Mr. Siem was the    
Chairman and Chief Executive Officer. In these transactions, Zapata raised      
$111.4 million from the issuance of debt and equity securities pursuant to a    
Second Amended and Restated Master Restructuring Agreement dated as of April 16,
1993, as 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 3.0 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                                                                          

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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, Zapata 
entered into an agreement with Norex under which Zapata was permitted to sell   
the shares of Tidewater 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. Zapata prepaid the $4.8 million outstanding balance in March 1996. On     
April 10, 1995, Zapata repurchased from Norex 2,250,000 shares of Zapata'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 
Zapata's Board of Directors became effective when the repurchase of the         
2,250,000 shares of Zapata's Common Stock from Norex, the receipt by Norex of   
the proceeds of the sale of the Tidewater 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.                                             

   For further information concerning certain transactions and relationships
of Peter M. Holt, Ronald C. Lassiter and Malcolm I. Glazer with Zapata, see     
"-- Compensation Committee Interlocks and Insider Participation."               

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF ZAPATA        

   The following table indicates the number of shares of Zapata Common Stock
owned beneficially as of June 15, 1996 (including options exercisable within 60 
days thereafter) by (i) each person known to Zapata to beneficially own more    
than 5% of the outstanding shares of Zapata Common Stock, (ii) each Zapata      
director, (iii) the Named Officers of Zapata (other than Robert W. Jackson, for 
whom information is not available) and (iv) all directors and executive officers
of Zapata as a group. Except to the extent indicated in the footnotes to the    
following table, each of the persons or entities listed therein has sole voting 
and sole investment power with respect to the shares which are deemed           
beneficially owned by such person or entity.                                    

                                                        [Enlarge/Download Table]

                                                       AMOUNT OF SHARES BENEFICIALLY OWNED         
                                                -------------------------------------------------- 
                                                                        PERCENT OF CLASS           
                                                               ----------------------------------- 
                     NAME                         SHARES       BEFORE MERGER     AFTER MERGER(1)   
----------------------------------------------  ----------     -------------    ------------------ 
                                                                                                   
Avram A. Glazer...............................      20,000         *                              *
Malcolm I. Glazer.............................  10,415,384         35.2%          38.27-49.9%(1)   
Ronald C. Lassiter............................      78,477         *                              *
Robert V. Leffler, Jr.........................       6,666         *                              *
W. George Loar................................       6,666         *                              *
Lamar C. McIntyre.............................      42,026         *                              *
Joseph B. Mokry...............................          --            --                --         
Bruce K. Williams.............................          --            --                --         
Ryback Management Corporation.................   3,166,600         10.7%              7.79%        
  7711 Carondelet Avenue, Suite 700                                                                
  St. Louis, Missouri 63105                                                                        
Pioneering Management Corporation.............   2,083,100          7.05%             5.13%        
  60 State Street                                                                                  
  Boston, Massachusetts 02109-1820                                                                 
Directors and effective officers as a group(10                                                     
  persons)....................................  10,595,219          35.9%        38.72-50.34%(1)   

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

*  Represents ownership of less than 1.0%.                                    

(1) The low end of the range is computed on the assumption that all holders of  
   Houlihan's Common Stock other than those owned by the Glazer Group make the
  Stock Election and the high end of the range is computed on the assumption
   that all such holders make the Cash Election. Such computation also assumes
 that 11,032,289 shares of Zapata Common Stock are issued in the Merger on
the basis of an assumed Market Value of the Zapata Common Stock equal to
$3.625 per share (the closing sales price on the NYSE on June 18, 1996).

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STOCKHOLDER RETURN PERFORMANCE GRAPH                                            

The following graph compares the yearly percentage change in Zapata'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 a peer group of publicly traded companies over the same    
period. The peer group (the "Peer Group") is the peer group used by Zapata in   
the presentation of the performance graph included in the proxy soliciting      
material for its 1995 annual meeting and consists of the following companies:   
Tidewater, Enterra Corp., Production Operators Corp., Western Gas Resources,    
Inc., Aquila Gas Pipeline Corporation, Tejas Gas Corporation, KN Energy, Inc.   
and USX-Delhi Group.                                                            

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*

AMONG ZAPATA CORPORATION, THE S & P 500 INDEX 
AND A PEER GROUP

                                                                [Download Table]
<Caption                                                                       
  MEASUREMENT PERIOD                  ZAPATA COR-                              
(FISCAL YEAR COVERED)                  PORATION        PEER GROUP       S&P 500
                                                                               
9/90                                       100             100             100 
9/91                                        65              99             131 
9/92                                        89             130             146 
9/93                                        80             187             165 
9/94                                        73             148             171 
9/95                                        71             167             221 

* $100 INVESTED ON 09/30/90 IN STOCK OR INDEX -                                 
INCLUDING REINVESTMENT OF DIVIDENDS.                                        
FISCAL YEAR ENDING SEPTEMBER 30.                                            

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PROPOSAL NO. 3
APPROVAL OF 1996 LONG-TERM INCENTIVE PLAN OF ZAPATA 

The Zapata Board of Directors has adopted, subject to approval by the 
stockholders of Zapata, the 1996 Long-Term Incentive Plan (the "Incentive       
Plan"). A copy of the Incentive Plan is attached hereto as Appendix E. The      
following description of the Incentive Plan is qualified by reference to the    
full text of the Incentive Plan.                                                

 The purpose of the Incentive Plan is to retain key executives and other
selected employees, reward them for making major contributions to the success of
Zapata and provide them with a proprietary interest in the growth and           
performance of Zapata and its subsidiaries.                                     

Employees who participate in the Incentive Plan will be selected by a 
committee designated by the Zapata Board of Directors to administer the         
Incentive Plan (in this capacity, the "Committee") from among those employees   
who hold positions of responsibility and whose performance, in the judgment of  
the Committee, have a significant effect on the success of Zapata. In addition, 
in accordance with the Merger Agreement, holders of options previously issued   
under the Houlihan's Stock Option Plans will participate in the Incentive Plan. 

The total number of shares of Zapata Common Stock that may be issued  
pursuant to the Incentive Plan will not exceed 5,000,000, of which approximately
2,600,000 shares will be issuable pursuant to options previously granted under  
the Houlihan's Stock Option Plans. Not more than 750,000 shares of Zapata Common
Stock are available for awards other than stock options and stock appreciation  
rights granted at an exercise or strike price not less than fair market value on
the date of grant. The number of shares of Zapata Common Stock that may be      
awarded pursuant to the Incentive Plan is subject to adjustment upon the        
occurrence of certain events.                                                   

 The Incentive Plan will be administered by the Committee, which will be
constituted to permit the Incentive Plan to comply with Rule 16b-3 promulgated  
under the Exchange Act. Subject to the terms of the Incentive Plan, the         
Committee will have authority (i) to select employees to receive awards, (ii) to
determine the timing, form, amount or value and term of awards, and the         
conditions and limitations, if any, subject to which awards will be made and    
become payable and (iii) to interpret the Incentive Plan and adopt rules,       
regulations and guidelines for carrying out the Incentive Plan. The Committee   
may delegate certain of its duties under the Incentive Plan to senior officers  
of Zapata.                                                                      

  The Incentive Plan provides for the grant of any or all of the following
types of awards: stock options (including stock options substituted for         
Houlihan's Options), stock appreciation rights, stock awards and cash awards.   
Stock options will have exercise prices not less than the fair market value of  
the Zapata Common Stock on the date of grant and may be incentive stock options 
that comply with Section 422 of the Code. The exercise price of any stock option
may, at the discretion of the Committee, be paid in cash or by surrendering     
shares of Zapata Common Stock or another award under the Incentive Plan, valued 
at fair market value on the date of exercise, or any combination thereof.       
Vesting conditions for a stock option will be specified by the Committee and set
forth in the applicable option agreement. Vesting conditions may include,       
without limitation, provision for acceleration in the case of a change in       
control of Zapata or for stock appreciation rights exercisable for cash (in lieu
of the option) in the case of such a change in control.                         

     Stock appreciation rights are rights to receive, without payment to Zapata,
cash or shares of Zapata Common Stock with a value determined by reference to   
the difference between the exercise or "strike" price of the stock appreciation 
right and the fair market value or other specified valuation of the Zapata      
Common Stock at the time of exercise. Stock appreciation rights may be granted  
in tandem with stock options or separately.                                     

    Stock awards may consist of Zapata Common Stock or be denominated in units
of Zapata Common Stock. Stock awards may be subject to conditions established by
the Committee, including service vesting conditions and performance conditions  
(including without limitation performance conditions based on achievement of    
specific business objectives, increases in specified indices and attaining      
specified growth measures or rates). A stock award may provide for voting rights
and dividend or dividend equivalent rights.                                     

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   Cash awards may be denominated in cash with the amount of payment subject
to conditions specified by the Committee, including service conditions and      
performance conditions.                                                         

No participant may be granted, during any three-year period, awards   
consisting of stock options or stock appreciation rights exercisable for more   
than 12.5 percent of the shares of Zapata Common Stock reserved for issuance    
under the Incentive Plan.                                                       

Payment of awards may be made in cash or Zapata Common Stock or       
combinations thereof, as determined by the Committee. An award may provide for  
the granting or issuance of additional, replacement or alternative awards upon  
the occurrence of specified events, including the exercise of the original      
award.                                                                          

An award may provide for a tax gross-up payment to a participant if a 
change in control of Zapata results in the participant owing an excise tax or   
other tax above the rate ordinarily applicable, pursuant to the parachute tax   
provisions of Section 280G of the Code or otherwise. The gross-up payment would 
be in an amount such that the net amount received by the participant, after     
paying the increased tax and any additional taxes on the additional amount,     
would be equal to that receivable by the participant if the increased tax were  
not applicable.                                                                 

 Zapata's Board of Directors may amend, modify, suspend or terminate the
Incentive Plan for the purpose of meeting or addressing any changes in legal    
requirements or for any other purpose permitted by law except that (i) no       
amendment or alteration that would impair the rights under any award previously 
granted will be made without the award holder's consent and (ii) no amendment or
alteration will be effective prior to approval by Zapata's stockholders to the  
extent such approval is then required pursuant to Rule 16b-3 promulgated under  
the Exchange Act in order to preserve the applicability of any exemption        
provided by such rule to any award then outstanding (unless the holder of such  
award consents) or to the extent stockholder approval is otherwise required by  
applicable legal requirements.                                                  

    The holder of a nonqualified stock option will recognize no taxable income
as a result of the grant of the stock option. Upon the exercise of the stock    
option, however, the holder of a nonqualified stock option will recognize       
taxable ordinary income in an amount equal to the difference between the fair   
market value of the shares on the date of exercise and the exercise or purchase 
price (or, in the case of relinquishment, in an amount equal to the sum of the  
cash received and the fair market value of the shares or award received         
determined on the date of exercise) and, correspondingly, Zapata will be        
entitled to an income tax deduction for such amount.                            

 Upon the exercise of an incentive stock option, the stock option holder
generally will not recognize taxable income by reason of the exercise, and      
Zapata normally will not be entitled to any income tax deduction. If the stock  
option holder disposes of the shares acquired upon the exercise of an incentive 
stock option after satisfaction of certain minimum holding periods, any gain    
realized will be capital gain. Gain attributable to post-exercise appreciation  
of stock acquired upon the exercise of a nonqualified or incentive stock option 
will be capital gain if the stock option holder has held the shares as a capital
asset for more than one year. If a stock option holder disposes of the shares   
acquired upon the exercise of an incentive stock option within the minimum      
holding periods, the stock option holder would recognize ordinary income, and   
Zapata would be entitled to a commensurate income tax deduction (except with    
respect to post-exercise appreciation).                                         

  The grant of a stock appreciation right will produce no U.S. federal tax
consequences for the participant or Zapata. The exercise of a stock appreciation
right results in taxable income to the participant equal to the difference      
between the exercise price of the shares and the market price of the shares on  
the date of exercise, and a corresponding tax deduction to Zapata.              

 A participant under the Incentive Plan who has been granted an award of
restricted shares of Zapata Common Stock will not realize taxable income at the 
time of the grant, and Zapata will not be entitled to a tax deduction at the    
time of the grant, unless the participant makes an election to be taxed at the  
time of the award. When the restrictions lapse, the participant will recognize  
taxable income in an amount equal to the excess of the fair market value of the 
shares at such time over the amount, if any, paid for such shares. Zapata will  
be entitled to a corresponding tax deduction. Dividends paid to the participant 
during the restriction                                                          

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period will also be compensation income to the participant and deductible as    
such by Zapata. The holder of a restricted stock award may elect to be taxed at 
the time of grant of the restricted stock award on the market value of the      
shares, in which case (i) Zapata will be entitled to a deduction at the same    
time and in the same amount, (ii) dividends paid to the participant during the  
restriction period will be taxable as dividends to him or her and will not be   
deductible by Zapata, and (iii) there will be no further federal income tax     
consequences when the restrictions lapse.                                       

The allocation of awards under the Incentive Plan is not currently    
determinable as such allocation is dependent upon future decisions to be made by
the Committee in its sole discretion, subject to the applicable provisions of   
the Incentive Plan.                                                             

VOTE REQUIRED                                                                   

 Approval of the Incentive Plan will require the affirmative vote of the
holders of a majority of the shares of Zapata Common Stock represented and      
entitled to vote at the meeting. For the purpose of such determination,         
abstentions will have the same effect as votes cast against approval of the     
Incentive Plan, and broker non-votes will have no effect on the determination of
outcome of the vote.                                                            

The Zapata Board of Directors recommends a vote FOR approval of the   
Incentive Plan.                                                                 

PROPOSAL NO. 4
STOCKHOLDER PROPOSAL TO PROVIDE FOR CUMULATIVE VOTING 

    Martin Glotzer, who resides at 7061 North Kedzie Avenue, Chicago, Illinois
60645, is the owner of 200 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  
Zapata Common Stock. These stockholders have advised Zapata that it is their    
intention to present the following resolution for consideration and action by   
stockholders at the 1996 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."                                                  

PROPONENTS' STATEMENT IN SUPPORT OF PROPOSAL                                    

Ms. Gilbert and Messrs. Glotzer and Gilbert have made the following   
statement in support of this proposal:                                          

        "REASONS: Continued support along the lines we suggest were shown at
the last annual meeting, when           %,           [LEFT BLANK BY   
 PROPONENTS] owners of           [LEFT BLANK BY PROPONENTS] shares, were
   cast in favor of this proposal. The vote against included           [LEFT
BLANK BY PROPONENTS] unmarked proxies."                               

       "A California law 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. 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. 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 directors from
being on boards of public companies. The SEC should have hearings to  
prevent such persons becoming directors before they harm investors."  

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       "We think cumulative voting is the answer to find new directors for
  various committees. Some recommendations have been made to carry out the
CERES 10 points. The 11th should be, in our opinion, having cumulative
voting and ending staggered boards."                                  

       "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. The high derivative 
losses might have been prevented with cumulative voting."             

  "Many successful corporations have cumulative voting. Example,
  Pennzoil defeated Texaco in that famous case. Ingersoll-Rand also having
    cumulative voting won two awards. FORTUNE magazine ranked it 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 and 1995 they raised their dividend." 

 "Lockheed-Martin, as well as VWR Corporation [sic] now have a
    provision that if anyone has 40% of the shares, cumulative voting applies,
it applies to the latter company."                                    

        "In 1995 American Premier adopted cumulative [sic] voting. Allegheny
Power System tried to take away cumulative voting as well as put in a 
stagger system, and stockholders defeated it, showing stockholders are
interested in their rights."                                          

COMMENT BY MANAGEMENT                                                           

    The Zapata 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 Zapata and the stockholders as a whole. A     
board encumbered by such conflicting factions could impede the ability of Zapata
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 Zapata Board and reduce the sense of cooperation 
and confidence which the Zapata Board presently maintains.                      

   Neither Delaware, the state in which Zapata 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 belief of Zapata's Board of       
Directors that the principle of majority rule is the appropriate one for the    
election of directors.                                                          

     Under the DGCL, the action recommended in this proposal could be taken only
if the Zapata Board of Directors recommended an amendment to Zapata's Restated  
Certificate of Incorporation establishing cumulative voting and directed that   
the amendment be submitted to a vote of Zapata's stockholders. Zapata'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 Zapata Board of Directors that it take steps to initiate  
such an amendment.                                                              

   The Stockholder Proposal included an erroneous statement that all proxies
not marked will be voted for the Stockholder Proposal. Because this statement is
contrary to the Commission's proxy rules, Zapata has omitted this statement from
the Stockholder Proposal.                                                       

    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 Banking Corporation, Mr. Gilbert   
submitted similar cumulative voting proposals. At all such meetings, the        
proposals were overwhelmingly rejected by the stockholders.                     

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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 ZAPATA BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE STOCKHOLDER
PROPOSAL.                                                                       

OTHER MATTERS 

     Representatives of Coopers & Lybrand L.L.P., the firm of independent public
accountants that currently audits Zapata's consolidated financial statements,   
are expected to be present at the Zapata Annual Meeting and will have the       
opportunity to make a statement if they desire to do so and to respond to       
appropriate questions.                                                          

The Board of Directors knows of no other matter to be presented at the
Zapata Annual Meeting. 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 1997 ANNUAL MEETING OF STOCKHOLDERS 

Proposals of stockholders intended to be presented at the 1997 annual 
meeting of stockholders of Zapata must be received by Zapata by February 10,    
1997 to be considered for inclusion in the proxy statement and form of proxy    
relating to the 1997 meeting.                                                   

EXPERTS 

  The consolidated financial statements of Zapata as of September 30, 1995
and 1994 and for the years then ended included in Zapata's Annual Report on Form
10-K for the year ended September 30, 1995 and included and incorporated by     
reference in this Joint Proxy Statement/Prospectus have been incorporated herein
in reliance on the report of Coopers & Lybrand L.L.P., independent accountants, 
given on the authority of said firm as experts in accounting and auditing. The  
consolidated financial statements of Zapata for the fiscal year ended September 
30, 1993 included in Zapata's Annual Report on Form 10-K for the year ended     
September 30, 1995 and incorporated by reference in this Joint Proxy            
Statement/Prospectus have been audited by Arthur Andersen LLP, independent      
public accountants, as set forth in their report thereon and are incorporated by
reference in this Joint Proxy Statement/Prospectus in reliance upon the         
authority of said firm as experts in accounting and auditing in giving said     
reports.                                                                        

    The consolidated financial statements of Houlihan's included in Houlihan's
Annual Report on Form 10-K for the fiscal year ended December 25, 1995 and      
incorporated by reference in this Joint Proxy Statement/Prospectus have been    
audited by Deloitte & Touche LLP, independent auditors, as stated in their      
report incorporated herein by reference and have been so incorporated herein in 
reliance upon the report of such firm given upon their authority as experts in  
accounting and auditing.                                                        

  The consolidated financial statements of Envirodyne Industries, Inc. and
subsidiaries as of December 28, 1995 and December 29, 1994 and for the period   
December 30, 1994 to December 28, 1995 and January 1 to December 29, 1994       
(Post-consummation) and January 1 to December 31, 1993 (Pre-consummation)       
included in Zapata's Current Report on Form 8-K dated June 19, 1996 and         
incorporated by reference in this Joint Proxy Statement/Prospectus have been    
incorporated herein in reliance on the report, which includes an explanatory    
paragraph discussing the comprehensive financial restructuring through          
implementation of reorganization under Chapter 11 of the United States          
Bankruptcy Code, of Coopers & Lybrand L.L.P., independent accountants, given on 
the authority of said firm as experts in accounting and auditing.               

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                                                                      APPENDIX A
================================================================================

AGREEMENT AND PLAN OF MERGER

DATED AS OF JUNE 4, 1996

BY AND AMONG

ZAPATA CORPORATION, 

ZAPATA ACQUISITION CORP.

AND 

HOULIHAN'S RESTAURANT GROUP, INC. 

================================================================================

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TABLE OF CONTENTS 

                                                        [Enlarge/Download Table]
                                                                                         
                                   ARTICLE I                                             
THE MERGER.............................................................................. 
     Section 1.1   Effective Time of the Merger......................................... 
     Section 1.2   Closing.............................................................. 
     Section 1.3   Effects of the Merger................................................ 
     Section 1.4   Directors............................................................ 
     Section 1.5   Officers............................................................. 
                                   ARTICLE II                                            
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES; DISSENTING SHARES................... 
     Section 2.1   Conversion of Securities............................................. 
     Section 2.2   Certain Definitions.................................................. 
     Section 2.3   Elections............................................................ 
     Section 2.4   Certain Adjustments and Limitations.................................. 
     Section 2.5   Exchange of Certificates............................................. 
     Section 2.6   Stock Transfer Books................................................. 
     Section 2.7   Dissenting Shares.................................................... 
                                  ARTICLE III                                            
REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE COMPANY.................... 
     Section 3.1   Due Incorporation, Etc............................................... 
     Section 3.2   Qualification as Foreign Entities.................................... 
     Section 3.3   Capital Stock........................................................ 
     Section 3.4   Material Company Subsidiaries........................................ 
     Section 3.5   Ownership of Equity Interests........................................ 
     Section 3.6   Corporate Power and Authority........................................ 
     Section 3.7   No Conflicts or Consents; Environmental Law; and Litigation.......... 
     Section 3.8   SEC Reports and Financial Statements................................. 
     Section 3.9   Information in Joint Proxy Statement and Registration Statement...... 
     Section 3.10  No Material Adverse Change........................................... 
     Section 3.11  Taxes................................................................ 
     Section 3.12  DGCL Section 203..................................................... 
     Section 3.13  Vote Required........................................................ 
     Section 3.14  Opinion of Company Financial Advisor................................. 
     Section 3.15  No Undisclosed Employee Benefit Plan Liabilities..................... 
     Section 3.16  Tax Matters.......................................................... 
     Section 3.17  Affiliates........................................................... 
     Section 3.18  General.............................................................. 
                                   ARTICLE IV                                            
REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE PARENT AND THE SUB......... 
     Section 4.1   Due Incorporation, Etc............................................... 
     Section 4.2   Qualification as Foreign Entities.................................... 
     Section 4.3   Capital Stock........................................................ 
     Section 4.4   Material Parent Subsidiaries......................................... 
     Section 4.5   Ownership of Equity Interests........................................ 
     Section 4.6   Corporate Power and Authority........................................ 
     Section 4.7   No Conflicts or Consents; Environmental Law; and Litigation.......... 
     Section 4.8   SEC Reports and Financial Statements................................. 
     Section 4.9   Information in Joint Proxy Statement and Registration Statement...... 

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                                                        [Enlarge/Download Table]
                                                                                         
     Section 4.10  No Material Adverse Change........................................... 
     Section 4.11  Taxes................................................................ 
     Section 4.12  Reservation of Shares................................................ 
     Section 4.13  DGCL Section 203..................................................... 
     Section 4.14  Vote Required........................................................ 
     Section 4.15  Interim Operations of the Sub........................................ 
     Section 4.16  Opinion of Parent Financial Advisor.................................. 
     Section 4.17  No Undisclosed Employee Benefit Plan Liabilities..................... 
     Section 4.18  General.............................................................. 
                                   ARTICLE V                                             
COVENANTS AND AGREEMENTS................................................................ 
     Section 5.1   Conduct of Business of the Company................................... 
     Section 5.2   Conduct of Business of the Parent.................................... 
     Section 5.3   Reasonable Best Efforts.............................................. 
     Section 5.4   Letter of the Company's Accountants.................................. 
     Section 5.5   Letter of the Parent's Accountants................................... 
     Section 5.6   Access to Information................................................ 
     Section 5.7   Stockholders Meetings................................................ 
     Section 5.8   Stock Exchange Listing............................................... 
     Section 5.9   Company Plans........................................................ 
     Section 5.10  Other Employee Benefit Plans......................................... 
     Section 5.11  Exclusivity.......................................................... 
     Section 5.12  Fees and Expenses.................................................... 
     Section 5.13  Brokers or Finders................................................... 
     Section 5.14  Rule 145............................................................. 
     Section 5.15  Board Membership..................................................... 
     Section 5.16  Takeover Statutes.................................................... 
                                   ARTICLE VI                                            
CONDITIONS.............................................................................. 
     Section 6.1   Conditions to Each Party's Obligation To Effect the Merger........... 
     Section 6.2   Conditions of Obligations of the Parent and the Sub.................. 
     Section 6.3   Conditions of Obligations of the Company............................. 
                                  ARTICLE VII                                            
TERMINATION AND AMENDMENT............................................................... 
     Section 7.1   Termination.......................................................... 
     Section 7.2   Effect of Termination................................................ 
                                  ARTICLE VIII                                           
MISCELLANEOUS........................................................................... 
     Section 8.1   Survival of Representations and Warranties; Enforcement of Certain    
                   Covenants............................................................ 
     Section 8.2   Amendment............................................................ 
     Section 8.3   Extension; Waiver.................................................... 
     Section 8.4   Notices.............................................................. 
     Section 8.5   Interpretation....................................................... 
     Section 8.6   Counterparts......................................................... 
     Section 8.7   Entire Agreement; No Third Party Beneficiaries....................... 
     Section 8.8   Governing Law........................................................ 
     Section 8.9   Specific Performance................................................. 
     Section 8.10  Publicity............................................................ 
     Section 8.11  Assignment........................................................... 
     Section 8.12  Validity............................................................. 
     Section 8.13  Conveyance Tax....................................................... 

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SCHEDULE OF DEFINED TERMS 

                                                        [Enlarge/Download Table]

                              DEFINED TERM                                       LOCATION      
-------------------------------------------------------------------------  --------------------
                                                                                               
Acquisition Transaction..................................................          Section 5.11
Adjusted Voting Power....................................................           Section 2.2
Aggregate Cash Amount....................................................           Section 2.2
Aggregate Stock Amount...................................................           Section 2.2
Agreement................................................................              Preamble
Beneficially Owned.......................................................           Section 2.2
Cash Election............................................................        Section 2.1(c)
Certificates.............................................................        Section 2.5(b)
Closing..................................................................           Section 1.2
Closing Date.............................................................           Section 1.2
Code.....................................................................              Preamble
Company..................................................................              Preamble
Company Common Stock.....................................................        Section 2.1(a)
Company Disclosure Schedule..............................................           Section 3.3
Company Financial Statements.............................................           Section 3.8
Company Options..........................................................           Section 3.3
Company Plans............................................................           Section 3.3
Company SEC Documents....................................................           Section 3.8
Company Stockholder Meeting..............................................           Section 5.7
Compensable Expenses.....................................................          Section 5.11
Confidentiality Agreement................................................           Section 5.6
Contracts................................................................        Section 3.7(b)
Convertible Securities...................................................           Section 2.2
Costs....................................................................   Section 5.10(d)(ii)
Current Employees........................................................       Section 5.10(a)
DGCL.....................................................................              Preamble
DGCL Interested Stockholder..............................................          Section 3.12
Dissenting Shares........................................................           Section 2.7
Effective Time...........................................................           Section 1.1
Election Deadline........................................................        Section 2.3(c)
Employee Benefit Plans...................................................       Section 5.10(a)
Environmental Laws.......................................................        Section 3.7(c)
ERISA....................................................................          Section 3.15
Exchange Act.............................................................        Section 3.7(a)
Exchange Agent...........................................................        Section 2.5(a)
Exchange Fund............................................................        Section 2.5(a)
Form of Election.........................................................        Section 2.3(a)
Glazer...................................................................           Section 2.2
Glazer Group.............................................................           Section 2.2
Glazer Shares............................................................           Section 2.2
Governmental Entity......................................................        Section 3.7(a)
HSR Act..................................................................        Section 3.7(a)
Indemnified Parties......................................................   Section 5.10(d)(ii)
IRS......................................................................       Section 3.11(a)
Joint Proxy Statement....................................................        Section 3.9(a)
Liens....................................................................           Section 3.3
Market Value.............................................................           Section 2.2
Material Advance Effect (Company)........................................          Section 3.18
Material Adverse Effect (Parent).........................................          Section 4.18
Material Company Subsidiary..............................................        Section 3.4(a)

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                                                        [Enlarge/Download Table]

                              DEFINED TERM                                       LOCATION      
-------------------------------------------------------------------------  --------------------
                                                                                               
Material Parent Subsidiary...............................................           Section 4.4
Maximum Glazer Number....................................................        Section 2.1(e)
Maximum Ownership Limits.................................................        Section 2.1(e)
Merger...................................................................              Preamble
Merger Consideration.....................................................           Section 2.2
Merger Filing Date.......................................................           Section 1.1
NASD.....................................................................        Section 2.3(a)
NYSE.....................................................................           Section 2.2
Options..................................................................           Section 2.2
Outstanding Share Number.................................................           Section 2.2
Outstanding Voting Securities............................................           Section 2.2
Parent...................................................................              Preamble
Parent Common Stock......................................................        Section 2.1(a)
Parent Disclosure Schedule...............................................           Section 4.3
Parent Financial Statements..............................................           Section 4.8
Parent Options...........................................................           Section 4.3
Parent Plans.............................................................           Section 4.3
Parent SEC Documents.....................................................           Section 4.8
Parent Stockholder Meeting...............................................           Section 5.7
Person...................................................................          Section 5.11
Preference Stock.........................................................           Section 4.3
Preferred Stock..........................................................           Section 4.3
Representative...........................................................        Section 2.3(a)
Residual Election........................................................        Section 2.1(d)
S-4......................................................................           Section 3.9
SAS......................................................................           Section 5.4
SEC......................................................................           Section 3.8
Securities Act...........................................................           Section 3.8
Stock Election...........................................................        Section 2.1(b)
Sub......................................................................              Preamble
Subsidiary...............................................................        Section 2.1(g)
Surviving Corporation....................................................           Section 1.3
Taxes....................................................................       Section 3.11(b)
Tax Return...............................................................       Section 3.11(b)
Trust....................................................................          Section 3.12
Voting Debt..............................................................           Section 3.3
Voting Power.............................................................           Section 2.2
Voting Securities........................................................           Section 2.2

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AGREEMENT AND PLAN OF MERGER

    AGREEMENT AND PLAN OF MERGER, dated as of June 4, 1996 (this "Agreement"),
by and among Zapata Corporation, a Delaware corporation (the "Parent"), Zapata  
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of the  
Parent (the "Sub"), and Houlihan's Restaurant Group, Inc., a Delaware           
corporation (the "Company").                                                    

WHEREAS, duly constituted and authorized special committees of the    
respective Boards of Directors of the Parent and the Company comprised of       
persons who are not members of the Glazer Group (as defined in Section 2.2)     
have, after consulting with legal counsel and investment bankers engaged for    
that purpose, approved the merger provided for herein ("Merger") as being in the
best interests of the Parent and its stockholders and the Company and its       
stockholders, respectively, and have recommended that the respective            
stockholders of each company approve the Merger;                                

WHEREAS, each of the respective Boards of Directors of the Sub and the
Company has determined that it is the best interests of each corporation and its
respective stockholders to effect the Merger upon the terms and subject to the  
conditions set forth herein;                                                    

     WHEREAS, in furtherance thereof, each of the respective Boards of Directors
of the Sub and the Company has approved the merger of the Company into the Sub, 
with the Sub as the surviving corporation, all of the outstanding stock of which
will be owned by the Parent in accordance with the provisions of the General    
Corporation Law of the State of Delaware (the "DGCL");                          

   WHEREAS, the aforesaid special committee of the Board of Directors of the
Parent, being thereunto duly authorized by the Board of Directors of the Parent,
has approved the issuance of common stock of the Parent pursuant to the Merger; 

  WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368(a) of the 
Internal Revenue Code of 1986, as amended, and the rules and regulations        
promulgated thereunder ("Code");                                                

     WHEREAS, pursuant to the Merger, the stockholders of the Company shall have
the right to receive common stock of the Parent and cash, on and subject to the 
terms and conditions set forth herein; and                                      

WHEREAS, the Company, the Parent and the Sub desire to make certain   
representations, warranties, covenants and agreements in connection with this   
Agreement.                                                                      

NOW, THEREFORE, in consideration of the foregoing and the respective  
representations, warranties, covenants and agreements set forth herein, the     
parties hereto agree as follows:                                                

ARTICLE I 

THE MERGER

  Section 1.1  Effective Time of the Merger. Upon the terms and subject to
the conditions set forth in this Agreement at the Effective Time (as defined in 
this Section 1.1), the Company shall be merged with and into the Sub in         
accordance with the DGCL and the separate corporate existence of the Company    
shall thereupon cease. On the "Merger Filing Date" (as defined in this Section  
1.1), the Parent, the Sub and the Company shall cause to be filed with the      
Secretary of State of the State of Delaware a properly executed certificate of  
merger consistent with the terms of this Agreement and the DGCL. Such           
certificate of merger shall state that the effective time of the Merger (the    
"Effective Time") shall be the close of business on the date such certificate of
merger is filed (the "Merger Filing Date"), and the Merger shall be effective at
that time. The Merger Filing Date shall be the same day as the Closing Date     
unless the parties shall otherwise agree.                                       

Section 1.2  Closing. Unless this Agreement is terminated and the     
transactions contemplated herein abandoned pursuant to Section 7.1 and assuming 
the satisfaction or waiver of the conditions set forth in Article VI, the       
closing of the Merger (the "Closing") will take place at 10:00 a.m. on a date to
be specified by the parties (the "Closing Date"), which will be no later than   
the second business day following the satisfaction                              

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or waiver of the conditions set forth in Article VI, at the offices of Baker &  
Botts, L.L.P., Houston, Texas, unless another date or place is agreed to in     
writing by the parties hereto.                                                  

Section 1.3  Effects of the Merger. The Sub shall be the surviving    
corporation of the Merger (the "Surviving Corporation") and shall continue its  
existence under the laws of the State of Delaware. The Certificate of           
Incorporation of the Sub in effect at the Effective Time will be amended in its 
entirety to read as set forth in Annex I and, as such, will be the Restated     
Certificate of Incorporation of the Sub, until amended in accordance with the   
terms thereof and the DGCL. The Bylaws of the Sub in effect at the Effective    
Time will be the Bylaws of the Surviving Corporation, until duly amended in     
accordance with the terms thereof and the DGCL. The Merger will have the effects
set forth in the DGCL. Without limiting the generality of the foregoing, at the 
Effective Time, all the properties, rights, privileges, powers and franchises of
the Company and the Sub will vest in the Surviving Corporation, and all debts,  
liabilities and duties of the Company and the Sub shall become the debts,       
liabilities and duties of the Surviving Corporation.                            

    Section 1.4  Directors. The initial directors of the Surviving Corporation
shall be Frederick R. Hipp and such other person or persons as shall be         
designated by the Parent, each to hold office from the Effective Time in        
accordance with the Certificate of Incorporation and Bylaws of the Surviving    
Corporation and until his or her successor is duly elected or appointed and     
qualified.                                                                      

  Section 1.5  Officers. The officers of the Company at the Effective Time
will be the initial officers of the Surviving Corporation, each to hold office  
from the Effective Time in accordance with the Certificate of Incorporation and 
Bylaws of the Surviving Corporation and until his or her successor is duly      
appointed and qualified.                                                        

ARTICLE II

CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES; 
DISSENTING SHARES 

    Section 2.1  Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of the Sub, the Company or the    
holders of any capital stock of the Sub or the Company:                         

  (a) Each share of common stock, par value $.01 per share, of the Company
("Company Common Stock") issued and outstanding immediately prior to the        
Effective Time (excluding any treasury shares, shares held by the Parent and    
Dissenting Shares) as to which no Cash Election, Stock Election or Residual     
Election has been made shall be converted into the right to receive (x) $4.00 in
cash, without interest, plus (y) a number of shares of common stock, par value  
$.25 per share ("Parent Common Stock"), of the Parent equal to $4.00 divided by 
the Market Value.                                                               

   (b) Each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time as to which the holder of record thereof so elects  
as provided in Section 2.3 (a "Stock Election") shall be converted into the     
right to receive a number of shares of Parent Common Stock equal to $8.00       
divided by the Market Value.                                                    

   (c) Each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time as to which the holder of record thereof so elects  
as provided in Section 2.3 (a "Cash Election") shall, unless Section 2.1(e)     
applies, be converted into the right to receive $8.00 in cash, without interest.

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   (d) Each share of Company Common Stock issued and outstanding immediately
prior to the Effective Date as to which the holder of record thereof so elects  
as provided in Section 2.3 (a "Residual Election") shall, unless Section 2.1(e) 
applies, be converted into the right to receive:                                

(x) a number of shares of Parent Common Stock equal to      

ASA -- (NES X $4.00) -- (SES X $8.00) 
------------------------------------- 
RES X MV

where                                                                           

ASA = Aggregate Stock Amount (as defined in Section 2.2)              

NES = number of shares of Company Common Stock as to which no Cash    
Election, Stock Election or Residual Election has been exercised, but excluding 
any Dissenting Shares                                                           

    SES = number of shares of Company Common Stock as to which Stock Elections
have been exercised                                                             

RES = number of shares of Company Common Stock as to which Residual   
Elections have been exercised                                                   

MV = Market Value                                                     

plus                                                                            

         (y) cash, without interest, in an amount equal to (i) $8.00 less (ii)
the product of the number of shares of Parent Common Stock determined 
pursuant to the immediately preceding clause (x) and the Market Value.

    (e) If immediately after the Effective Time the Glazer Group would hold in
the aggregate either more than (i) 49.9% of the Voting Power of all Voting      
Securities of the Parent or (ii) 49.9% of the Adjusted Voting Power of all      
Outstanding Voting Securities of the Parent (such limits being referred to as   
the "Maximum Ownership Limits"), then the consideration to be received in the   
Merger with respect to shares of Company Common Stock covered by Cash Elections 
and Residual Elections shall be adjusted as follows:                            

The maximum number of whole shares of Parent Common Stock which can be
issued to the Glazer Group in the Merger (the "Maximum Glazer Number") without  
the Glazer Group holding in the aggregate more than either Maximum Ownership    
Limit shall be calculated assuming that a number of shares equal to the         
Aggregate Stock Amount divided by the Market Value is issued in the Merger.     

   Each share covered by a Cash Election will be converted into the right to
receive:                                                                        

(x) a number of shares of Parent Common Stock equal to      

ASA -- (NES X $4.00) -- (SES X $8.00) -- MGN X RES X MV 
                             ---
                            GS
------------------------------------------------------
CES X MV

where                                                                           

ASA = Aggregate Stock Amount                                          

NES = number of shares of Company Common Stock as to which no Cash    
Election, Stock Election or Residual Election has been exercised, but excluding 
any Dissenting Shares                                                           

    SES = number of shares of Company Common Stock as to which Stock Elections
have been exercised                                                             

MGN = Maximum Glazer Number                                           

RES = number of shares of Company Common Stock as to which a Residual 
Election has been exercised                                                     

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GS = number of Glazer Shares                                          

    CES = number of shares of Company Common Stock as to which a Cash Election
has been exercised                                                              

MV = Market Value                                                     

plus                                                                            

         (y) an amount of cash, without interest, equal to (i) $8.00 less (ii)
the product of the number of shares of Parent Common Stock determined 
pursuant to the immediately preceding clause (x) and the Market Value.

     Each share of Company Common Stock as to which a Residual Election has been
exercised shall be converted into the right to receive:                         

(1) a number of shares of Parent Common Stock equal to      

MGN 
------- 
GS

where                                                                           

MGN = Maximum Glazer Number                                           

GS = number of Glazer Shares                                          

plus                                                                            

         (2) an amount of cash, without interest, equal to (i) $8.00 less (ii)
the product of the number of shares of Parent Common Stock determined 
pursuant to the immediately preceding clause (1) and the Market Value.

     (f) At the Effective Time, all such shares of Company Common Stock shall no
longer be outstanding and shall automatically be canceled and retired and shall 
cease to exist, and each certificate previously evidencing any such shares shall
thereafter represent the right to receive the Merger Consideration. The holders 
of such certificates previously evidencing such shares of Company Common Stock  
outstanding immediately prior to the Effective Time shall cease to have any     
rights with respect to such shares of Company Common Stock except as otherwise  
provided herein or by law.                                                      

    (g) Each share of Company Common Stock held in the treasury of the Company
and each share of Company Common Stock owned by the Parent or any Subsidiary of 
the Parent or of the Company immediately prior to the Effective Time shall be   
canceled and extinguished without any conversion thereof and no payment shall be
made with respect thereto. As used in this Agreement, the word "Subsidiary"     
means, with respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which (i) such party or any other Subsidiary 
of such party is a general partner (excluding partnerships, the general         
partnership interests of which held by such party or any Subsidiary of such     
party do not have a majority of the voting interests in such partnership) or    
(ii) at least a majority of the securities or other interests having by their   
terms ordinary voting power to elect a majority of the Board of Directors or    
others performing similar functions with respect to such corporation or other   
organization is directly or indirectly owned or controlled by such party, by any
one or more of its Subsidiaries, or by such party and one or more of its        
Subsidiaries. References to a wholly owned Subsidiary of an entity include a    
Subsidiary all of the securities having ordinary voting power to elect the Board
of Directors or others performing similar functions of which is owned directly  
or through "wholly owned" Subsidiaries by such entity.                          

    (h) Each issued and outstanding share of common stock, par value $1.00 per
share, of the Sub will continue to be one fully paid and nonassessable share of 
common stock, par value $1.00 per share, of the Surviving Corporation.          

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Section 2.2  Certain Definitions.                                     

"Adjusted Voting Power" means, with respect to Outstanding Voting     
Securities, the highest number of votes that the holders of all such Outstanding
Voting Securities would be entitled to cast for the election of directors or on 
any other matter (except to the extent such voting rights are dependent upon    
arrearages in the payment of dividends, events of default or bankruptcy),       
assuming for purposes of this computation, the conversion into or exchange for  
Voting Securities of Convertible Securities and the exercise of Options for the 
purchase of Voting Securities or Convertible Securities, in each case to the    
extent that any such action would increase the number of such votes.            

   "Aggregate Cash Amount" means (a) the Outstanding Share Number multiplied
by $4.00 less (b) the number of Dissenting Shares multiplied by $8.             

   "Aggregate Stock Amount" means the Outstanding Share Number multiplied by
$4.00.                                                                          

  Securities are "Beneficially Owned" by a person if such person possesses
the ability, whether through contract, arrangement, understanding, relationship 
or otherwise, to exercise, directly or indirectly, the voting power (including  
the power to vote or to direct the voting) and/or the investment power          
(including the power to dispose or to direct the disposition) of such security. 

"Cash Election" means an election made pursuant to Section 2.1(c).    

"Convertible Securities" means securities of a corporation which are  
convertible into or exchangeable for Voting Securities.                         

"Glazer" means Malcolm I. Glazer, individually and as trustee of the  
Malcolm Glazer Trust U/A dated March 23, 1990, as amended ("Trust").            

     "Glazer Group" means Glazer and any corporation, person, partnership, trust
or other entity controlled, directly or indirectly, by Glazer.                  

 "Glazer Shares" means shares of Company Common Stock which are owned of
record or Beneficially Owned by any member of the Glazer Group.                 

    "Market Value" means the average closing price of a share of Parent Common
Stock as reported on the Composite Tape for the New York Stock Exchange, Inc.   
("NYSE") for the 20 trading days immediately preceding the 2nd trading day prior
to the date of the Company Stockholder Meeting (the "Meeting Date").            

   "Merger Consideration" means the consideration to be issued in the Merger
in respect of the Company Common Stock as provided in Section 2.1.              

"Options" means options and rights of a corporation (whether presently
exercisable or not) to purchase Voting Securities or Convertible Securities     
(except options issued under employee stock option plans).                      

 "Outstanding Share Number" means the number of shares of Company Common
Stock outstanding immediately prior to the Effective Time (excluding any        
treasury shares and shares held by the Parent).                                 

"Outstanding Voting Securities" at any time means the then issued and 
outstanding Voting Securities, Convertible Securities (which shall be counted at
the highest conversion or exchange rate at which they can be converted or       
exchanged) and Options (which shall be counted at the highest rate at which they
can be exercised) of a corporation.                                             

"Residual Election" means an election made pursuant to Section 2.1(d).

"Stock Election" means an election made pursuant to Section 2.1(b).   

     "Voting Power" means, with respect to Voting Securities, the highest number
of votes that the holders of all Voting Securities, issued and outstanding on   
the date such determination is made, would be entitled to cast for the election 
of directors or on any other matter (except to the extent such voting rights are
dependent upon arrearages in the payment of dividends, events of default or     
bankruptcy).                                                                    

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  "Voting Securities" means the common stock and any other securities of a
corporation of any kind or class having power to vote for the election of       
directors.                                                                      

Section 2.3  Elections.                                               

     (a) Cash Elections, Stock Elections and Residual Elections shall be made by
holders of record of Company Common Stock by mailing to the Exchange Agent a    
form designated for that purpose (a "Form of Election"). The Form of Election   
with respect to Cash Elections and Stock Elections shall contain a certification
that no shares of Company Common Stock covered by such Form of Election are     
owned of record or Beneficially Owned by any member of the Glazer Group. To be  
effective, a Form of Election must be properly completed, signed and submitted  
to the Exchange Agent and accompanied by the certificates representing the      
shares of Company Common Stock as to which the election is being made (or by the
guaranty of the delivery of such certificates by an appropriate trust company in
the United States or a member of a registered national securities exchange or   
the National Association of Securities Dealers, Inc. (the "NASD")). Holders of  
record of shares of Company Common Stock who hold such shares as nominees,      
trustees or in other representative capacities (a "Representative") may submit  
multiple Forms of Election, provided that such Representative certifies that    
each such Form of Election covers all the shares of Company Common Stock held by
such Representative for a particular beneficial owner or owners. The Parent will
have the discretion, which it may delegate in whole or in part to the Exchange  
Agent, to determine whether Forms of Election have been properly completed,     
signed and submitted or revoked and to disregard immaterial defects in Forms of 
Election. The decision of the Parent (or the Exchange Agent) in such matters    
shall be conclusive and binding. Neither the Parent nor the Exchange Agent will 
be under any obligation to notify any person of any defect in a Form of Election
submitted to the Exchange Agent. The Parent shall make all computations         
contemplated by this Section 2.3 and all such computations shall be conclusive  
and binding on the holders of Company Common Stock. Glazer has agreed with the  
Parent pursuant to the Supplemental Agreement of even date herewith to make or  
cause to be made the Residual Election with respect to all shares of Company    
Common Stock owned of record or Beneficially Owned by him and, to the extent    
within his actual control, any other member of the Glazer Group.                

    (b) For the purposes hereof, a holder of Company Common Stock who does not
submit a Form of Election which is received by the Exchange Agent prior to the  
Election Deadline or who holds Dissenting Shares shall not have made a Cash     
Election, a Stock Election or a Residual Election. If the Parent or the Exchange
Agent shall determine that any purported Cash Election, Stock Election or       
Residual Election was not properly made, such purported Cash Election, Stock    
Election or Residual Election shall be deemed to be of no force and effect and  
the stockholder making such purported Cash Election, Stock Election or Residual 
Election shall for purposes hereof be deemed not to have made a Cash Election,  
Stock Election or Residual Election, as applicable.                             

    (c) The Parent and the Company shall each use its best efforts to mail the
Form of Election to all persons who become holders of Company Common Stock      
during the period between the record date for the Company's Stockholder Meeting 
and 5:00 p.m. Houston time, on the date four calendar days prior to the Meeting 
Date. A Form of Election must be received by the Exchange Agent by 5:00 p.m.    
Houston time, on the date one calendar day prior to the Meeting Date (the       
"Election Deadline") in order to be effective. All elections other than that    
made or caused to be made by Glazer with respect to the Glazer Shares may be    
revoked until the Election Deadline.                                            

Section 2.4  Certain Adjustments and Limitations.                     

(a) If between the date of this Agreement and the Effective Time the  
outstanding shares of capital stock of the Parent or the Company shall have been
changed into a different number of shares or a different class, by reason of any
stock dividend, subdivision, reclassification, recapitalization, split,         
combination or exchange of shares, the Merger Consideration shall be            
correspondingly adjusted to reflect such stock dividend, subdivision,           
reclassification, recapitalization, split, combination or exchange of shares.   

(b) In the event that (i) the Market Value is at such a level that the
holders of the shares of Company Common Stock that exercise Cash Elections are  
entitled to receive on a per share basis no cash in excess of $4                

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and (ii) the Parent Company Stock issuable in respect of the Glazer Shares still
would cause the number of shares held by the Glazer Group to exceed one of the  
Maximum Ownership Limits, this Agreement shall be terminated and the Merger     
shall not be consummated.                                                       

Section 2.5  Exchange of Certificates.                                

     (a) Promptly after completion of the allocation and election procedures set
forth in Sections 2.1 and 2.3, the Parent shall deposit, or shall cause to be   
deposited, with American Stock Transfer & Trust Company or another bank or trust
company designated by the Parent (the "Exchange Agent"), for the benefit of the 
holders of shares of Company Common Stock, for exchange in accordance with this 
Article II through the Exchange Agent, (i) certificates evidencing a number of  
shares of Parent Common Stock equal to the Aggregate Stock Amount and (ii) cash 
in an amount equal to the Aggregate Cash Amount (such certificates for shares of
Parent Common Stock, together with any dividends or distributions with respect  
thereto, and cash, being hereinafter referred to as the "Exchange Fund"). The   
Exchange Agent shall, pursuant to irrevocable instructions, deliver the Parent  
Common Stock and cash contemplated to be issued pursuant to Section 2.1 out of  
the Exchange Fund. Except as contemplated by Section 2.5(e), the Exchange Fund  
shall not be used for any other purpose. The Parent, the Sub and the Company    
will pay their respective expenses, if any, incurred in connection with the     
Merger, and none of the Parent, the Sub or the Company will pay any of the      
expenses of any stockholder of the Company incurred in connection with the      
Merger.                                                                         

    (b) As soon as reasonably practicable after the Effective Time, the Parent
will instruct the Exchange Agent to mail to each holder of record of a          
certificate or certificates which immediately prior to the Effective Time       
evidenced outstanding shares of Company Common Stock (other than Dissenting     
Shares) (the "Certificates"), (i) a letter of transmittal (which shall specify  
that delivery shall be effected, and risk of loss and title to the Certificates 
shall pass, only upon proper delivery of the Certificates to the Exchange Agent,
shall be in such form and have such other provisions as the Parent may          
reasonably specify and shall provide a mechanism for the surrender of shares    
evidenced by lost or misplaced stock certificates) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for certificates     
evidencing shares of Parent Common Stock or cash. The letter of transmittal need
not be accompanied by Certificates previously delivered to the Exchange Agent   
pursuant to a Form of Election and not withdrawn. Upon surrender of a           
Certificate for cancellation to the Exchange Agent together with such letter of 
transmittal duly executed, and such other customary documents as may be required
pursuant to such instructions, the holder of such Certificate shall be entitled 
to receive in exchange therefor (A) certificates evidencing that number of whole
shares of Parent Common Stock which such holder has the right to receive in     
respect of the shares of Company Common Stock formerly evidenced by such        
Certificate in accordance with Section 2.1, (B) cash to which such holder is    
entitled to receive in accordance with Section 2.1, (C) cash in lieu of         
fractional shares of Parent Common Stock to which such holder is entitled       
pursuant to Section 2.5(e) and (D) any dividends or other distributions to which
such holder is entitled pursuant to Section 2.5(c), and the Certificate so      
surrendered shall forthwith be canceled. In the event of a transfer of ownership
of shares of Company Common Stock which is not registered in the transfer       
records of the Company, a certificate evidencing the proper number of shares of 
Parent Common Stock and/or cash may be issued and/or paid in accordance with    
this Article II to a transferee if the Certificate evidencing such shares of    
Company Common Stock is presented to the Exchange Agent, accompanied by all     
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as            
contemplated by this Section 2.5, each Certificate shall be deemed at any time  
after the Effective Time to evidence only the right to receive upon such        
surrender the Merger Consideration. The shares of Parent Common Stock           
constituting the Merger Consideration shall be deemed to have been issued at the
Effective Time.                                                                 

(c) No dividends or other distributions declared or made after the    
Effective Time with respect to Parent Common Stock with a record date after the 
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Common Stock evidenced thereby, and no other    
part of the Merger Consideration shall be paid to any such holder, until the    
holder of such Certificate shall surrender such Certificate. Subject to the     
effect of applicable laws, following surrender of any such Certificate, there   
shall be paid to the holder of the certificates evidencing whole shares of      
Parent Common Stock issued in exchange therefor, without interest, (i) promptly,
the amount of any cash payable with respect to a fractional share of            

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Parent Common Stock to which such holder is entitled pursuant to Section 2.5(e) 
and the amount of dividends or other distributions with a record date after the 
Effective Time theretofore paid with respect to such whole shares of Parent     
Common Stock, and (ii) at the appropriate payment date, the amount of dividends 
or other distributions with a record date after the Effective Time but prior to 
surrender and a payment date occurring after surrender payable with respect to  
such whole shares of Parent Common Stock. No interest shall be paid on the      
Merger Consideration.                                                           

    (d) All shares of Parent Common Stock issued and cash paid upon conversion
of the shares of Company Common Stock in accordance with the terms hereof shall 
be deemed to have been issued or paid in full satisfaction of all rights        
pertaining to such shares of Company Common Stock.                              

 (e) (i) No certificates or scrip evidencing fractional shares of Parent
Common Stock shall be issued upon the surrender for exchange of Certificates,   
and such fractional share interests will not entitle the owner thereof to vote  
or to any rights of a stockholder of Parent. In lieu of any such fractional     
shares, each holder of Company Common Stock upon surrender of a Certificate for 
exchange pursuant to this Section 2.5 shall be paid an amount in cash (without  
interest), rounded to the nearest cent, determined by multiplying (a) the Market
Value by (b) the fractional interest to which such holder would otherwise be    
entitled (after taking into account all shares of Company Common Stock then held
of record by such holder).                                                      

    (ii) As soon as practicable after the determination of the amount of cash,
if any, to be paid to holders of Company Common Stock with respect to any       
fractional share interests, the Exchange Agent shall promptly pay such amounts  
to such holders of the Company Common Stock subject to and in accordance with   
the terms of Section 2.5(c).                                                    

 (f) Any portion of the Exchange Fund which remains undistributed to the
holders of Company Common Stock on the first anniversary date of the Effective  
Time shall be delivered to the Parent, upon demand, and any holders of Company  
Common Stock who have not theretofore complied with this Article II shall       
thereafter look only to the Parent for the Merger Consideration to which they   
are entitled.                                                                   

     (g) Neither the Parent nor the Surviving Corporation shall be liable to any
holder of shares of Company Common Stock for any such shares of Parent Common   
Stock, cash (or dividends or distributions with respect thereto) or cash from   
the Exchange Fund delivered to a public official pursuant to any applicable     
abandoned property, escheat or similar law.                                     

(h) The Parent shall be entitled to deduct and withhold from the      
consideration otherwise payable pursuant to this Agreement to any holder of     
shares of Company Common Stock such amounts as the Parent is required to deduct 
and withhold with respect to the making of such payment under the Code, or any  
provision of state, local or foreign tax law. To the extent that amounts are so 
withheld by the Parent, such withheld amounts shall be treated for all purposes 
of this Agreement as having been paid to the holder of the shares of Company    
Common Stock in respect of which such deduction and withholding was made by the 
Parent.                                                                         

Section 2.6  Stock Transfer Books. At the Effective Time, the stock   
transfer books of the Company shall be closed and there shall be no further     
registration of transfers of shares of Company Common Stock thereafter on the   
records of the Company. On or after the Effective Time, any Certificates        
presented to the Exchange Agent or the Parent for any reason shall be converted 
into the Merger Consideration.                                                  

 Section 2.7  Dissenting Shares. Notwithstanding any other provisions of
this Agreement to the contrary, shares of Company Common Stock that are         
outstanding immediately prior to the Effective Time and which are held by       
stockholders who shall have not voted in favor of the Merger or consented       
thereto in writing and who shall have demanded properly in writing appraisal for
such shares in accordance with Section 262 of the DGCL (collectively, the       
"Dissenting Shares") shall not be converted into or represent the right to      
receive the Merger Consideration. Such stockholders shall be entitled to receive
payment of the appraised value of such shares of Company Common Stock held by   
them in accordance with the provisions of such Section 262, except that all     
Dissenting Shares held by stockholders who shall have failed to perfect or who  
effectively shall have withdrawn or lost their rights to appraisal of such      
shares of Company Common Stock under such Section 262 shall thereupon be deemed 
to have been converted into and to have become exchangeable, as of the Effective
Time, for the right to receive, without any interest thereon, the Merger        
Consideration, as if such                                                       

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shares of Company Common Stock were covered by Cash Elections, upon surrender,  
in the manner provided in Section 2.5, of the Certificate or Certificates that  
formerly evidenced such shares of Company Common Stock.                         

ARTICLE III 

REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS OF THE COMPANY 

    The Company represents and warrants to, and covenants and agrees with, the
Parent and the Sub as follows:                                                  

    Section 3.1  Due Incorporation, Etc. Each of the Company and each Material
Company Subsidiary (as defined in Section 3.4) is a corporation or other legal  
entity duly organized, validly existing and in good standing under the laws of  
the jurisdiction of its incorporation or organization, with all requisite power 
and authority to own, operate and lease its properties and to carry on its      
business as it is now being conducted, except where the failure to be so        
organized, existing or in good standing or to have such power and authority,    
individually or in the aggregate, has not had, and is not reasonably likely to  
have, a material adverse effect on the Company and its Subsidiaries. The Company
has delivered to the Parent true and accurate copies of the certificate of      
incorporation, bylaws or other organizational documents of each of the Company  
and each Material Company Subsidiary.                                           

 Section 3.2  Qualification as Foreign Entities. Each of the Company and
each Material Company Subsidiary is duly licensed or qualified to do business   
and, if applicable, is in good standing, in each state or other jurisdiction in 
which the character of the properties owned or leased by it or the nature of the
business conducted by it requires it to be so licensed or qualified, except     
where the failure to be so licensed, qualified or in good standing has not had, 
and is not reasonably likely to have, a material adverse effect on the Company  
and its Subsidiaries.                                                           

 Section 3.3  Capital Stock. The authorized capital stock of the Company
consists of 20,000,000 shares of Company Common Stock, of which as of April 30, 
1996, 9,998,012 shares of Company Common Stock were issued and outstanding and  
no shares were held in the Company's treasury. Also, as of April 30, 1996, the  
Company had reserved for issuance (a) 1,195,600 shares of Company Common Stock  
for issuance upon the exercise of then-outstanding options ("Company Options")  
under the Company's 1994 Stock Option Plan for Outside Directors and its 1994   
Executive Stock Option Plan (collectively, the "Company Plans") and (b)         
1,290,000 shares of Company Common Stock in respect of future grants of Company 
Options under the Company Plans. Since December 28, 1992, the Company has not   
issued any shares of its capital stock, except for issuances of Company Common  
Stock upon the exercise of Company Options granted under the Company Plans, and 
has not repurchased, redeemed or otherwise retired any shares of its capital    
stock. All the outstanding shares of capital stock of the Company and each of   
its Subsidiaries are, and all shares of Company Common Stock that may be issued 
pursuant to the Company Plans will be, when issued and paid for in accordance   
with the terms thereof, duly authorized, validly issued, fully paid and         
nonassessable and not subject to any preemptive rights of third parties in      
respect thereto. No bonds, debentures, notes or other indebtedness having the   
right to vote under ordinary circumstances (or convertible into securities      
having such right to vote) ("Voting Debt") of the Company or any of its         
Subsidiaries are issued or outstanding. Except as disclosed above, as disclosed 
in the Company SEC Documents (as defined in Section 3.8) filed prior to May 16, 
1996 or as disclosed in Section 3.3 of the Company Disclosure Schedule delivered
by the Company to the Parent pursuant to this Agreement ("Company Disclosure    
Schedule"), (x) there are no existing options, warrants, calls, subscriptions,  
rights, commitments or other agreements of any character obligating the Company 
or any of its Subsidiaries to issue, transfer, vote, or sell or cause to be     
issued, transferred, voted, or sold any shares of its capital stock, Voting Debt
or other interests of the Company or any of its Subsidiaries or securities      
convertible into or exchangeable for such shares or other securities or         
interests or obligating the Company or any of its Subsidiaries to grant, extend 
or enter into any such option, warrant, call, subscription, right, agreement or 
commitment; (y) there are no outstanding contractual obligations of the Company 
or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares
of capital stock of the Company or                                              

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any shares of capital stock or other interests of any of the Company's          
Subsidiaries and any partnership interests are not subject to current or future 
capital calls; and (z) each of the outstanding shares of capital stock or other 
interests of the Company's Subsidiaries are owned by the Company or by a        
Subsidiary of the Company free and clear of any liens, security interests,      
pledges, charges, claims, encumbrances, restrictions or legends of any kind     
(collectively, "Liens"), except those which, individually or in the aggregate,  
have not had, and are not reasonably likely to have, a material adverse effect  
on the Company and its Subsidiaries.                                            

Section 3.4  Material Company Subsidiaries.                           

 (a) Each Material Company Subsidiary is listed in Section 3.4(a) of the
Company Disclosure Schedule.                                                    

    (b) The Company has provided to the Parent full access to the minute books
and stock records of each of the Company and each Material Company Subsidiary.  

    Section 3.5  Ownership of Equity Interests. Except as disclosed in Section
3.5 of the Company Disclosure Schedule, neither the Company nor any of its      
Subsidiaries owns or holds, directly or indirectly, any capital stock of, or    
other equity or other ownership interest in (or any securities, rights or other 
interests exchangeable for, convertible into or which otherwise relate to the   
acquisition of any capital stock of), any Person or is a partner or joint       
venturer in any partnership or joint venture.                                   

   Section 3.6  Corporate Power and Authority. The Company has the requisite
corporate power to execute and deliver this Agreement and to consummate the     
transactions contemplated hereby, subject to the approval and adoption of this  
Agreement (insofar as it relates to the Merger) and the Merger by the           
affirmative vote of the holders of Company Common Stock entitled to cast at     
least a majority of the total number of votes entitled to be cast by holders of 
Company Common Stock and the filings referred to in Section 3.7(a). The         
execution, delivery and performance of this Agreement by the Company and the    
consummation by the Company of the Merger and of the other transactions         
contemplated hereby have been duly authorized by all necessary corporate action 
on the part of the Company and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the          
transactions so contemplated, other than with respect to the Merger, the        
required stockholder approval and adoption noted above, and the filing of a     
certificate of merger with the Secretary of State of the State of Delaware. This
Agreement has been duly and validly executed and delivered by the Company and,  
assuming this Agreement constitutes a valid an binding obligation of the Parent 
and the Sub, constitutes a valid and binding obligation of the Company,         
enforceable against the Company in accordance with its terms.                   

   Section 3.7  No Conflicts or Consents; Environmental Law; and Litigation.

(a) Other than the filings provided for in Section 1.1 and as required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and 
the rules and regulations thereunder (the "HSR Act"), and the Securities        
Exchange Act of 1934, as amended, and the rules and regulations thereunder (the 
"Exchange Act"), and filings with regulatory authorities with respect to liquor 
licenses, no notices, reports or other filings are required to be made by the   
Company with, nor any consents, registrations, approvals, permits or            
authorizations required to be obtained from, any domestic governmental or       
regulatory authority, agency, commission or other entity ("Governmental         
Entity"), in connection with the execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated    
hereby, the failure to make or obtain any or all of which (i) is reasonably     
likely to have a material adverse effect on the Company and its Subsidiaries or 
(ii) would prevent, materially delay or materially burden the transactions      
contemplated in this Agreement.                                                 

     (b) The execution and delivery of this Agreement by the Company do not, and
the consummation by the Company of the transactions contemplated hereby will    
not, constitute or result in (i) a breach or violation of, or a default under,  
the certificate of incorporation, as amended, or bylaws of the Company or the   
comparable governing instruments of any Material Company Subsidiary, (ii) except
as disclosed in Section 3.7(b) of the Company Disclosure Schedule, a breach or  
violation of, a default under, or the acceleration of or the creation of any    
Lien (with or without the giving of notice or the lapse of time) pursuant to,   
any provision of any agreement, lease, contract, note, mortgage, indenture,     
arrangement or other obligation ("Contracts") of the Company or any of its      
Subsidiaries or any law, rule, ordinance or regulation or judgment, decree,     
order, award                                                                    

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or governmental or non-governmental permit or license to which the Company or   
any of its Subsidiaries is subject or (iii) any change in the rights or         
obligations of any party under any such Contract, except, in the case of clauses
(ii) and (iii) above, for such breaches, violations, defaults, accelerations or 
changes that, individually or in the aggregate, (x) have not had, and are not   
reasonably likely to have, a material adverse effect on the Company and its     
Subsidiaries or (y) would not prevent, materially delay or materially burden the
transactions contemplated by this Agreement.                                    

     (c) Except as disclosed in the Company SEC Documents filed prior to May 16,
1996 or as disclosed in Section 3.7(c) of the Company Disclosure Schedule, (i)  
the Company and its Subsidiaries are in compliance with all applicable statutes,
ordinances, rules and regulations of any Governmental Entity relating to        
protection of the environment and human health including, without limitation,   
with respect to air, surface water, ground water, land and subsurface strata    
(collectively, "Environmental Law") except for non-compliance which,            
individually or in the aggregate, has not had, and is not reasonably likely to  
have, a material adverse effect on the Company and its Subsidiaries and (ii)    
neither the Company nor any of its Subsidiaries has received written notice of, 
or is the subject of, any action, cause of action, claim, investigation, demand 
or notice by any Person alleging liability under or non-compliance by the       
Company or any of its Subsidiaries with any Environmental Law which,            
individually or in the aggregate, has had, or is reasonably likely to have, a   
material adverse effect on the Company and its Subsidiaries.                    

     (d) Except as disclosed in the Company SEC Documents filed prior to May 16,
1996 or in Section 3.7(d)(i) of the Company Disclosure Schedule, there is no    
suit, claim, action, proceeding or investigation pending or, to the best        
knowledge of the Company, threatened, against the Company or any of its         
Subsidiaries which, individually or in the aggregate, has had, or is reasonably 
likely to have, a material adverse effect on the Company and its Subsidiaries or
affect adversely in any material respect the ability of the Company to          
consummate the transactions contemplated by this Agreement. Except as disclosed 
in the Company SEC Documents filed prior to May 16, 1996 or in Section          
3.7(d)(ii) of the Company Disclosure Schedule, neither the Company nor any of   
its Subsidiaries is subject to any outstanding order, writ, injunction or decree
which, individually or in the aggregate, has had, or is reasonably likely to    
have, a material adverse effect on the Company and its Subsidiaries or affect   
adversely in any material respect the ability of the Company to consummate the  
transactions contemplated hereby.                                               

   Section 3.8  SEC Reports and Financial Statements. Since January 1, 1993,
the Company has filed with the Securities and Exchange Commission (the "SEC")   
all forms, reports and documents required to be filed by it under the Securities
Act of 1933, as amended, and the rules and regulations thereunder (the          
"Securities Act") or the Exchange Act, and has heretofore made available to the 
Parent true and complete copies of all such forms, reports and documents (as    
they have been amended since the time of their filing, collectively, the        
"Company SEC Documents"). The Company SEC Documents, including without          
limitation any financial statements or schedules included therein, at the time  
filed, and any forms, reports or other documents filed by the Company with the  
SEC after the date of this Agreement, (a) did not at the time they were filed,  
or will not at the time they are filed, contain any untrue statement of a       
material fact or omit to state a material fact required to be stated therein or 
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading and (b) complied or will be prepared 
in compliance in all material respects with the applicable requirements of the  
Securities Act or the Exchange Act, as the case may be. The financial statements
of the Company included in the Company SEC Documents ("Company Financial        
Statements") comply as to form in all material respects with applicable         
accounting requirements and with the published rules and regulations of the SEC 
with respect thereto, have been prepared in accordance with United States       
generally accepted accounting principles applied on a consistent basis during   
the periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements, to normal audit adjustments) and fairly       
present (subject, in the case of the unaudited statements, to normal audit      
adjustments) the consolidated financial position of the Company and its         
Subsidiaries as at the dates thereof and the consolidated results of their      
operations and cash flows for the periods then ended. Except as reflected,      
reserved against or otherwise disclosed in the Company Financial Statements or  
as otherwise disclosed in the Company SEC Documents, in each case filed prior   
May 16, 1996 or as disclosed in Section 3.8 of the Company Disclosure Schedule, 
neither the Company nor any of its Subsidiaries has any                         

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liabilities or obligations (absolute, accrued, fixed, contingent or otherwise)  
other than (i) liabilities incurred in the ordinary course of business          
consistent with past practice, and (ii) liabilities and obligations that, alone 
or in the aggregate, have not had, and are not reasonably likely to have, a     
material adverse effect on the Company and its Subsidiaries.                    

Section 3.9  Information in Joint Proxy Statement and Registration    
Statement.                                                                      

     (a) None of the information with respect to the Company or its Subsidiaries
to be included in the joint proxy statement/prospectus to be used by the Boards 
of Directors of the Company and the Parent in connection with the solicitation  
of proxies for use at the meetings referred to in Section 5.7 ("Joint Proxy     
Statement") or in the registration statement on Form S-4 to be filed with the   
SEC by the Parent in connection with the issuance of shares of Parent Common    
Stock in the Merger to holders of Company Common Stock (the "S-4") will, in the 
case of the Joint Proxy Statement or any amendment thereof or supplement        
thereto, at the time of the mailing of the Joint Proxy Statement or any         
amendment thereof or supplement thereto, and at the time of the Company         
Stockholder Meeting (as defined in Section 5.7) or, in the case of the S-4, at  
the time it becomes effective under the Securities Act and at the time of the   
Closing, contain any untrue statement of a material fact or omit to state any   
material fact required to be stated therein or necessary in order to make the   
statements therein, in light of the circumstances under which they were made,   
not misleading. The Joint Proxy Statement, when filed, will comply as to form in
all material respects with the provisions of the Exchange Act and the rules and 
regulations thereunder.                                                         

 (b) Notwithstanding Section 3.9(a), the Company makes no representation
with respect to statements made in the Joint Proxy Statement (and any amendment 
thereto or supplement thereto) and in the S-4 based on information regarding and
supplied by the Parent or the Sub specifically for inclusion therein.           

Section 3.10  No Material Adverse Change. Except as disclosed in the  
Company SEC Documents filed prior to May 16, 1996 or as disclosed in Section    
3.10 of the Company Disclosure Schedule, since December 29, 1995, the Company   
and its Subsidiaries have conducted their respective businesses in the ordinary 
and usual course and there has not been any change in the assets, business,     
results of operations or financial condition of the Company and its Subsidiaries
that has had, or is reasonably likely to have, a material adverse effect on the 
Company and its Subsidiaries.                                                   

Section 3.11  Taxes.                                                  

  (a) Each of the Company and its Subsidiaries has duly filed all material
federal, state, local and foreign income and other Tax Returns (as defined in   
Section 3.11(b)) required to be filed by it, except as disclosed in Section     
3.11(a)(i) of the Company Disclosure Schedule. Except as disclosed in Section   
3.11(a)(ii) of the Company Disclosure Schedule, each of the Company and its     
Subsidiaries has duly paid or caused to be paid all Taxes shown to be due on    
such Tax Returns in respect of the periods covered by such returns and has made 
adequate provision in the Company Financial Statements for payment of all Taxes 
anticipated to be payable in respect of all taxable periods or portions thereof 
ending on or before the date hereof. Section 3.11(a)(iii) of the Company        
Disclosure Schedule discloses the periods through which the Tax Returns required
to be filed by the Company and its Subsidiaries have been examined by the       
Internal Revenue Service (the "IRS") or other appropriate taxing authority, or  
the period during which any assessments may be made by the IRS or other         
appropriate taxing authority has expired. Except as disclosed in Section        
3.11(a)(iv) of the Company Disclosure Schedule, as of the date hereof, all      
material deficiencies and assessments asserted as a result of such examinations 
or other audits by federal, state, local or foreign taxing authorities have been
paid, fully settled or adequately provided for in the Company Financial         
Statements, and no issue or claim has been asserted in writing for Taxes by any 
taxing authority for any prior period, the adverse determination of which would 
result in a deficiency which is reasonably likely to have a material adverse    
effect on the Company and its Subsidiaries, other than those heretofore paid or 
provided for in the Company's Financial Statements. Except as disclosed in      
Section 3.11(a)(v) of the Company Disclosure Schedule, as of the date hereof,   
there are no material outstanding agreements or waivers extending the statutory 
period of limitation applicable to any material Tax Return of the Company or its
Subsidiaries. Except as disclosed in Section 3.11(a)(vi) of the Company         
Disclosure Schedule, neither the Company nor any of its Subsidiaries (x) has    
been a member of a                                                              

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group filing consolidated returns for federal income tax purposes, or (y) is a  
party to any material tax sharing or tax indemnity agreement or any other       
material agreement of a similar nature that remains in effect.                  

(b) For purposes of this Agreement, the term "Taxes" means all taxes, 
charges, fees, levies or other assessments, including, without limitation,      
income, gross receipts, excise, property, sales, transfer, license, payroll,    
withholding, capital stock and franchise taxes, imposed by the United States or 
any state, local or foreign government or subdivision or agency thereof,        
including any interest, penalties or additions thereto. For purposes of this    
Agreement, the term "Tax Return" means any report, return or other information  
or document required to be supplied to a taxing authority in connection with    
Taxes.                                                                          

   Section 3.12  DGCL Section 203. To the best knowledge of the Company, the
Trust either is not an interested stockholder of the Company, as defined in     
Section 203(c)(5) of the DGCL ("DGCL Interested Stockholder"), or, if a DGCL    
Interested Stockholder, became such more than three years prior to the date of  
this Agreement. Accordingly, the terms of Section 203 of the DGCL are not       
applicable to the Company's participation in the Merger.                        

Section 3.13  Vote Required. The affirmative vote of the holders of a 
majority of the outstanding shares of Company Common Stock entitled to vote with
respect to the Merger is the only vote of the holders of any class or series of 
the Company's capital stock necessary to approve the Merger and the transactions
contemplated hereby.                                                            

   Section 3.14  Opinion of Company Financial Advisor. The Special Committee
of the Board of Directors of the Company has received the opinion of Donaldson, 
Lufkin & Jenrette Securities Corporation, its financial advisor, to the effect  
that, as of the date of such opinion, the Merger Consideration to be received   
pursuant to the Merger by the holders of the Company Common Stock (other than by
Glazer and other holders affiliated with Glazer) is fair to such holders from a 
financial point of view.                                                        

Section 3.15  No Undisclosed Employee Benefit Plan Liabilities. All   
"employee benefit plans," as defined in Section 3(3) of the Employee Retirement 
Income Security Act of 1974, as amended ("ERISA"), maintained or contributed to 
by the Company or its Subsidiaries are in compliance with all applicable        
provisions of ERISA and the Code, and the Company and its Subsidiaries do not   
have any liabilities or obligations with respect to any such employee benefit   
plans, whether or not accrued, contingent or otherwise, except (a) as described 
in any of the Company SEC Documents, (b) as set forth in Section 5.10(a) of the 
Company Disclosure Schedule with respect to employment arrangements and         
indemnification agreements and (c) for instances of non-compliance or           
liabilities or obligations that have not had, or are not reasonably be expected 
to have, individually or in the aggregate, a material adverse effect on the     
Company and the Subsidiaries.                                                   

     Section 3.16  Tax Matters. Neither the Company nor, to the knowledge of the
Company, any of its affiliates referred to in Section 3.17 has taken or agreed  
to take any action that would prevent the Merger from constituting a            
reorganization under the provisions of Section 368(a) of the Code.              

   Section 3.17  Affiliates. Section 3.17 of the Company Disclosure Schedule
identifies all persons who, to the knowledge of the Company, may be deemed to be
affiliates of the Company under Rule 145 of the Securities Act, including,      
without limitation, all directors and officers of the Company. Concurrently with
the execution and delivery of this Agreement, the Company has delivered to the  
Parent duplicate copies of letter agreements, each substantially in the form of 
Annex II, executed by each person so identified as an affiliate of the Company  
in Section 3.17 of the Company Disclosure Schedule.                             

Section 3.18  General. As used in this Agreement with respect to the  
Company and/or its Subsidiaries, related partnerships or equity investments, the
term "material adverse effect" means an effect which is both material and       
adverse with respect to the assets, business, results of operations or financial
condition of the Company taken as a whole with its Subsidiaries, which effect   
shall be measured net of, and only after giving the Company and its Subsidiaries
the benefit of, any insurance, indemnity, reimbursement, contribution,          
compensation or other similar right which would operate to reduce, offset,      
compensate, mitigate or otherwise limit the impact thereof on the Company and/or
any of its Subsidiaries; provided, however that any adverse change or changes in
the assets, business, results of operations or financial condition of the       
Company taken as                                                                

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a whole with its Subsidiaries attributable to changes in general economic       
conditions shall not be deemed to constitute a material adverse effect.         

ARTICLE IV

REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS OF THE PARENT AND THE SUB

The Parent and the Sub, jointly and severally, represent and warrant to, and    
covenant and agree with, the Company as follows:                                

   Section 4.1  Due Incorporation, Etc. Each of the Parent and each Material
Parent Subsidiary (as defined in Section 4.4) is a corporation or other legal   
entity duly organized, validly existing and in good standing under the laws of  
the jurisdiction of its incorporation or organization, with all requisite power 
and authority to own, operate and lease its properties and to carry on its      
business as it is now being conducted, except where the failure to be so        
organized, existing or in good standing or to have such power and authority,    
individually or in the aggregate has not had, and is not reasonably likely to   
have, a material adverse effect on the Parent and its Subsidiaries. The Parent  
has made available to the Company true and accurate copies of the certificate of
incorporation, bylaws or other organizational documents of each of the Parent   
and each Material Parent Subsidiary.                                            

     Section 4.2  Qualification as Foreign Entities. Each of the Parent and each
Material Parent Subsidiary is duly licensed or qualified to do business and, if 
applicable, is in good standing, in each state or other jurisdiction in which   
the character of the properties owned or leased by it or the nature of the      
business conducted by it requires it to be so licensed or qualified, except     
where the failure to be so licensed, qualified or in good standing has not had, 
and is not reasonably likely to have, a material adverse effect on the Parent   
and its Subsidiaries.                                                           

Section 4.3  Capital Stock. The authorized capital stock of the Parent
consists of (a) 165,000,000 shares of Parent Common Stock, of which as of April 
30, 1996, 29,548,507 shares were issued and outstanding and no shares were held 
in the Parent's treasury, (b) 2,000,000 shares of preferred stock, no par value 
per share ("Preferred Stock"), of which, as of April 30, 1996, no shares were   
issued and outstanding or held in the Parent's treasury, and (c) 18,000,000     
million shares of preference stock, par value $1.00 per share ("Preference      
Stock"), of which, as of April 30, 1996, 242,419 shares had been designated as  
$2.00 Per Cumulative Convertible Preference Stock, 3,627 shares of such series  
were issued and outstanding as of that date and no shares of such series were   
held in the Parent's treasury as of that date. Also, as of April 30, 1996, the  
Company had reserved for issuance (i) 165,900 shares of Parent Common Stock upon
exercise of then-outstanding stock options ("Parent Options") under the Parent's
1981 Stock Incentive Plan, the Special Incentive Plan and the 1990 Stock Option 
Plan (collectively, the "Parent Plans), (ii) 256,333 shares of Parent Common    
Stock in respect of future grants of Parent Options pursuant to the Parent Plans
and (iii) 5,527 shares of Parent Common Stock upon conversion of the $2.00      
Noncumulative Convertible Preference Stock. Except as disclosed in the Parent   
SEC Documents (as defined in Section 4.8) filed prior to May 16, 1996 or as     
disclosed in Section 4.3(a) of the Parent Disclosure Schedule delivered by the  
Parent to the Company pursuant to this Agreement ("Parent Disclosure Schedule"),
since December 31, 1995, the Parent has not issued any shares of its capital    
stock, except for issuances of Parent Common Stock upon the exercise of Parent  
Options granted under the Parent Plans and upon conversion of its $2.00         
Noncumulative Convertible Preference Stock, and has not repurchased, redeemed or
otherwise retired any shares of its capital stock. All the outstanding shares of
capital stock of the Parent and each of its Subsidiaries are, and all shares of 
Parent Common Stock that may be issued pursuant to the Parent Plans or upon     
conversion of the $2.00 Noncumulative Convertible Preference Stock will be, when
issued and paid for in accordance with the respective terms thereof, duly       
authorized, validly issued, fully paid and nonassessable and not subject to any 
preemptive rights of third parties in respect thereto. No Voting Debt of the    
Parent or any of its Subsidiaries is issued or outstanding. Except as disclosed 
in the Parent SEC Documents filed prior to May 16, 1996 or as disclosed in      
Section 4.3(b) of the Parent Disclosure Schedule, (x) there are no existing     
options, warrants, calls, subscriptions, rights, commitments or other agreements
of any character obligating the Parent or any of                                

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its Subsidiaries to issue, transfer, vote or sell or cause to be issued,        
transferred, voted or sold any shares of its capital stock, Voting Debt or any  
other interests of the Parent or any of its Subsidiaries or securities          
convertible into or exchangeable for such shares or other interests or          
obligating the Parent to grant, extend or enter into any such option, warrant,  
call, subscription, right, agreement or commitment; (y) there are no outstanding
contractual obligations of the Parent or any of its Subsidiaries to repurchase, 
redeem or otherwise acquire any shares of capital stock of the Parent or any    
shares of capital stock or other interests of any of the Parent's Subsidiaries  
and any partnership interests are not subject to current or future capital      
calls; and (z) each of the outstanding shares of capital stock or other         
interests of the Parent's Subsidiaries are owned by the Parent or by a          
Subsidiary of the Parent free and clear of any Liens, except those which        
individually or in the aggregate have not had, and are not reasonably likely to 
have, a material adverse effect on the Parent and its Subsidiaries.             

Section 4.4  Material Parent Subsidiaries. (a) Each Material Parent   
Subsidiary is listed in Section 4.4(a) of the Parent Disclosure Schedule.       

     (b) The Parent has provided to the Company full access to the minute books,
stock records and comparable documents of each of the Parent and each Material  
Parent Subsidiary.                                                              

    Section 4.5  Ownership of Equity Interests. Except as disclosed in Section
4.5 of the Parent Disclosure Schedule, neither the Parent nor any of its        
Subsidiaries owns or holds, directly or indirectly, any capital stock of, or    
other equity or other ownership interest in (or any securities, rights or other 
interests exchangeable for, convertible into or which otherwise relate to the   
acquisition of any capital stock of), any Person or is a partner or joint       
venturer in any partnership or joint venture.                                   

    Section 4.6 Corporate Power and Authority. The Parent and the Sub each has
the requisite corporate power to execute and deliver this Agreement and to      
consummate the transactions contemplated hereby, subject to the approval of the 
issuance of the shares of Parent Common Stock in the Merger by the affirmative  
vote of the holders, voting as a class, of the Parent Common Stock and the      
Preference Stock entitled to cast at least a majority of the total number of    
votes voting on such matter as required by the NYSE and the filings referred to 
in Section 4.7(a). The execution, delivery and performance of this Agreement by 
the Parent and the Sub and the consummation by the Parent and the Sub of the    
Merger and the other transactions contemplated hereby have been duly authorized 
by all necessary corporate action on the part of the Parent and the Sub and no  
other corporate proceedings are necessary to authorize this Agreement or to     
consummate the transactions so contemplated, other than the required stockholder
approval by the Parent noted above, and the filing of a certificate of merger   
with the Secretary of State of the State of Delaware. The Parent, as the sole   
stockholders of the Sub, has approved and adopted this Agreement (insofar as it 
relates to the Merger) and the Merger. This Agreement has been duly and validly 
executed and delivered by the Parent and the Sub and, assuming this Agreement   
constitutes a valid and binding obligation of the Company, constitutes a valid  
and binding obligation of the Parent and the Sub, enforceable against the Parent
and the Sub in accordance with its terms.                                       

   Section 4.7  No Conflicts or Consents; Environmental Law; and Litigation.
(a) Other than the filing provided for in Section 1.1 and as required under the 
HSR Act, the Securities Act and the Exchange Act, no notices, reports or other  
filings are required to be made by the Parent or the Sub with, nor any consents,
registrations, approvals, permits or authorizations required to be obtained     
from, any Governmental Entity, in connection with the execution and delivery of 
this Agreement by the Parent and the Sub and the consummation by the Parent and 
the Sub of the transactions contemplated hereby, the failure to make or obtain  
any or all of which (i) is reasonably likely to have a material adverse effect  
on the Parent and its Subsidiaries or (ii) would prevent, materially delay or   
materially burden the transactions contemplated in this Agreement.              

    (b) The execution and delivery of this Agreement by the Parent and the Sub
do not, and the consummation by the Parent and the Sub of the transactions      
contemplated hereby will not, constitute or result in (i) a breach or violation 
of or a default under, the certificate of incorporation or bylaws of the Parent 
or the Sub or the comparable governing instruments of any Material Parent       
Subsidiary, (ii) a breach or violation of, a default under, or the acceleration 
of or the creation of any Lien (with or without the giving of notice or the     

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lapse of time) pursuant to, any provision of any Contract of the Parent or any  
of its Subsidiaries or any law, rule, ordinance or regulation or judgment,      
decree, order, award or governmental or non-governmental permit or license to   
which Parent or any of its Subsidiaries is subject or (iii) any change in the   
rights or obligations of any party under any such Contract, except, in the case 
of clause (ii) and (iii) above, for such breaches, violations, defaults,        
accelerations or changes that, alone or in the aggregate, (x) have not had, and 
are not reasonably likely to have, a material adverse effect on the Parent and  
its Subsidiaries or (y) would not prevent, materially delay or materially burden
the transactions contemplated by this Agreement.                                

    (c) Except as disclosed in the Parent SEC Documents filed prior to May 16,
1996 or as disclosed in Section 4.7(c) of the Parent Disclosure Schedule, (i)   
the Parent and its Subsidiaries are in compliance with all applicable statutes, 
ordinances, rules and regulations of any Governmental Entity relating to        
Environmental Law except for non-compliance which, individually or in the       
aggregate, has not had, and is not reasonably likely to have, a material adverse
effect on the Parent and its Subsidiaries and (ii) neither the Parent nor any of
its Subsidiaries has received written notice of, or is the subject of, any      
action, cause of action, claim, investigation, demand or notice by any Person   
alleging liability under or non-compliance by the Parent or any of its          
Subsidiaries with any Environmental Law which, individually or in the aggregate,
has had, or is reasonably expected to have, a material adverse effect on the    
Parent and its Subsidiaries.                                                    

    (d) Except as disclosed in the Parent SEC Documents filed prior to May 16,
1996 or in Section 4.7(d)(i) of the Parent Disclosure Schedule, there is no     
suit, claim, action, proceeding or investigation pending or, to the best        
knowledge of the Parent, threatened, against the Parent or any of its           
Subsidiaries which, individually or in the aggregate, has had, or is reasonably 
likely to have, a material adverse effect on the Parent and its Subsidiaries or 
affect adversely in any material respect the ability of the Parent to consummate
the transactions contemplated by this Agreement. Except as disclosed in the     
Parent SEC Documents filed prior to May 16, 1996 or in Section 4.7(d)(ii) of the
Parent Disclosure Schedule, neither the Parent nor any of its Subsidiaries is   
subject to any outstanding order, writ, injunction or decree which, individually
or in the aggregate has had, or is reasonably likely to have, a material adverse
effect on the Parent and its Subsidiaries or affect adversely in any material   
respect the ability of the Parent to consummate the transactions contemplated   
hereby.                                                                         

   Section 4.8  SEC Reports and Financial Statements. Since January 1, 1993,
the Parent has filed with the SEC all forms, reports and documents required to  
be filed by it under the Securities Act or the Exchange Act, and has heretofore 
made available to the Company true and complete copies of all such forms,       
reports and documents (as they have been amended since the time of their filing,
collectively, the "Parent SEC Documents"). The Parent SEC Documents, including  
without limitation any financial statements or schedules included therein, at   
the time filed, and any forms, reports or other documents filed by the Parent   
with the SEC after the date of this Agreement, (a) did not at the time they were
filed, or will not at the time they are filed, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or 
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading and (b) complied or will be prepared 
in compliance in all material respects with the applicable requirements of the  
Securities Act or the Exchange Act, as the case may be. The financial statements
of the Parent included in the Parent SEC Documents ("Parent Financial           
Statements") comply as to form in all material respects with applicable         
accounting requirements and with the published rules and regulations of the SEC 
with respect thereto, have been prepared in accordance with United States       
generally accepted accounting principles applied on a consistent basis during   
the periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements, to normal audit adjustments) and fairly       
present (subject, in the case of the unaudited statements, to normal audit      
adjustments) the consolidated financial position of the Parent and its          
Subsidiaries as at the dates thereof and the consolidated results of their      
operations and cash flows for the periods then ended. Except as reflected,      
reserved against or otherwise disclosed in the Parent Financial Statements or as
otherwise disclosed in the Parent SEC Documents, in each case filed prior to May
16, 1996 or as disclosed in Section 4.8 of the Parent Disclosure Schedule, as of
the date of this Agreement, neither the Parent nor any of its Subsidiaries had  
any liabilities or obligations (absolute, accrued, fixed, contingent or         
otherwise) other than (i) liabilities incurred in the ordinary course of        
business                                                                        

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consistent with past practice and (ii) liabilities and obligations that, alone  
or in the aggregate, have not had, and are not reasonably likely to have, a     
material adverse effect on the Parent and its Subsidiaries.                     

Section 4.9  Information in Joint Proxy Statement and Registration    
Statement. (a) None of the information with respect to the Parent or its        
Subsidiaries to be included in the Joint Proxy Statement or the S-4 will, in the
case of the Joint Proxy Statement or any amendment thereof or supplement        
thereto, at the time of the mailing of the Joint Proxy Statement or any         
amendment thereof or supplement thereto, and at the time of the Parent's        
Stockholder Meeting (as defined in Section 5.7), or, in the case of the S-4, at 
the time it becomes effective under the Securities Act and at the time of the   
Closing, contain any untrue statement of a material fact or omit to state any   
material fact required to be stated therein or necessary to make the statements 
therein, in light of the circumstances under which they were made, not          
misleading. The S-4 will, when filed with the SEC by the Parent, comply as to   
form in all material respects with the provisions of the Securities Act and the 
rules and regulations thereunder.                                               

  (b) Notwithstanding Section 4.9(a), neither the Parent nor the Sub makes
any representation with respect to statements made in the Joint Proxy Statement 
(and any amendment thereof or supplement thereto) and in the S-4 based on       
information regarding the Company supplied specifically for inclusion therein.  

     Section 4.10  No Material Adverse Change. Except as disclosed in the Parent
SEC Documents filed prior to May 16, 1996 or as disclosed in Section 4.10 of the
Parent Disclosure Schedule, since September 30, 1995, the Parent and its        
Subsidiaries have conducted their respective businesses in the ordinary and     
usual course and there has not been any change in the assets, business, results 
of operations or financial condition of the Parent and its Subsidiaries that has
had, or is reasonably likely to have, a material adverse effect on Parent and   
its Subsidiaries.                                                               

     Section 4.11  Taxes. Each of the Parent and its Subsidiaries has duly filed
all material federal, state, local and foreign income and other Tax Returns     
required to be filed by it, except as disclosed in Section 4.11(a) of the Parent
Disclosure Schedule. Except as disclosed in Section 4.11(b) of the Parent       
Disclosure Schedule, each of the Parent and its Subsidiaries has duly paid or   
caused to be paid all Taxes shown to be due on such Tax Returns in respect of   
the periods covered by such returns and has made adequate provision in the      
Parent Financial Statements for payment of all Taxes anticipated to be payable  
in respect of all taxable periods or portions thereof ending on or before the   
date hereof. Section 4.11(c) of the Parent Disclosure Schedule lists the periods
through which the Tax Returns required to be filed by the Parent and its        
Subsidiaries have been examined by the IRS or other appropriate taxing          
authority, or the period during which any assessments may be made by the IRS or 
other appropriate taxing authority has expired. Except as disclosed in Section  
4.11(d) of the Parent Disclosure Schedule, as of the date hereof all material   
deficiencies and assessments asserted as a result of such examinations or other 
audits by federal, state, local or foreign taxing authorities have been paid,   
fully settled or adequately provided for in the Parent Financial Statements, and
no issue or claim has been asserted in writing for Taxes by any taxing authority
for any prior period, the adverse determination of which would result in a      
deficiency which is reasonably likely to have a material adverse effect on the  
Parent and its Subsidiaries, other than those heretofore paid or provided for in
the Parent Financial Statements. Except as disclosed in Section 4.11(e) of the  
Parent Disclosure Schedule, as of the date hereof, there are no material        
outstanding agreements or waivers extending the statutory period of limitation  
applicable to any material Tax Return of the Parent or its Subsidiaries. Except 
as disclosed in Section 4.11(f) of the Parent Disclosure Schedule, neither the  
Parent nor any of its Subsidiaries (i) has been a member of a group filing      
consolidated tax returns for federal income tax purposes or (ii) is a party to  
any material tax sharing or tax indemnity agreement or any other material       
agreement of a similar nature that remains in effect.                           

    Section 4.12  Reservation of Shares. The Parent has reserved and will keep
available for issuance a number of authorized but unissued shares of Parent     
Common Stock equal to the maximum number of shares of Parent Common Stock that  
may become issuable pursuant to the Merger.                                     

  Section 4.13  DGCL Section 203. To the best knowledge of the Parent, the
Trust became a DGCL Interested Stockholder of the Parent more than three years  
prior to the date of this Agreement. Accordingly, the terms of Section 203 of   
the DGCL are not applicable to the participation by the Parent or the Sub in the
Merger.                                                                         

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Section 4.14  Vote Required. The affirmative vote of the holders of a 
majority of the outstanding shares of Parent Common Stock and Preference Stock, 
voting together as a class, on the issuance of the shares of Parent Common Stock
in the Merger, as required by the NYSE, is the only vote of the holders of any  
class or series of the Parent's capital stock necessary to approve the          
transactions contemplated hereby.                                               

    Section 4.15  Interim Operations of the Sub. The Sub was formed solely for
the purpose of engaging in the transactions contemplated hereby, has engaged in 
no other business activities, has conducted its operations only as contemplated 
hereby and will not have a negative net worth as of the Effective Time.         

     Section 4.16  Opinion of Parent Financial Advisor. The Special Committee of
the Board of Directors of Parent has received the opinion of CS First Boston    
Corporation, its financial advisor, to the effect that, as of the date of such  
opinion, the Merger Consideration is fair to the Parent from a financial point  
of view.                                                                        

Section 4.17  No Undisclosed Employee Benefit Plan Liabilities. All   
"employee benefit plans," as defined in Section 3(3) of ERISA maintained or     
contributed to by the Parent or its Subsidiaries are in compliance with all     
applicable provisions of ERISA and the Code, and the Parent and its Subsidiaries
do not have any liabilities or obligations with respect to any such employee    
benefit plans, whether or no accrued, contingent or otherwise, except (a) as    
described in any of the Parent SEC Documents and (b) for instances of           
non-compliance or liabilities or obligations that have not had, or are not      
reasonably be expected to have, individually or in the aggregate, a material    
adverse effect on the Parent and its Subsidiaries.                              

 Section 4.18  General. As used in this Agreement with respect to Parent
and/or its Subsidiaries, related partnerships or equity investments, the term   
"material adverse effect" means an effect which is both material and adverse    
with respect to the assets, business, results of operations or financial        
condition of the Parent taken as a whole with its Subsidiaries, which effect    
shall be measured net of, and only after giving the Parent and its Subsidiaries 
the benefit of, any insurance, indemnity, reimbursement, contribution,          
compensation or other similar right which would operate to reduce, offset,      
compensate, mitigate or otherwise limit the impact thereof on the Parent and/or 
any of its Subsidiaries; provided, however that any adverse change or changes in
the assets, business, results of operations or financial condition of the Parent
taken as a whole with its Subsidiaries attributable to changes in general       
economic conditions shall not be deemed to constitute a material adverse effect.

ARTICLE V 

COVENANTS AND AGREEMENTS

    Section 5.1  Conduct of Business of the Company. Except as contemplated by
this Agreement or with the prior written consent of the Parent, which consent   
shall not be unreasonably withheld and is hereby given with respect to actions  
disclosed in the Company Disclosure Schedule, during the period from the date of
this Agreement to the Effective Time, the Company will, and will cause each of  
its Subsidiaries to, conduct its operations only in the ordinary and usual      
course of business consistent with past practice and, consistent therewith, will
use all reasonable efforts, and will cause each of its Subsidiaries to use all  
reasonable efforts, to preserve intact its present business organization, keep  
available the services of its present officers and employees and preserve its   
relationships with licensors, licensees, customers, suppliers, employees and any
others having business dealings with it, in each case in all material respects. 
Without limiting the generality of the foregoing, and except as otherwise       
expressly provided in this Agreement, the Company will not, and will not permit 
any of the Subsidiaries to, prior to the Effective Time, without the prior      
written consent of Parent, not to be unreasonably withheld:                     

   (a) adopt any amendment to its certificate of incorporation or by-laws or
comparable organizational documents;                                            

    (b) except for issuances of capital stock of the Company's Subsidiaries to
the Company or a wholly owned Subsidiary of the Company, issue, reissue, sell or
pledge or authorize or propose the issuance, reissuance, sale or pledge of      
additional shares of capital stock of any class, or securities convertible into 
capital stock of any class, or any rights, warrants or options to acquire any   
convertible securities or capital stock, other                                  

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than the issuance of shares of Company Common Stock upon the exercise of Company
Options outstanding on the date of this Agreement in accordance with their      
present terms;                                                                  

   (c) declare, set aside or pay any dividend or other distribution (whether
in cash, securities or property or any combination thereof) in respect of any   
class or series of its capital stock, except that any wholly owned Subsidiary of
the Company may pay dividends and make distributions to the Company or any of   
the Company's wholly owned Subsidiaries;                                        

  (d) adjust, split, combine, subdivide, reclassify or redeem, purchase or
otherwise acquire, or propose to redeem or purchase or otherwise acquire, any   
shares of its capital stock;                                                    

    (e) (i) incur, assume or pre-pay any long-term debt or incur or assume any
short-term debt, except that the Company and its Subsidiaries may incur, assume 
or pre-pay debt in the ordinary course of business consistent with past practice
or as disclosed in Section 5.1(e) of the Company Disclosure Schedule, (ii)      
assume, guarantee, endorse or otherwise become liable or responsible (whether   
directly, contingently or otherwise) for the obligations of any other Person    
except in the ordinary course of business consistent with past practice, or     
(iii) make any loans, advances or capital contributions to, or investments in,  
any other Person except in the ordinary course of business consistent with past 
practice and except for loans, advances, capital contributions or investments   
between any wholly owned Subsidiary of the Company and the Company or another   
wholly owned Subsidiary of the Company;                                         

    (f) settle or compromise any suit or claim or threatened suit or claim (i)
relating to the transactions contemplated hereby or (ii) involving the payment  
of money or the surrender of property or other rights in an amount or having a  
fair market value, in each case, in excess of $500,000;                         

    (g) except for (i) increases in salary, wages and benefits of employees of
the Company or its Subsidiaries (other than executive or corporate officers of  
the Company) in accordance with past practice, (ii) increases in salary, wages  
and benefits granted to employees of the Company or its Subsidiaries (other than
executive or corporate officers of the Company) in conjunction with promotions  
or other changes in job status consistent with past practice or required under  
existing agreements, (iii) increases in salary, wages and benefits to employees 
of the Company pursuant to collective bargaining agreements entered into in the 
ordinary course of business consistent with past practice, and (iv) matters     
disclosed in Section 5.1(g) of the Company Disclosure Schedule, increase the    
compensation or fringe benefits payable or to become payable to its directors,  
officers or employees (whether from the Company or any of its Subsidiaries), or 
pay any benefit not required by any existing plan or arrangement (including, the
granting of, or waiver of performance or other vesting criteria under, stock    
options, stock appreciation rights, shares of restricted stock or deferred stock
or performance units) or grant any severance or termination pay to (except      
pursuant to existing agreements or policies), or enter into any employment or   
severance agreement with, any director, officer or other key employee of the    
Company or any of its Subsidiaries or establish, adopt, enter into, terminate or
amend any collective bargaining, bonus, profit sharing, thrift, compensation,   
stock option, restricted stock, pension, retirement, welfare, deferred          
compensation, employment, termination, severance or other employee benefit plan,
agreement, trust, fund, policy or arrangement for the benefit or welfare of any 
directors, officers or current or former employees, except to the extent such   
termination or amendment is required by applicable law; provided, however, that 
nothing herein will be deemed to prohibit the payment of benefits as they become
payable;                                                                        

(h) except as disclosed in Section 5.1(h) of the Company Disclosure   
Schedule, acquire, sell, lease or dispose of any assets or securities which are 
material to the Company and its Subsidiaries, taken as a whole, or enter into   
any commitment to do any of the foregoing or enter into any material commitment 
or transaction outside the ordinary course of business consistent with past     
practice other than transactions between a wholly owned Subsidiary of the       
Company and the Company or another wholly owned Subsidiary of the Company;      

(i) (i) modify, amend or terminate any material Contract, (ii) waive, 
release, relinquish or assign any material Contract (including any material     
insurance policy) or other material right or claim, or (iii) cancel or forgive  
any material indebtedness owed to the Company or any of its Subsidiaries, other 
than in each case in a                                                          

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manner in the ordinary course of business consistent with past practice or which
is not material to the business of the Company and its Subsidiaries taken as a  
whole;                                                                          

   (j) make any tax election not required by law or settle or compromise any
tax liability, in either case that is material to the Company and its           
Subsidiaries taken as a whole; or                                               

   (k) change any of the material accounting principles or practices used by
it except as required by the SEC and the Financial Accounting Standards Board.  

   Section 5.2  Conduct of Business of the Parent. Except as contemplated by
this Agreement or with the prior written consent of the Company, which consent  
shall not be unreasonably withheld and is hereby given with respect to actions  
disclosed in the Parent Disclosure Schedule, during the period from the date of 
this Agreement to the Effective Time, the Parent will, and will cause each of   
its Subsidiaries to, conduct its operations only in the ordinary and usual      
course of business consistent with past practice and, consistent therewith, will
use all reasonable efforts, and will cause each of its Subsidiaries to use all  
reasonable efforts, to preserve intact its present business organization, keep  
available the services of its present officers and employees and preserve its   
relationships with licensors, licensees, customers, suppliers, employees and any
others having business dealings with it, in each case in all material respects. 
Without limiting the generality of the foregoing, and except as otherwise       
expressly provided in this Agreement, the Parent will not, and will not permit  
any of the Subsidiaries to, prior to the Effective Time, without the prior      
written consent of the Company, not to be unreasonably withheld:                

   (a) adopt any amendment to its certificate of incorporation or by-laws or
comparable organizational documents;                                            

   (b) except for issuances of capital stock of the Parent's Subsidiaries to
the Parent or a wholly owned Subsidiary of the Parent, issue, reissue, sell or  
pledge or authorize or propose the issuance, reissuance, sale or pledge of      
additional shares of capital stock of any class, or securities convertible into 
capital stock of any class, or any rights, warrants or options to acquire any   
convertible securities or capital stock, other than the issuance of shares of   
Parent Common Stock upon the exercise of Parent Options and the conversion of   
shares of $2.00 Noncumulative Convertible Preference Stock outstanding on the   
date of this Agreement, in each case in accordance with their present terms;    

   (c) declare, set aside or pay any dividend or other distribution (whether
in cash, securities or property or any combination thereof) in respect of any   
class or series of its capital stock, except that any wholly owned Subsidiary of
the Parent may pay dividends and make distributions to the Parent or any of the 
Parent's wholly owned Subsidiaries;                                             

  (d) adjust, split, combine, subdivide, reclassify or redeem, purchase or
otherwise acquire, or propose to redeem or purchase or otherwise acquire, any   
shares of its capital stock;                                                    

    (e) (i) incur, assume or pre-pay any long-term debt or incur or assume any
short-term debt, except that the Parent and its Subsidiaries may incur, assume  
or pre-pay debt in the ordinary course of business consistent with past practice
or as disclosed in Section 5.2(e) of the Parent Disclosure Schedule, (ii)       
assume, guarantee, endorse or otherwise become liable or responsible (whether   
directly, contingently or otherwise) for the obligations of any other Person    
except in the ordinary course of business consistent with past practice, or     
(iii) make any loans, advances or capital contributions to, or investments in,  
any other Person except in the ordinary course of business consistent with past 
practice and except for loans, advances, capital contributions or investments   
between any wholly owned Subsidiary of the Parent and the Parent or another     
wholly owned Subsidiary of the Parent;                                          

    (f) settle or compromise any suit or claim or threatened suit or claim (i)
relating to the transactions contemplated hereby or (ii) involving the payment  
of money or the surrender of property or other rights in an amount or having a  
fair market value, in each case, in excess of $500,000;                         

    (g) except for (i) increases in salary, wages and benefits of employees of
the Parent or its Subsidiaries (other than executive or corporate officers of   
the Parent) in accordance with past practice, (ii) increases in salary, wages   
and benefits granted to employees of the Parent or its Subsidiaries (other than 
executive or                                                                    

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corporate officers of the Parent) in conjunction with promotions or other       
changes in job status consistent with past practice or required under existing  
agreements, (iii) increases in salary, wages and benefits to employees of the   
Parent pursuant to collective bargaining agreements entered into in the ordinary
course of business consistent with past practice, and (iv) matters disclosed in 
Section 5.2(g) of the Parent Disclosure Schedule, increase the compensation or  
fringe benefits payable or to become payable to its directors, officers or      
employees (whether from the Parent or any of its Subsidiaries), or pay any      
benefit not required by any existing plan or arrangement (including, the        
granting of, or waiver of performance or other vesting criteria under, stock    
options, stock appreciation rights, shares of restricted stock or deferred stock
or performance units) or grant any severance or termination pay to (except      
pursuant to existing agreements or policies), or enter into any employment or   
severance agreement with, any director, officer or other key employee of the    
Parent or any of its Subsidiaries or establish, adopt, enter into, terminate or 
amend any collective bargaining, bonus, profit sharing, thrift, compensation,   
stock option, restricted stock, pension, retirement, welfare, deferred          
compensation, employment, termination, severance or other employee benefit plan,
agreement, trust, fund, policy or arrangement for the benefit or welfare of any 
directors, officers or current or former employees, except to the extent such   
termination or amendment is required by applicable law; provided, however, that 
nothing herein will be deemed to prohibit the payment of benefits as they become
payable;                                                                        

(h) except as disclosed in Section 5.2(h) of the Parent Disclosure    
Schedule, acquire, sell, lease or dispose of any assets or securities which are 
material to the Parent and its Subsidiaries or enter into any commitment to do  
any of the foregoing or enter into any material commitment or transaction       
outside the ordinary course of business consistent with past practice other than
transactions between a wholly owned Subsidiary of the Parent and the Parent or  
another wholly owned Subsidiary of the Parent;                                  

(i) (i) modify, amend or terminate any material Contract, (ii) waive, 
release, relinquish or assign any material Contract (including any material     
insurance policy) or other material right or claim, or (iii) cancel or forgive  
any material indebtedness owed to the Parent or any of its Subsidiaries, other  
than in each case in a manner in the ordinary course of business consistent with
past practice or which is not material to the business of the Parent and its    
Subsidiaries;                                                                   

   (j) make any tax election not required by law or settle or compromise any
tax liability, in either case that is material to the Parent and its            
Subsidiaries except that Parent and Sub may elect in Parent's consolidated      
Federal income tax return for the year ended September 30, 1995 to waive the    
carryback period for net operating losses and carry the losses forward; or      

   (k) change any of the material accounting principles or practices used by
it except as required by the SEC and the Financial Accounting Standards Board.  

   Section 5.3  Reasonable Best Efforts. Subject to the terms and conditions
of this Agreement, each of the Parent, the Sub and the Company will use its     
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 the transactions          
contemplated by this Agreement, including (a) the prompt preparation and filing 
with the SEC of the S-4 and the Joint Proxy Statement, (b) such actions as may  
be required to have the S-4 declared effective under the Securities Act and the 
Joint Proxy Statement cleared by the SEC, in each case as promptly as           
practicable, including by consulting with each other as to, and responding      
promptly to, any SEC comments with respect thereto, (c) such actions as may be  
required to be taken under applicable state securities or blue sky laws in      
connection with the issuance of shares of Parent Common Stock contemplated      
hereby and (d) the making of any necessary filings, and thereafter the making of
any required submissions, with respect to this Agreement and the Merger under   
the HSR Act or any other applicable law. Each party will promptly consult with  
the other with respect to, provide any necessary information with respect to and
provide the other (or its counsel) copies of, all filings made by such party    
with any Governmental Agency in connection with this Agreement and the Merger.  
In addition, if at any time prior to the Effective Time any event or            
circumstance relating to either the Company or the Parent or any of their       
respective Subsidiaries, or any of their respective officers or directors, is   
discovered by the Company or the Parent, as the case may be, which should be set
forth in an amendment or supplement to the S-4 or the Joint Proxy Statement, the
discovering party will promptly inform the other party of such event or         
circumstance.                                                                   

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Section 5.4  Letter of the Company's Accountants. Following receipt by
Deloitte & Touche LLP, the Company's independent auditors, of an appropriate    
request from the Parent pursuant to Statement on Auditing Standards ("SAS") No. 
72, the Company will use its reasonable best efforts to cause to be delivered to
the Parent a letter of Deloitte & Touche LLP, dated a date within two business  
days before the date on which the S-4 will become effective and addressed to the
Parent, in form and substance reasonably satisfactory to the Parent and         
customary in scope and substance for letters delivered by independent public    
accountants in connection with registration statements similar to the S-4, which
letter will be brought down to the Closing.                                     

Section 5.5  Letter of the Parent's Accountants. Following receipt by 
Coopers & Lybrand, LLP, the Parent's independent auditors, of an appropriate    
request from the Parent or the Company pursuant to SAS No. 72, the Parent will  
use its reasonable best efforts to cause to be delivered to the Parent and      
Company a letter of Coopers & Lybrand LLP, dated a date within two business days
before the date on which the S-4 will become effective and addressed to the     
Parent and Company, in form and substance reasonably satisfactory to the Parent 
and Company and customary in scope and substance for letters delivered by       
independent public accountants in connection with registration statements       
similar to the S-4, which letter will be brought down to the Closing.           

     Section 5.6  Access to Information. Upon reasonable notice, the Company and
the Parent will each (and will cause each of their respective Subsidiaries to)  
afford to the officers, employees, accountants, counsel and other               
representatives of the other, access, during normal business hours during the   
period prior to the Effective Time, to all its properties, facilities, books,   
contracts, commitments and records and other information as reasonably requested
by such party and, during such period, each of the Company and the Parent will  
(and will cause each of their respective Subsidiaries to) furnish promptly to   
the other (a) a copy of each report, schedule, registration statement and other 
document filed or received by it during such period pursuant to the requirements
of United States federal securities laws or regulations, and (b) all other      
information concerning its business, properties and personnel as such other     
party may reasonably request. The parties will hold any such information which  
is nonpublic in confidence in accordance with the terms of the Confidentiality  
Agreement, dated December 1, 1995, between the Parent and the Company (the      
"Confidentiality Agreement"), and in the event of termination of this Agreement 
for any reason each party will promptly comply with the terms of the            
Confidentiality Agreement.                                                      

 Section 5.7  Stockholders Meetings. Each of the Parent and the Company,
consistent with applicable law and its certificate of incorporation, as amended,
and by-laws, will call a meeting of its stockholders (respectively, the "Parent 
Stockholder Meeting" and the Company Stockholder Meeting") for the purpose of   
voting upon this Agreement (insofar as it relates to the Merger) and the Merger,
in the case of the Company, and the issuance of the shares of Parent Common     
Stock in the Merger, in the case of the Parent, and use its reasonable best     
efforts to hold such meeting as promptly as practicable. Each of the Parent and 
the Company will, through a special committee of its Board of Directors,        
recommend to its stockholders approval of such matters; provided, however, that 
nothing contained in this Section 5.7 will require the Board of Directors or the
special committee thereof of either the Parent or the Company to take any action
or refrain from taking any action which either Board determines in good faith   
with advice of counsel could reasonably be expected to result in a breach of its
fiduciary duties under applicable law.                                          

 Section 5.8  Stock Exchange Listing. The Parent will use its reasonable
best efforts to cause the Parent Common Stock to be issued in the Merger to be  
approved for listing on the NYSE not later than the Effective Time, subject to  
official notice of issuance, and to cause such Parent Common Stock to be duly   
registered or qualified under all applicable state securities or blue sky laws. 

Section 5.9  Company Plans. (a) On or prior to the Effective Time, the
Company and its Board of Directors (or a committee thereof) and the Parent will 
take all action necessary to implement the provisions contained in Section      
5.9(b).                                                                         

   (b) At the Effective Time, the Company's obligations with respect to each
outstanding Company Option under the Company Plans, as amended pursuant to the  
following sentence, shall be assumed by the Parent. The Company Options so      
assumed by the Parent shall continue to have, and be subject to, the same terms 
and                                                                             

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conditions set forth in the Company Plans and agreements pursuant to which such 
Company Options were issued as in effect immediately prior to the Effective     
Time, except that (i) each Company Option shall be exercisable for that number  
of whole shares of Parent Common Stock equal to the product of the number of    
shares of Company Common Stock covered by the Company Option immediately prior  
to the Effective Time multiplied by the Exchange Ratio, rounded up to the       
nearest whole number of shares of Parent Common Stock, and (ii) the per share   
exercise price for the shares of Parent Common Stock issuable upon the exercise 
of such assumed Company Option shall be equal to the quotient determined by     
dividing the exercise price per share of Company Common Stock specified for such
Company Option under the applicable Company Plan or agreement immediately prior 
to the Effective Time by the Exchange Ratio, rounding the resulting exercise    
price down to the nearest whole cent. For purposes hereof "Exchange Ratio" shall
mean the ratio of $8.00 to the Market Value. The date of grant shall be the date
on which each Company Option was originally granted. The Parent shall (i)       
reserve for issuance the number of shares of Parent Common Stock that will      
become issuable upon the exercise of such Company Options pursuant to this      
Section 5.9(b), (ii) at the Effective Time, execute a document evidencing the   
assumption by the Parent of the Company's obligations with respect thereto under
this Section 5.9(b) and (iii) deliver to optionees under such Company Options   
appropriate notices setting forth such optionees' rights pursuant to the Company
Options. As soon as practicable after the Effective Time, the Parent shall file 
a registration statement on Form S-8 (or any successor form), or another        
appropriate form with respect to the shares of Parent Common Stock subject to   
such Company Options and shall use its best efforts to maintain the             
effectiveness of such registration statement or registration statements (and    
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such Company Options remain outstanding. With respect to those   
individuals who subsequent to the Merger will be subject to the reporting       
requirements under Section 16(a) of the Exchange Act, where applicable, the     
Parent, to the extent legally permissible, shall administer the Company Plans   
assumed pursuant to this Section 5.9(b) in a manner that complies with Rule     
16b-3 promulgated by the SEC under the Exchange Act. It is the intention of the 
parties that, subject to applicable law, the Company Options assumed by the     
Parent qualify following the Effective Time as "incentive stock options" (as    
defined in Section 422 of the Code) to the extent that the Company Options      
qualified as incentive stock options prior to the Effective Time and any        
conversion of incentive stock options shall be undertaken so as to preserve such
status.                                                                         

(c) Except as disclosed in Section 5.9(c) of the Company Disclosure   
Schedule, (i) there are no provisions in any plan, program or arrangement other 
than the Company Plans, providing for the issuance or grant of any other        
interest in respect of the capital stock of the Company or any of its           
Subsidiaries and (ii) the Company will ensure that following the Effective Time 
no holder of Company Options or any participant in the Company Plans or any     
other plans, programs or arrangements will have any right thereunder to acquire 
any equity securities of the Company, the Surviving Corporation or any          
Subsidiary thereof.                                                             

Section 5.10  Other Employee Benefit Plans. (a) Except as otherwise   
contemplated by this Agreement, the employee benefit plans (as defined in       
Section 3(3) of ERISA) and other employee or director plans, programs and       
policies other than salary (collectively, the "Employee Benefit Plans") of the  
Company and its Subsidiaries in effect at the date of this Agreement will remain
in effect until otherwise determined after the Effective Time and, to the extent
such Employee Benefit Plans are not continued, the Parent will maintain, for a  
period of at least two years after the Effective Time, Employee Benefit Plans   
with respect to employees of the Company and its Subsidiaries which are no less 
favorable, in the aggregate, than the most favorable of: (i) those Employee     
Benefit Plans covering employees of the Parent from time to time; (ii) those    
Employee Benefit Plans of the Company and its Subsidiaries that are in effect on
the date of this Agreement (as they may be amended, supplemented or modified and
as new Employee Benefit Plans may be adopted, to the extent disclosed in Section
5.10(a) of the Company Disclosure Schedule); or (iii) Employee Benefit Plans    
that are reasonably competitive with respect to the industry in which the       
employer of the affected employees competes; provided, that in any event, until 
the second anniversary of the Effective Time, the Surviving Corporation will    
provide individuals who are employees of the Company and its Subsidiaries as of 
the Effective Time ("Current Employees") with Employee Benefit Plans that are no
less favorable in the aggregate than those provided to Current Employees by the 
Company and for its Subsidiaries immediately before the Merger Filing Date.     

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 (b) Without limiting the generality of Section 5.10(a), the Parent will
cause the Surviving Corporation to (i) honor (x) in accordance with their terms 
all individual employment, severance, termination and indemnification agreements
and (y) at least until the second anniversary of the Effective Date, all other  
employee severance plans and policies, of the Company or any of its Subsidiaries
with respect to their respective past and present officers, directors, employees
and agents as of the Effective Time, (ii) waive any limitations regarding       
pre-existing conditions of Current Employees and their eligible dependents under
any welfare or other employee benefit plans of the Parent and its affiliates in 
which they participate after the Effective Time (except to the extent that such 
limitations would have applied under the analogous plan of the Company and its  
Subsidiaries immediately before the Effective Time), (iii) for all purposes     
under the post-retirement welfare benefit plans and policies of the Parent and  
its affiliates, treat Current Employees in the same manner as similarly situated
employees of the Parent who were hired by the Parent in accordance with the     
terms of such plans and policies as then in effect, as any such plans and       
policies are modified by the Parent or such affiliates from time to time, and   
(iv) for all other purposes under all Employee Benefit Plans applicable to      
employees of the Company and its Subsidiaries, treat all service with the       
Company or any of its Subsidiaries by Current Employees (or retired employees   
eligible for retiree medical benefits) before the Closing as service with the   
Parent and its Subsidiaries, except to the extent such treatment would result in
duplication of benefits or would violate applicable law.                        

    (c) Except as otherwise agreed with individual restricted stockholders, at
the Effective Time, each share of Company Common Stock which immediately prior  
to the Effective Time was subject to restrictions on transfer, whether vested or
unvested, will become fully vested and freely transferable and will be exchanged
for unrestricted shares of Parent Common Stock in the Merger. It is understood  
and agreed that under certain of the Company Plans and the Employee Benefit     
Plans, and any agreements relating thereto, the Merger shall constitute a       
"Change of Control" or "Change in Control" as defined therein.                  

    (d) (i) The Parent will cause the Surviving Corporation and its successors
to continue in full force and effect for a period of not less than six years    
from the Effective Time the indemnification provisions contained in Article     
Ninth of the Certificate of Incorporation of the Company as in effect on the    
date of this Agreement with respect to matters existing or occurring at or prior
to the Effective Time by directors and officers of the Company serving as such  
as of the Effective Time; provided that, in the event any claim is asserted or  
made within such six year period, all rights to indemnification in respect of   
any such claim will continue until disposition of any and all such claims. For a
period of six years after the Effective Time, the Parent will, or will cause the
Surviving Corporation and its successors to, provide directors and officers     
liability insurance having substantially the same terms and conditions and      
providing at least the same coverage and amounts (with respect to occurrences   
prior to the Effective Time) as the directors and officers liability insurance  
maintained by the Company at the date of this Agreement for all present and     
former directors and officers of the Company and its Subsidiaries who served as 
such at any time since January 1, 1993 and their respective heirs, legal        
representatives, successors and assigns.                                        

  (ii) From and after the Effective Time, the Parent agrees that it or the
Surviving Corporation will indemnify and hold harmless each director or officer 
of the Company serving as such as of the Effective Time (an "Indemnified Party")
against any and all costs or expenses (including reasonable attorneys' fees),   
judgments, fines, losses, claims, damages or liabilities (collectively, "Costs")
incurred in connection with any claim, action, suit, proceeding or              
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the        
Effective Time by reason of the fact that such Indemnified Party was then       
serving as a director or officer of the Company or one of its Subsidiaries,     
whether asserted or claimed prior to, at or after the Effective Time, to the    
fullest extent allowed by law (and the Parent or the Surviving Corporation shall
also advance expenses as incurred to the fullest extent permitted under         
applicable law provided the Person to whom expenses are advanced provides, if   
required by law, an undertaking to repay such advances if it is ultimately      
determined that such Person is not entitled to indemnification).                

   (iii) Any Indemnified Party wishing to claim indemnification under clause
(ii) above, upon learning of any such claim, action, suit, proceeding or        
investigation, shall promptly notify the Parent and the Surviving Corporation   
thereof, but the failure to so notify shall not relieve the Parent or the       
Surviving Corporation of any                                                    

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liability it may have to such Indemnified Party except to the extent that such  
failure materially prejudices the indemnifying party. In the event of any such  
claim, action, suit, proceeding or investigation (whether arising before, at or 
after the Effective Time), (x) the Parent or the Surviving Corporation shall    
have the right to assume the defense thereof (which it shall, in cooperation    
with the Indemnified Party, vigorously defend) and neither the Parent nor the   
Surviving Corporation shall be liable to such Indemnified Party for any legal   
expenses of other counsel or any other expenses subsequently incurred by such   
Indemnified Party in connection with the defense thereof, except that if neither
the Parent nor the Surviving Corporation elects to assume such defense or there 
is a conflict of interest between the Parent or the Surviving Corporation, on   
the one hand, and the Indemnified Party, including situations in which there are
one or more legal defenses available to the Indemnified Party that are different
from or additional to those available to the Parent or the Surviving            
Corporation, the Indemnified Party may retain counsel satisfactory to it, and   
the Parent or the Surviving Corporation shall pay all reasonable fees and       
expenses of such counsel for the Indemnified Party promptly as statements       
therefor are received; provided, however, that neither the Parent nor the       
Surviving Corporation shall, in connection with any one such action or          
proceeding or separate but substantially similar actions or proceedings arising 
out of the same general allegations, be liable for the fees and expenses of more
than one separate firm of attorneys at any time for all Indemnified Parties     
except to the extent that local counsel, in addition to such parties' regular   
counsel, is required in order to effectively defend against such action or      
proceeding, (y) the Indemnified Party will cooperate in the defense of any such 
matter and (z) neither the Parent nor the Surviving Corporation shall be liable 
for any settlement effected without its prior consent, and provided, further,   
that neither the Parent nor the Surviving Corporation shall have any obligation 
hereunder to any Indemnified Party when and if a court of competent jurisdiction
shall ultimately determine, and such determination shall have become final, that
the indemnification of such Indemnified Party in the manner contemplated hereby 
is prohibited by applicable law.                                                

  (e) If the Surviving Corporation or any of its successors or assigns (x)
consolidate with or merge into any other corporation or entity and shall not be 
the continuing or surviving corporation or entity of such consolidation or      
merger or (y) shall transfer all or substantially all of its properties and     
assets to any Person, then and in each such case, proper provisions shall be    
made so that the successors and assigns of the Surviving Corporation shall      
assume all of the obligations of the Surviving Corporation set forth in this    
Section 5.10.                                                                   

(f) The provisions of paragraphs (d) and (e) of this Section 5.10 are 
intended to be for the benefit of, and shall be enforceable by, each of the     
directors, officers and employees of the Company who are the beneficiaries of   
the indemnification arrangements specified herein and their respective heirs,   
legal representatives, successors and assigns.                                  

   Section 5.11  Exclusivity. Except as provided in this Section 5.11, after
the date of this Agreement and until the termination of this Agreement pursuant 
to Section 7.1, the Company will not, nor will it permit its officers,          
directors, Subsidiaries, representatives or agents, directly or indirectly, to, 
do any of the following: (i) solicit or initiate the submission of a proposal or
offer in respect of any transaction (other than the Merger) involving any       
disposition or other change of ownership of a substantial portion of the        
Company's stock or assets (an "Acquisition Transaction"); (ii) participate in   
substantive discussions or engage in negotiations concerning an Acquisition     
Transaction; or (iii) furnish or cause to be furnished to any corporation,      
partnership, person or other entity or group (other than the Parent and its     
representatives) (a "Person") any nonpublic information concerning the business,
operations, properties or assets of the Company in connection with an           
Acquisition Transaction; provided, however, and notwithstanding anything else   
contained in this Section 5.11 or otherwise in this Agreement, the Company and  
its officers, directors, Subsidiaries, representatives and agents may engage in 
activities referred to in clause (ii) above, and may furnish or cause to be     
furnished nonpublic information to, any Person who, or representatives of any   
Person who, makes a written proposal with respect to an Acquisition Transaction 
if the Company's Board of Directors determines in good faith after consultation 
with its outside counsel that it is obligated to consider such proposal in order
to satisfy its fiduciary duties under applicable law. If the Company determines 
to accept a proposal for or otherwise engage in any Acquisition Transaction     
(other than the Merger), it may terminate this Agreement provided it promptly   
pays to the Parent in reimbursement for the Parent's expenses an amount in cash 
(not to exceed $2,000,000) equal to the aggregate amount of the Parent's        
documented out-of-pocket expenses reasonably                                    

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incurred in connection with pursuing the transactions contemplated by this      
Agreement as certified in good faith by the Parent and with reasonable detail   
("Compensable Expenses"). If the Parent terminates this Agreement pursuant to   
Section 7.1(e), the Company shall promptly reimburse the Parent for its         
Compensable Expenses.                                                           

Section 5.12  Fees and Expenses. Except as set forth in Section 5.11, 
whether or not the Merger is consummated, all costs and expenses incurred in    
connection with this Agreement and the transactions contemplated hereby will be 
paid by the party incurring such expenses.                                      

Section 5.13  Brokers or Finders. Each of the Parent and the Company  
represents, as to itself, its Subsidiaries and its affiliates, that no agent,   
broker, investment banker, financial advisor or other firm or person is or will 
be entitled to any broker's, or finder's fee or any other commission or similar 
fee in connection with any of the transactions contemplated by this Agreement,  
except Donaldson, Lufkin & Jenrette Securities Corporation, whose fees and      
expenses will be paid by the Company in accordance with the Company's agreement 
with such firm, a copy of which has been provided to the Parent, and CS First   
Boston Corporation, whose fees and expenses will be paid by the Parent in       
accordance with the Parent's agreement with such firm, a copy of which has been 
provided to the Company. Each of the Parent and the Company will indemnify and  
hold the other harmless from and against any and all claims, liabilities or     
obligations with respect to any other brokers, or finders, fees, commissions or 
expenses asserted by any person on the basis of any act or statement alleged to 
have been made by such party or its Subsidiary or affiliate.                    

   Section 5.14  Rule 145. The Parent and the Surviving Corporation will use
their reasonable efforts to comply with the provisions of Rule 144(c) under the 
Securities Act in order that such affiliates may resell such Parent Common Stock
pursuant to Rule 145(d) under the Securities Act.                               

     Section 5.15  Board Membership. The Parent shall take such action as may be
required to increase the size of its Board of Directors in order to enable      
Frederick R. Hipp and Warren Gfeller (and any substitute person designated by   
the Company prior to the Effective Time) to be appointed to Parent's Board of   
Directors immediately after the Effective Time.                                 

Section 5.16  Takeover Statutes. If any "fair price", "moratorium",   
"control share acquisition" or other form of anti-takeover statute or regulation
shall become applicable to the transactions contemplated hereby, the Parent and 
the Company and their respective members of their Boards of Directors shall     
grant such approvals and take such actions as are necessary so that the         
transactions contemplated by this Agreement may be consummated as promptly as   
practicable on the terms contemplated herein and otherwise act to eliminate or  
minimize the effects of such statute or regulation on the transactions          
contemplated herein.                                                            

ARTICLE VI

CONDITIONS

  Section 6.1  Conditions to Each Party's Obligation To Effect the Merger.
The respective obligations of the parties to effect the Merger will be subject  
to the satisfaction, on or prior to the Merger Filing Date, of the following    
conditions:                                                                     

 (a) This Agreement (insofar as it relates to the Merger) and the Merger
have been approved and adopted by the affirmative vote of the holders of Company
Common Stock entitled to cast at least a majority of the total number of votes  
entitled to be cast by holders of Company Common Stock;                         

 (b) The issuance of the shares of Parent Common Stock in the Merger has
been approved by the affirmative vote of the holders of the Parent Common Stock 
and the Preference Stock, voting together as a class, entitled to cast at least 
a majority of the total number of votes voting on such matter as required by the
NYSE;                                                                           

(c) Any waiting period under the HSR Act applicable to the Merger has 
expired or been terminated;                                                     

  (d) The S-4 has become effective under the Securities Act and is not the
subject of any stop order or proceeding seeking a stop order; and the Parent has
received all material state securities or blue sky permits                      

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and other authorizations necessary to issue the shares of Parent Common Stock   
pursuant to this Agreement and the Merger;                                      

    (e) No temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal        
restraint or prohibition preventing the consummation of the Merger is in effect 
(each party agreeing to use all reasonable efforts to have any such order       
reversed or injunction lifted);                                                 

(f) The Parent Common Stock has been approved for listing on the NYSE,
subject to official notice of issuance;                                         

     (g) The indebtedness outstanding under the Company's credit facility in the
amount of approximately $80.6 million at April 30, 1996 has been refinanced or  
otherwise repaid; or                                                            

     (h) The Parent and the Company each has received the legal opinion of Baker
& Botts L.L.P., reasonably satisfactory in form and substance to the Company and
its counsel and to the Parent and its counsel, based, in each case, upon        
representation letters, dated on or about the date of such opinion,             
substantially in the forms of Annex III and Annex IV hereto and containing such 
other facts and representations as counsel may reasonably deem relevant, to the 
effect that the Merger will be treated for federal income tax purposes as a     
reorganization qualifying under the provisions of Section 368(a) of the Code.   

Section 6.2  Conditions of Obligations of the Parent and the Sub. The 
obligations of the Parent and the Sub to effect the Merger are further subject  
to the Company not having failed to perform its material obligations required to
be performed by it under this Agreement within 10 days after written notice is  
delivered by the Parent to the Company of such failure to perform, the Company's
representations and warranties in this Agreement being true and correct in all  
material respects as of the Merger Filing Date and the Company having obtained  
all material consents, waivers, approvals, authorizations or orders required to 
be obtained by the Company for the authorization, execution and delivery of this
Agreement and the consummation by it of the transactions contemplated hereby    
(including material consents under the leases referred to in Section 3.7(b) of  
the Company Disclosure Schedule).                                               

  Section 6.3  Conditions of Obligations of the Company. The obligation of
the Company to effect the Merger is further subject to the Parent and the Sub   
not having failed to perform their material obligations required to be performed
by them under this Agreement within 10 days after written notice is delivered by
the Company to the Parent of such failure to perform, the Parent's and the Sub's
representations and warranties in this Agreement being true and correct in all  
material respects as of the Merger Filing Date, the Parent's having taken       
action, effective immediately after the Effective Time, to appoint to Parent's  
Board of Directors the persons specified in Section 5.15 and the Parent having  
offered to employ William W. Moreton as the Executive Vice President and Chief  
Financial Officer of the Parent on terms substantially as set forth in the form 
of employment agreement previously delivered by Mr. Moreton to the Parent with  
such employment agreement to be effective immediately after the Effective Time. 

ARTICLE VII 

TERMINATION AND AMENDMENT 

Section 7.1  Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the matters    
presented in connection with the Merger by the stockholders of the Parent and   
the Company:                                                                    

(a) by mutual consent of the Parent and the Company by action of their
respective Boards of Directors or special committees thereof;                   

  (b) by either the Parent or the Company if the Merger is not consummated
before October 1, 1996 despite the good faith effort of such party to effect    
such consummation (unless the failure to so consummate the Merger by such date  
is due to the action or failure to act of the party seeking to terminate this   
Agreement, and such action or failure to act constitutes a breach of this       
Agreement);                                                                     

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(c) by either the Parent or the Company if any court of competent     
jurisdiction has issued an injunction permanently restraining, enjoining or     
otherwise prohibiting the consummation of the Merger, which injunction has      
become final and non-appealable;                                                

(d) by the Company pursuant to Section 5.11;                          

   (e) by the Parent if the Board of Directors of the Company or the special
committee thereof shall have withdrawn or modified, in any manner adverse to the
Parent, its recommendation for approval of this Agreement (insofar as it relates
to the Merger) and the Merger;                                                  

  (f) by the Company if the special committee of the Board of Directors of
the Parent shall have withdrawn or modified, in any manner adverse to the       
Company, its recommendation for approval of the issuance of Parent Common Stock 
in the Merger;                                                                  

     (g) by either the Parent or the Company, if one of the conditions set forth
in Article VI to its obligation to consummate the Merger has not been satisfied;
or                                                                              

 (h) by the Parent if more than 1,000,000 shares of Company Common Stock
represent Dissenting Shares as of the Closing Date.                             

   Section 7.2  Effect of Termination. In the event of a termination of this
Agreement by either the Company or the Parent as provided in Section 7.1, this  
Agreement will forthwith become void and there will be no liability or          
obligation on the part of the Parent, the Sub or the Company or their respective
officers or directors, other than (a) the provisions of the last sentence of    
Section 5.11, which will survive for a period of one year from the date of any  
such termination if and only if the Parent has not received the payment pursuant
to Section 5.11 and such termination of this Agreement is pursuant to Section   
7.1(d) or (e), (b) to the extent that such termination results from the willful 
breach by a party hereto of any of its covenants or agreements set forth in this
Agreement and (c) the obligations of the respective parties under the           
Confidentiality Agreement.                                                      

ARTICLE VIII

MISCELLANEOUS 

 Section 8.1  Survival of Representations and Warranties; Enforcement of
Certain Covenants.                                                              

    (a) None of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement will survive the Effective Time.

   (b) The covenants of the Parent set forth in Sections 5.9 and 5.10 hereof
may be enforced after the Effective Time by any of the officers or directors of 
the Company as of the Effective Time.                                           

    Section 8.2  Amendment. Subject to the DGCL, this Agreement may be amended
by the parties hereto, by action taken or authorized by their respective Boards 
of Directors or special committees thereof, at any time before or after approval
of the matters presented at the meetings of the stockholders of the Company and 
the Parent referred to in Section 5.7. This Agreement may not be amended except 
by an instrument in writing signed on behalf of each of the parties hereto.     

  Section 8.3  Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by the respective Boards of   
Directors or special committees thereof, may to the extent legally allowed, (a) 
extend the time for the performance of any of the obligations or other acts of  
the other parties hereto, (b) waive any inaccuracies in the representations and 
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the covenants, agreements or conditions contained  
here. Any agreement on the part of a party hereto to any such extension or      
waiver will be valid only if set forth in a written instrument signed on behalf 
of such party.                                                                  

   Section 8.4  Notices. All notices and other communications hereunder will
be in writing and will be deemed given if delivered personally, telecopied      
(which is confirmed) or mailed by registered or certified mail                  

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(return receipt requested) to the parties at the following addresses (or at such
other address for a party as is specified by like notice):                      

(a) if to the Parent or the Sub, to                                   

Zapata Corporation                                        
1717 St. James Place                                      
Houston, Texas 77253-3581                                 
Attention: Joseph L. von Rosenberg III                    
General Counsel                         

with a copy to                                                  

Baker & Botts, L.L.P.                                     
One Shell Plaza                                           
910 Louisiana                                             
Houston, Texas 77002-4995                                 
Attention: C. Michael Watson                              

and                                                       

Bracewell & Patterson L.L.P.                              
South Tower Pennzoil Place                                
711 Louisiana, Suite 2900                                 
Houston, Texas 77002-2781                                 
Attention: Edgar J. Marston                               

and                                                             

(b) if to the Company, to                                             

Houlihan's Restaurant Group, Inc.                         
2 Brush Creek Boulevard                                   
Kansas City, Kansas 64112                                 
Attention: William W. Moreton                             
Executive Vice President and            
Chief Financial Officer                 

with a copy to                                                  

Bryan Cave LLP                                            
1200 Main Street, Suite 3500                              
Kansas City, Missouri 64105-2180                          
Attention: Kendrick T. Wallace                            

    Section 8.5  Interpretation. When a reference is made in this Agreement to
Sections, such reference will be to a Section of this Agreement unless otherwise
indicated. The headings contained in this Agreement are for reference purposes  
only and will not affect in any way the meaning or interpretation of this       
Agreement. Whenever the words "include," "includes" or "including" are used in  
this Agreement they will be deemed to be followed by the words "without         
limitation." The phrases "the date of this Agreement," "the date hereof" and    
terms of similar import, unless the context otherwise requires, will be deemed  
to refer June 4, 1996.                                                          

  Section 8.6  Counterparts. This Agreement may be executed in two or more
counterparts, all of which will be considered one and the same agreement and    
will become effective when two or more counterparts have been signed by each of 
the parties and delivered to the other parties, it being understood that all    
parties need not sign the same counterpart.                                     

     Section 8.7  Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein), and the       
Confidentiality Agreement (a) constitute the entire agreement and supersede all 
prior agreements and understandings, both written and oral, among the parties   

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with respect to the subject matter hereof and thereof, and (b) other than       
Sections 5.9 and 5.10 are not intended to confer upon any person other than the 
parties hereto and thereto any rights or remedies hereunder or thereunder.      

   Section 8.8  Governing Law. This Agreement will be governed and construed
in accordance with the laws of the State of Delaware applicable to contracts    
made, executed, delivered and performed wholly within the State of Delaware,    
without regard to any applicable conflicts of law. The Company, the Parent and  
the Sub hereby (a) submit to the jurisdiction of any State and Federal courts   
sitting in the State of Delaware with respect to matters arising out of or      
relating hereto, (b) agree that all claims with respect to such matters may be  
heard and determined in an action or proceeding in such State or Federal court  
and no other court, (c) waive the defense of an inconvenient forum, and (d)     
agree that a final judgment in any such action or proceeding will be conclusive 
and may be enforced in other jurisdictions by suit on the judgment or in any    
other manner provided by law.                                                   

    Section 8.9  Specific Performance. The parties hereto agree that if any of
the provisions of this Agreement were not performed in accordance with their    
specific terms or were otherwise breached, irreparable damage would occur, no   
adequate remedy at law would exist and damages would be difficult to determine. 
Accordingly, the parties agree that they will be entitled to specific           
performance of the terms of this Agreement, in addition to any other remedy at  
law or equity.                                                                  

   Section 8.10  Publicity. Except as otherwise required by law or the rules
of the NYSE, for so long as this Agreement is in effect, neither the Company nor
the Parent will, or will permit any of its Subsidiaries to, issue or cause the  
publication of any press release or other public announcement with respect to   
the transactions contemplated by this Agreement without having consulted with   
the other party.                                                                

 Section 8.11  Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder will be assigned by any of the parties hereto
(whether by operation of law or otherwise) without the prior written consent of 
the other parties, except that the Sub may assign, in its sole discretion, any  
or all rights, interests and obligations hereunder to any direct or indirect    
wholly owned Subsidiary of the Parent incorporated under the laws of the State  
of Delaware. Subject to the preceding sentence, this Agreement will be binding  
upon, inure to the benefit of and be enforceable by the parties and their       
respective successors and assigns.                                              

     Section 8.12  Validity. The invalidity or unenforceability of any provision
of this Agreement will not affect the validity or enforceability of any other   
provisions hereof or thereof, which will remain in full force and effect.       

 Section 8.13  Conveyance Tax. The Company shall be liable for and shall
hold the holders of shares of the Company Common Stock harmless against any New 
York State Real Property Gains Tax, New York State Real Estate Transfer Tax and 
New York City Real Property Transfer Tax which becomes payable in connection    
with the transactions contemplated by this Agreement.                           

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  IN WITNESS WHEREOF, the Parent, the Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.                                                

                          ZAPATA CORPORATION

           By:
                                            ------------------------------------
                                            Authorized Officer

                                ZAPATA ACQUISITION CORP.

           By:
                                            ------------------------------------
                                            Authorized Officer

                                         HOULIHAN'S RESTAURANT GROUP, INC.

           By:
                                            ------------------------------------
                                            Authorized Officer

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                                                                      APPENDIX B

CS FIRST BOSTON 

CS First Boston Corporation                                  55 East 52nd Street
                                                         New York, NY 10055-0186
                                                          Telephone 212 909 2000

                                                                    June 4, 1996

The Special Committee of                                                        
the Board of Directors                                                      
Zapata Corporation                                                              
1717 St. James Place                                                            
Houston, Texas 77253                                                            

Members of the Special Committee:                                               

You have asked us to advise you with respect to the fairness to Zapata
Corporation ("Zapata") from a financial point of view of the consideration to be
paid by Zapata pursuant to the terms of the Agreement and Plan of Merger, dated 
as of June 4, 1996 (the "Merger Agreement"), by and among Zapata, Zapata        
Acquisition Corp., a wholly owned subsidiary of Zapata ("Sub"), and Houlihan's  
Restaurant Group, Inc. ("Houlihan's"). The Merger Agreement provides for, among 
other things, the merger of Houlihan's with and into Sub pursuant to which Sub  
will be the surviving corporation (the "Merger") and each outstanding share of  
the common stock, par value $.01 per share, of Houlihan's ("Houlihan's Common   
Stock") will be converted into the right to receive shares of the common stock, 
par value $.25 per share, of Zapata ("Zapata Common Stock") or cash, or a       
combination thereof, based on each stockholder's election and subject to certain
proration provisions, such that the sum of the Market Value (as defined in the  
Merger Agreement) of the shares of Zapata Common Stock and the amount of cash   
equals $8.00 per share of Houlihan's Common Stock, as more fully described in   
the Merger Agreement (the "Merger Consideration").                              

In arriving at our opinion, we have reviewed the Merger Agreement and 
certain publicly available business and financial information relating to Zapata
and Houlihan's. We also have reviewed certain other information, including      
financial forecasts, provided to us by Zapata and Houlihan's, and have met with 
the respective managements of Zapata and Houlihan's to discuss the businesses   
and prospects of Zapata and Houlihan's.                                         

   We also have considered certain financial and stock market data of Zapata
and Houlihan's, and we have compared that data with similar data for other      
publicly held companies in businesses similar to those of Zapata and Houlihan's 
and we have considered, to the extent publicly available, the financial terms of
certain other business combinations and other transactions which have recently  
been effected. We also considered such other information, financial studies,    
analyses and investigations and financial, economic and market criteria which we
deemed relevant.                                                                

   In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied    
upon its being complete and accurate in all material respects. With respect to  
the financial forecasts, we have assumed that such forecasts have been          
reasonably prepared on bases reflecting the best currently available estimates  
and judgments of the managements of Zapata and Houlihan's as to the future      
financial performance of Zapata and Houlihan's. In addition, we have not made an
independent evaluation or appraisal of the assets or liabilities (contingent or 
otherwise) of Zapata or Houlihan's, nor have we been furnished with any such    
evaluations or appraisals. Our opinion is necessarily based upon information    
available to us and financial, stock market and other conditions as they exist  
and can be evaluated on the date hereof. We are not expressing any opinion as to
what the value of the Zapata Common Stock actually will be when issued to       
Houlihan's stockholders pursuant to the Merger or the prices at which such      
Zapata Common Stock will trade subsequent to the Merger.                        

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     We have acted as financial advisor to the Special Committee of the Board of
Directors of Zapata in connection with the Merger and will receive a fee for our
services, including a fee upon the delivery of this opinion. We may in the      
future provide financial advisory services to Zapata unrelated to the proposed  
Merger, for which services we will receive compensation. In the ordinary course 
of our business, CS First Boston and its affiliates may actively trade the      
equity securities of Zapata and Houlihan's for their own account and for the    
accounts of customers and, accordingly, may at any time hold a long or short    
position in such securities.                                                    

 It is understood that this letter is for the information of the Special
Committee of the Board of Directors of Zapata in connection with its evaluation 
of the Merger and is not intended to be and shall not be deemed to constitute a 
recommendation to any stockholder as to how such stockholder should vote on the 
Merger. This letter is not to be quoted or referred to, in whole or in part, in 
any registration statement, prospectus or proxy statement, or in any other      
document used in connection with the offering or sale of securities, nor shall  
this letter be used for any other purposes, without CS First Boston's prior     
written consent.                                                                

    Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger Consideration to be paid by Zapata in the Merger is fair
to Zapata from a financial point of view.                                       

                         Very truly yours,

                                   CS FIRST BOSTON CORPORATION

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                                                                      APPENDIX C

DONALDSON, LUFKIN & JENRETTE

Donaldson, Lufkin & Jenrette Securities Corporation 
600 California Street, San Francisco, CA 94108-2704 - (415) 249-2100

June 4, 1996

Special Committee of the Board of Directors                                     
Houlihan's Restaurant Group, Inc.                                               
Two Brush Creek Boulevard                                                       
Kansas City, Missouri 64112                                                     

Gentlemen:                                                                      

     You have requested our opinion as to the fairness from a financial point of
view to the holders of common stock, par value $0.01 per share ("Company Common 
Stock") of Houlihan's Restaurant Group, Inc. (the "Company") who are not Malcolm
I. Glazer ("Glazer") or affiliated with Glazer (such stockholders, the          
"Non-Glazer Stockholders") of the consideration to be received by such          
stockholders, pursuant to the Agreement and Plan of Merger dated as of June 4,  
1996, among Zapata Corporation ("Zapata"), the Company and Zapata Acquisition   
Corp. (the "Sub"), a wholly owned subsidiary of Zapata (the "Agreement"),       
pursuant to which the company will be merged (the "Merger") with and into the   
Sub.                                                                            

Pursuant to the Agreement, each share of Company Common Stock will be 
converted into the right to receive, at the election of each Non-Glazer         
Stockholder, (i)(x) $4.00 per share in cash, without interest, plus (y) a number
of shares of common stock, par value $0.25 per share ("Zapata Common Stock") of 
Zapata equal to $4.00 divided by the average closing price of a share of Zapata 
Common Stock for the 20 trading days immediately preceding the second trading   
day prior to the date of the meeting of stockholders of the Company relating to 
the Agreement (such average closing price, the "Market Value"); (ii) a number of
shares of Zapata Common stock equal to $8.00 divided by the Market Value; (iii) 
the right to receive $8.00 in cash, without interest, subject to a reduction in 
such cash amount (in exchange for an equal amount of Zapata Common Stock, valued
at the Market Value) pursuant to a formula whereby in the event that, as a      
group, the Non-Glazer Stockholders exercise elections such that the aggregate   
ownership of Zapata Common Stock and certain other securities by Glazer and his 
affiliates immediately after the Merger would exceed either (a) 49.9% of the    
Voting Power (as defined in the Agreement) of all Outstanding Voting Securities 
(as defined in the Agreement) of Zapata, the cash elections of the Non-Glazer   
Stockholders will be reduced (and their receipt of Zapata Common Stock will be  
increased) pro rata such that Glazer and his affiliates own either 49.9% of the 
Voting Power of all Voting Securities of Zapata or 49.9% of the Adjusted Voting 
Power of all Outstanding Voting Securities of Zapata, whichever results in fewer
shares of Zapata Common Stock being issued to Glazer and his affiliates pursuant
to the Merger; or (iv) an amount of Zapata Common Stock and cash equal to $8.00 
per share in the aggregate, in the same proportions of Zapata Common Stock and  
cash as are received by Glazer and his affiliates pursuant to the Merger.       

 In arriving at our opinion, we have reviewed the Agreement and exhibits
thereto. We also have reviewed financial and other information that was publicly
available or furnished to us by the Company and Zapata including information    
provided during discussions with their respective managements. Included in the  
information provided during discussions with the Company's management were      
certain financial projections of the Company for the period beginning January   
1996 and ending December 2001 prepared by the management of the Company. In     
addition, we have compared certain financial and securities data of the Company 
with various other companies whose securities are traded in public markets,     
reviewed the historical stock prices and trading volumes of the common stock of 
the Company and Zapata, reviewed prices and premiums paid in other business     
combinations and conducted such other financial studies, analyses and           
investigations as we deemed appropriate for purposes of this opinion. We were   
requested by you, the Special Committee of the Company's Board of Directors (the
"Special Committee"), not to, and we did not, solicit the interest of any other 
party in acquiring the Company.                                                 

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 In rendering our opinion, we have relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that was
available to us from public sources, that was provided to us by the Company and 
Zapata or their respective representatives, or that was otherwise reviewed by   
us. With respect to the financial projections for the Company supplied to us, we
have assumed that they have been reasonably prepared on the basis reflecting the
best currently available estimates and judgments of the management of the       
Company as to the future operating and financial performance of the Company. We 
have not assumed any responsibility for making an independent evaluation of the 
Company's assets or liabilities or for making any independent verification of   
any of the information reviewed by us. We have relied as to all legal matters on
advice of counsel to the Company and the Special Committee.                     

   Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of, 
the date of this letter. It should be understood that, although subsequent      
developments may affect this opinion, we do not have any obligation to update,  
revise or reaffirm this opinion. We are expressing no opinion herein as to the  
price at which Zapata Common Stock will actually trade at any time. Our opinion 
does not constitute a recommendation to any stockholder as to how such          
stockholder should vote on the proposed transaction.                            

     Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales   
and distributions of listed and unlisted securities, private placements and     
valuations for estate, corporate and other purposes.                            

     Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the consideration to be received by the Non-Glazer          
Stockholders pursuant to the Agreement is fair to the Non-Glazer Stockholders   
from a financial point of view.                                                 

                         Very truly yours,

                                    DONALDSON, LUFKIN & JENRETTE
                              SECURITIES CORPORATION

                                    By: /s/  THOMAS M. BENNINGER
                                             -------------------------------
                                                 Thomas M. Benninger
                                               Managing Director

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                                                                      APPENDIX D

DELAWARE GENERAL CORPORATION LAW

SECTION 262 REGARDING APPRAISAL RIGHTS

     262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to     
subsection (d) of this section with respect to such shares, who continuously    
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither  
voted in favor of the merger or consolidation nor consented thereto in writing  
pursuant to section 228 of this title shall be entitled to an appraisal by the  
Court of Chancery of the fair value of his shares of stock under the            
circumstances described in subsections (b) and (c) of this section. As used in  
this section, the word "stockholder" means a holder of record of stock in a     
stock corporation and also a member of record of a nonstock corporation; the    
words "stock" and "share" mean and include what is ordinarily meant by those    
words and also membership or membership interest of a member of a nonstock      
corporation; and the words "depository receipt" mean a receipt or other         
instrument issued by a depository representing an interest in one or more       
shares, or fractions thereof, solely of stock of a corporation, which stock is  
deposited with the depository.                                                  

(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be 
effected pursuant to section 251 (other than a merger effected pursuant to      
subsection (g) of section 251), 252, 254, 257, 258, 263 or 264 of this title:   

     (1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or       
depository receipts in respect thereof, at the record date fixed to determine   
the stockholders entitled to receive notice of and to vote at the meeting of    
stockholders to act upon the agreement of merger or consolidation, were either  
(i) listed on a national securities exchange or designated as a national market 
system security on an interdealer quotation system by the National Association  
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;  
and further provided that no appraisal rights shall be available for any shares 
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of section 251 of this title.                        

(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of  
stock of a constituent corporation if the holders thereof are required by the   
terms of an agreement of merger or consolidation pursuant to sections 251, 252, 
254, 257, 258, 263 and 264 of this title to accept for such stock anything      
except:                                                                         

a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof.             

b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the effective  
date of the merger or consolidation will be either listed on a national         
securities exchange or designated as a national market system security on an    
interdealer quotation system by the National Association of Securities Dealers, 
Inc. or held of record by more than 2,000 holders;                              

c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or        

    d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the    
foregoing subparagraphs a., b. and c. of this paragraph.                        

(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under section 253 of this title is not owned by the  
parent corporation immediately prior to the merger, appraisal rights shall be   
available for the shares of the subsidiary Delaware corporation.                

  (c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any    
class or series of its stock as a result of an amendment to its certificate     

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of incorporation, any merger or consolidation in which the corporation is a     
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision, 
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.                   

(d) Appraisal rights shall be perfected as follows:                   

  (1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of     
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to     
subsection (b) or (c) hereof that appraisal rights are available for any or all 
of the shares of the constituent corporations, and shall include in such notice 
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the   
merger or consolidation, a written demand for appraisal of his shares. Such     
demand will be sufficient if it reasonably informs the corporation of the       
identity of the stockholder and that the stockholder intends thereby to demand  
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action  
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting  
corporation shall notify each stockholder of each constituent corporation who   
has complied with this subsection and has not voted in favor of or consented to 
the merger or consolidation of the date that the merger or consolidation has    
become effective; or                                                            

     (2) If the merger or consolidation was approved pursuant to sections 228 or
253 of this title, each constituent corporation, either before the effective    
date of the merger or consolidation or within ten days thereafter, shall notify 
each of the holders of any class or series of stock of such constituent         
corporation that are entitled to appraisal rights of the approval of the merger 
or consolidation and that appraisal rights are available for any or all shares  
of such class or series of stock of such constituent corporation, and shall     
include in such notice a copy of this section; provided that, if the notice is  
given on or after the effective date of the merger or consolidation, such notice
shall be given by the surviving or resulting corporation to all such holders of 
any class or series of stock of a constituent corporation that are entitled to  
appraisal rights. Any stockholder entitled to appraisal rights may, within      
twenty days after the date of mailing of such notice, demand in writing from the
surviving or resulting corporation the appraisal of such holder's shares. Such  
demand will be sufficient if it reasonably informs the corporation of the       
identity of the stockholder and that the stockholder intends thereby to demand  
the appraisal of such holder's shares. If such notice did not notify            
stockholders of the effective date of the merger or consolidation, either (i)   
each such constituent corporation shall send a second notice before the         
effective date of the merger or consolidation notifying each of the holders of  
any class or series of stock of such constituent corporation that are entitled  
to appraisal rights of the effective date of the merger or consolidation or (ii)
the surviving or resulting corporation shall send a second notice to all such   
holders on or within 10 days after such effective date; provided, however, that 
if such second notice is sent more than 20 days following the sending of the    
first notice, such second notice need only to be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's    
shares in accordance with the subsection. An affidavit of the secretary or      
assistant secretary or of the transfer agent of the corporation that is required
to give either notice that such notice has been given shall, in the absence of  
fraud, be prima facie evidence of the facts stated therein. For purposes of     
determining the stockholders entitled to receive such notice, each constituent  
corporation may fix, in advance, a record date that shall be not more than 10   
days prior to the date the notice is given; provided that, if the notice is     
given on or after the effective date of the merger or consolidation, the record 
date shall be the effective date. If no record date is fixed and the notice is  
given prior to the effective date, the record date shall be the close of        
business on the next day preceding the day on which the notice is given.        

(e) Within 120 days after the effective date of the merger or         
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to   
appraisal rights, may file a petition in the Court of Chancery demanding a      
determination of the value of the stock of all such stockholders.               
Notwithstanding the foregoing, at any time within 60 days after the effective   
date of the merger or consolidation, any stockholder shall have the right to    
withdraw his demand for                                                         

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appraisal and to accept the terms offered upon the merger or consolidation.     
Within 120 days after the effective date of the merger or consolidation, any    
stockholder who has complied with the requirements of subsections (a) and (d)   
hereof, upon written request, shall be entitled to receive from the corporation 
surviving the merger or resulting from the consolidation a statement setting    
forth the aggregate number of shares not voted in favor of the merger or        
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10    
days after expiration of the period for delivery of demands for appraisal under 
subsection (d) hereof, whichever is later.                                      

 (f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which   
shall within 20 days after such service file in the office of the Register in   
Chancery in which the petition was filed a duly verified list containing the    
names and addresses of all stockholders who have demanded payment for their     
shares and with whom agreements as to the value of their shares have not been   
reached by the surviving or resulting corporation. If the petition shall be     
filed by the surviving or resulting corporation, the petition shall be          
accompanied by such a duly verified list. The Register in Chancery, if so       
ordered by the Court, shall give notice of the time and place fixed for the     
hearing of such petition by registered or certified mail to the surviving or    
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at    
least 1 week before the day of the hearing, in a newspaper of general           
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication  
shall be approved by the Court, and the costs thereof shall be borne by the     
surviving or resulting corporation.                                             

(g) At the hearing on such petition, the Court shall determine the    
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an   
appraisal for their shares and who hold stock represented by certificates to    
submit their certificates of stock to the Register in Chancery for notation     
thereon of the pendency of the appraisal proceedings; and if any stockholder    
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.                                                               

    (h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or        
consolidation, together with a fair rate of interest, if any, to be paid upon   
the amount determined to be the fair value. In determining such fair value, the 
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of 
interest which the surviving or resulting corporation would have had to pay to  
borrow money during the pendency of the proceeding. Upon application by the     
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery 
or other pretrial proceedings and may proceed to trial upon the appraisal prior 
to the final determination of the stockholder entitled to an appraisal. Any     
stockholder whose name appears on the list filed by the surviving or resulting  
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may     
participate fully in all proceedings until it is finally determined that he is  
not entitled to appraisal rights under this section.                            

 (i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court 
may direct. Payment shall be so made to each such stockholder, in the case of   
holders of uncertificated stock forthwith, and the case of holders of shares    
represented by certificates upon the surrender to the corporation of the        
certificates representing such stock. The Court's decree may be enforced as     
other decrees in the Court of Chancery may be enforced, whether such surviving  
or resulting corporation be a corporation of this State or of any state.        

  (j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon        
application of a stockholder, the Court may order all or a portion              

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of the expenses incurred by any stockholder in connection with the appraisal    
proceeding, including, without limitation, reasonable attorney's fees and the   
fees and expenses of experts, to be charged pro rata against the value of all   
the shares entitled to an appraisal.                                            

  (k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d) 
of this section shall be entitled to vote such stock for any purpose or to      
receive payment of dividends or other distributions on the stock (except        
dividends or other distributions payable to stockholders of record at a date    
which is prior to the effective date of the merger or consolidation); provided, 
however, that if no petition for an appraisal shall be filed within the time    
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60 
days after the effective date of the merger or consolidation as provided in     
subsection (e) of this section or thereafter with the written approval of the   
corporation, then the right of such stockholder to an appraisal shall cease.    
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery 
shall be dismissed as to any stockholder without the approval of the Court, and 
such approval may be conditioned upon such terms as the Court deems just.       

(l) The shares of the surviving or resulting corporation to which the 
shares of such objecting stockholders would have been converted had they        
assented to the merger or consolidation shall have the status of authorized and 
unissued shares of the surviving or resulting corporation.                      

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                                                                      APPENDIX E

1996 LONG-TERM INCENTIVE PLAN 

OF

ZAPATA CORPORATION

1. Objective. The 1996 Long-Term Incentive Plan (the "Plan") of Zapata
Corporation, a Delaware corporation (the "Company"), is designed to retain key  
executives and other selected employees and reward them for making major        
contributions to the success of the Company and its Subsidiaries (as hereinafter
defined). These objectives are to be accomplished by making awards under the    
Plan and thereby providing Participants (as hereinafter defined) with a         
proprietary interest in the growth and performance of the Company and its       
Subsidiaries.                                                                   

  2. Definitions. As used herein, the terms set forth below shall have the
following respective meanings:                                                  

 "Award" means the grant of any form of stock option, stock appreciation
right, stock award or cash award, whether granted singly, in combination or in  
tandem, to a Participant pursuant to any applicable terms, conditions and       
limitations as the Committee may establish in order to fulfill the objectives of
the Plan.                                                                       

"Award Agreement" means a written agreement between the Company and a 
Participant that sets forth the terms, conditions and limitations applicable to 
an Award.                                                                       

"Board" means the Board of Directors of the Company.                  

 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.                                                                           

     "Committee" means such committee of the Board as is designated by the Board
to administer the Plan. The Committee shall be constituted to permit the Plan to
comply with Rule 16b-3, as hereinafter defined.                                 

 "Common Stock" means the Common Stock, par value $.25 per share, of the
Company.                                                                        

"Director" means an individual serving as a member of the Board.      

   "Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.                                                                   

  "Fair Market Value" means, as of a particular date, (i) if the shares of
Common Stock are listed on a national securities exchange, the closing sales    
price per share of Common Stock on the consolidated transaction reporting system
for the principal such national securities exchange on that date, or, if there  
shall have been no such sale so reported on that date, on the last preceding    
date on which such a sale was so reported, (ii) if the shares of Common Stock   
are not so listed but are quoted in the NASDAQ National Market System the       
closing sales price per share of Common Stock on the NASDAQ National Market     
System on that date, or, if there shall have been no such sale so reported on   
that date, on the last preceding date on which such a sale was so reported or   
(iii) if the Common Stock is not so listed or quoted, the mean between the      
closing bid and asked price on that date, or, if there are no quotations        
available for such date, on the last preceding date on which such quotations    
shall be available, as reported by NASDAQ, or, if not reported by NASDAQ, by the
National Quotation Bureau, Inc.                                                 

   "Participant" means an employee of the Company or any of its Subsidiaries
to whom an Award has been made under this Plan.                                 

  "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, or any
successor rule.                                                                 

"Subsidiary" means any corporation of which the Company directly or   
indirectly owns shares representing more than 50% of the voting power of all    
classes or series of capital stock of such corporation which have the right to  
vote generally on matters submitted to a vote of the stockholders of such       
corporation.                                                                    

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    3. Eligibility. Employees of the Company and its Subsidiaries eligible for
an Award under this Plan are those who hold positions of responsibility and     
whose performance, in the judgment of the Committee, can have a significant     
effect on the success of the Company and its Subsidiaries. Notwithstanding the  
foregoing, individuals described in Paragraph 7(e) shall also be eligible for   
Awards under this Plan, in accordance with the provisions of Paragraph 7(e).    

   4. Common Stock Available for Awards. There shall be available for Awards
granted wholly or partly in Common Stock (including rights or options which may 
be exercised for or settled in Common Stock) during the term of this Plan an    
aggregate of 5,000,000 shares of Common Stock (of which number approximately    
2,600,000 shares will be issued pursuant to the options previously issued under 
the Houlihan's Restaurant Group, Inc. 1994 Executive Stock Option Plan and the  
Houlihan's Restaurant Group, Inc. 1994 Stock Option Plan for Outside Directors  
and assumed by the Company under this Plan pursuant to Paragraph 7(e)).         
Notwithstanding the foregoing, not more than an aggregate of 750,000 shares of  
Common Stock shall be available for Awards other than stock options and stock   
appreciation rights granted at an exercise or strike price not less than the    
Fair Market Value on the date of grant. The Board of Directors and the          
appropriate officers of the Company shall from time to time take whatever       
actions are necessary to file required documents with governmental authorities  
and stock exchanges and transaction reporting systems to make shares of Common  
Stock available for issuance pursuant to Awards. Common Stock related to Awards 
that are forfeited or terminated, expire unexercised, are settled in cash in    
lieu of Common Stock or in a manner such that all or some of the shares covered 
by an Award are not issued to a Participant, or are exchanged for Awards that do
not involve Common Stock, shall immediately become available for Awards         
hereunder. The Committee may from time to time adopt and observe such procedures
concerning the counting of shares against the Plan maximum as it may deem       
appropriate under Rule 16b-3.                                                   

    5. Administration. This Plan shall be administered by the Committee, which
shall have full and exclusive power to interpret this Plan and to adopt such    
rules, regulations and guidelines for carrying out this Plan as it may deem     
necessary or proper, all of which powers shall be exercised in the best         
interests of the Company and in keeping with the objectives of this Plan. Unless
otherwise provided in an Award Agreement with respect to a particular award, the
Committee may, in its discretion, provide for the extension of the              
exercisability of an Award, accelerate the vesting or exercisability of an      
Award, eliminate or make less restrictive any restrictions contained in an      
Award, waive any restriction or other provision of this Plan or an Award or     
otherwise amend or modify an Award in any manner that is either (i) not adverse 
to the Participant holding such Award or (ii) consented to by such Participant. 
The Committee may correct any defect or supply any omission or reconcile any    
inconsistency in this Plan or in any Award in the manner and to the extent the  
Committee deems necessary or desirable to carry it into effect. Any decision of 
the Committee in the interpretation and administration of this Plan shall lie   
within its sole and absolute discretion and shall be final, conclusive and      
binding on all parties concerned. No member of the Committee or officer of the  
Company to whom it has delegated authority in accordance with the provisions of 
Paragraph 6 of this Plan shall be liable for anything done or omitted to be done
by him or her, by any member of the Committee or by any officer of the Company  
in connection with the performance of any duties under this Plan, except for his
or her own willful misconduct or as expressly provided by statute.              

6. Delegation of Authority. The Committee may delegate to the Chief   
Executive Officer and to other senior officers of the Company its duties under  
this Plan pursuant to such conditions or limitations as the Committee may       
establish, except that the Committee may not delegate to any person the         
authority to grant Awards to, or take other action with respect to, Participants
who are subject to Section 16 of the Exchange Act.                              

    7. Awards. The Committee shall determine the type or types of Awards to be
made to each Participant under this Plan. Each Award made hereunder shall be    
embodied in an Award Agreement, which shall contain such terms, conditions and  
limitations as shall be determined by the Committee in its sole discretion and  
shall be signed by the Participant and by the Chief Executive Officer, the Chief
Operating Officer, or any Vice President of the Company for and on behalf of the
Company. Awards may consist of those listed in this Paragraph 7 and may be      
granted singly, in combination or in tandem. Awards may also be made in         
combination or in tandem with, in replacement of, or as alternatives to, grants 
or rights under this Plan or any                                                

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other employee plan of the Company or any of its Subsidiaries, including the    
plan of any acquired entity. An Award may provide for the granting or issuance  
of additional, replacement or alternative Awards upon the occurrence of         
specified events, including the exercise of the original Award. An Award may    
provide that to the extent that the acceleration of vesting or any payment made 
to a Participant under this Plan in the event of a change of control of the     
Company is subject to federal income, excise, or other tax at a rate above the  
rate ordinarily applicable to like payments paid in the ordinary course of      
business ("Penalty Tax"), whether as a result of the provisions of Sections 28OG
and 4999 of the Code, any similar or analogous provisions of any statute adopted
subsequent to the date hereof, or otherwise, then the Company shall be obligated
to pay such Participant an additional amount of cash (the "Additional Amount")  
such that the net amount received by such Participant, after paying any         
applicable Penalty Tax and any federal or state income tax on such Additional   
Amount, shall be equal to the amount that such Participant would have received  
if such Penalty Tax were not applicable. Notwithstanding anything herein to the 
contrary, no Participant may be granted, during any three-year period, Awards   
consisting of stock options or stock appreciation rights exercisable for more   
than 12.5% of the shares of Common Stock reserved for issuance under the Plan.  

   (a) Stock Option. An Award may consist of a right to purchase a specified
number of shares of Common Stock at a specified price that is not less than the 
greater of (i) the Fair Market Value of the Common Stock on the date of grant   
and (ii) the par value of the Common Stock on the date of grant. A stock option 
may be in the form of an incentive stock option ("ISO") which, in addition to   
being subject to applicable terms, conditions and limitations established by the
Committee, complies with Section 422 of the Code.                               

    (b) Stock Appreciation Right. An Award may consist of a right to receive a
payment, in cash or Common Stock, equal to the excess of the Fair Market Value  
or other specified valuation of a specified number of shares of Common Stock on 
the date the stock appreciation right ("SAR") is exercised over a specified     
strike price as set forth in the applicable Award Agreement.                    

     (c) Stock Award. An Award may consist of Common Stock or may be denominated
in units of Common Stock. All or part of any stock award may be subject to      
conditions established by the Committee, and set forth in the Award Agreement,  
which may include, but are not limited to, continuous service with the Company  
and its Subsidiaries, achievement of specific business objectives, increases in 
specified indices, attaining specified growth rates and other comparable        
measurements of performance. Such Awards may be based on Fair Market Value or   
other specified valuations. The certificates evidencing shares of Common Stock  
issued in connection with a stock award shall contain appropriate legends and   
restrictions describing the terms and conditions of the restrictions applicable 
thereto.                                                                        

    (d) Cash Award. An Award may be denominated in cash with the amount of the
eventual payment subject to future service and such other restrictions and      
conditions as may be established by the Committee, and set forth in the Award   
Agreement, including, but not limited to, continuous service with the Company   
and its Subsidiaries, achievement of specific business objectives, increases in 
specified indices, attaining specified growth rates and other comparable        
measurements of performance.                                                    

(e) Stock Options to Houlihan's Restaurant Group, Inc. Directors and  
Employees. The Company shall substitute certain stock options to purchase shares
of Houlihan's Restaurant Group, Inc. common stock, par value $.01 per share     
("Houlihan Stock"), under Houlihan's Restaurant Group, Inc. 1994 Executive Stock
Option Plan and Houlihan's Restaurant Group, Inc. 1994 Stock Option Plan for    
Outside Directors, with stock options to purchase Common Stock under this Plan. 
The number of shares issued pursuant to these stock options, the exercise price 
of the stock options, and other terms and conditions related to these options   
are described in Exhibit A attached hereto.                                     

8. Payment of Awards.                                                 

  (a) General. Payment of Awards may be made in the form of cash or Common
Stock or combinations thereof and may include such restrictions as the Committee
shall determine, including in the case of Common Stock, restrictions on transfer
and forfeiture provisions. As used herein, "Restricted Stock" means Common Stock
that is restricted or subject to forfeiture provisions.                         

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     (b) Deferral. With the approval of the Committee, payments may be deferred,
either in the form of installments or a future lump sum payment. The Committee  
may permit selected Participants to elect to defer payments of some or all types
of Awards in accordance with procedures established by the Committee. Any       
deferred payment, whether elected by the Participant or specified by the Award  
Agreement or by the Committee, may be forfeited if and to the extent that the   
Award Agreement so provides.                                                    

    (c) Dividends and Interest. Dividends or dividend equivalent rights may be
extended to and made part of any Award denominated in Common Stock or units of  
Common Stock, subject to such terms, conditions and restrictions as the         
Committee may establish. The Committee may also establish rules and procedures  
for the crediting of interest on deferred cash payments and dividend equivalents
for deferred payment denominated in Common Stock or units of Common Stock.      

(d) Substitution of Awards. At the discretion of the Committee, a     
Participant may be offered an election to substitute an Award for another Award 
or Awards of the same or different type.                                        

    9. Stock Option Exercise. The price at which shares of Common Stock may be
purchased under a stock option shall be paid in full at the time of exercise in 
cash or, if permitted by the Committee, by means of tendering Common Stock or   
surrendering another Award, including Restricted Stock, valued at Fair Market   
Value on the date of exercise, or any combination thereof. The Committee shall  
determine acceptable methods for tendering Common Stock or other Awards to      
exercise a stock option as it deems appropriate. If permitted by the Committee, 
payment may be made by successive exercises by the Participant. The Committee   
may provide for loans from the Company to permit the exercise or purchase of    
Awards and may provide for procedures to permit the exercise or purchase of     
Awards by use of the proceeds to be received from the sale of Common Stock      
issuable pursuant to an Award. Unless otherwise provided in the applicable Award
Agreement, in the event shares of Restricted Stock are tendered as consideration
for the exercise of a stock option, a number of the shares issued upon the      
exercise of the stock option, equal to the number of shares of Restricted Stock 
used as consideration therefor, shall be subject to the same restrictions as the
Restricted Stock so submitted as well as any additional restrictions that may be
imposed by the Committee.                                                       

    10. Tax Withholding. The Company shall have the right to deduct applicable
taxes from any Award payment and withhold, at the time of delivery or vesting of
cash or shares of Common Stock under this Plan, an appropriate amount of cash or
number of shares of Common Stock or a combination thereof for payment of taxes  
required by law or to take such other action as may be necessary in the opinion 
of the Company to satisfy all obligations for withholding of such taxes. The    
Committee may also permit withholding to be satisfied by the transfer to the    
Company of shares of Common Stock theretofore owned by the holder of the Award  
with respect to which withholding is required. If shares of Common Stock are    
used to satisfy tax withholding, such shares shall be valued based on the Fair  
Market Value when the tax withholding is required to be made.                   

11. Amendment, Modification, Suspension or Termination. The Board may 
amend, modify, suspend or terminate this Plan for the purpose of meeting or     
addressing any changes in legal requirements or for any other purpose permitted 
by law except that (i) no amendment or alteration that would impair the rights  
of any Participant under any Award previously granted to such Participant shall 
be made without such Participant's consent and (ii) no amendment or alteration  
shall be effective prior to approval by the Company's stockholders to the extent
such approval is then required pursuant to Rule 16b-3 in order to preserve the  
applicability of any exemption provided by such rule to any Award then          
outstanding (unless the holder of such Award consents) or to the extent         
stockholder approval is otherwise required by applicable legal requirements.    

12. Termination of Employment. Upon the termination of employment by a
Participant, any unexercised, deferred or unpaid Awards shall be treated as     
provided in the specific Award Agreement evidencing the Award. In the event of  
such a termination, the Committee may, in its discretion, provide for the       
extension of the exercisability of an Award, accelerate the vesting or          
exercisability of an Award, eliminate or make less restrictive any restrictions 
contained in an Award, waive any restriction or other provision of this Plan or 
an Award or otherwise amend or modify the Award in any manner that is either (i)
not adverse to such Participant or (ii) consented to by such Participant.       

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13. Assignability. Unless otherwise determined by the Committee and   
provided in the Award Agreement, no Award or any other benefit under this Plan  
constituting a derivative security within the meaning of Rule 16a-l(c) under the
Exchange Act shall be assignable or otherwise transferable except by will or the
laws of descent and distribution or pursuant to a qualified domestic relations  
order as defined by the Code or Title I of the Employee Retirement Income       
Security Act, or the rules thereunder. The Committee may prescribe and include  
in applicable Award Agreements other restrictions on transfer. Any attempted    
assignment of an Award or any other benefit under this Plan in violation of this
Paragraph 13 shall be null and void.                                            

14. Adjustments.                                                      

    (a) The existence of outstanding Awards shall not affect in any manner the
right or power of the Company or its stockholders to make or authorize any or   
all adjustments, recapitalizations, reorganizations or other changes in the     
capital stock of the Company or its business or any merger or consolidation of  
the Company, or any issue of bonds, debentures, preferred or prior preference   
stock (whether or not such issue is prior to, on a parity with or junior to the 
Common Stock) or the dissolution or liquidation of the Company, or any sale or  
transfer of all or any part of its assets or business, or any other corporate   
act or proceeding of any kind, whether or not of a character similar to that of 
the acts or proceedings enumerated above.                                       

    (b) In the event of any subdivision or consolidation of outstanding shares
of Common Stock or declaration of a dividend payable in shares of Common Stock  
or capital reorganization or reclassification or other transaction involving an 
increase or reduction in the number of outstanding shares of Common Stock, the  
Committee may adjust proportionally (i) the number of shares of Common Stock    
reserved under this Plan and covered by outstanding Awards denominated in Common
Stock or units of Common Stock; (ii) the exercise or other price in respect of  
such Awards; and (iii) the appropriate Fair Market Value and other price        
determinations for such Awards. In the event of any consolidation or merger of  
the Company with another corporation or entity or the adoption by the Company of
a plan of exchange affecting the Common Stock or any distribution to holders of 
Common Stock of securities or property (other than normal cash dividends or     
dividends payable in Common Stock), the Committee shall make such adjustments or
other provisions as it may deem equitable, including adjustments to avoid       
fractional shares, to give proper effect to such event. In the event of a       
corporate merger, consolidation, acquisition of property or stock, separation,  
reorganization or liquidation, the Committee shall be authorized to issue or    
assume stock options, regardless of whether in a transaction to which Section   
424(a) of the Code applies, by means of substitution of new options for         
previously issued options or an assumption of previously issued options, or to  
make provision for the acceleration of the exercisability of, or lapse of       
restrictions with respect to, Awards and the termination of unexercised options 
in connection with such transaction.                                            

    15. Restrictions. No Common Stock or other form of payment shall be issued
with respect to any Award unless the Company shall be satisfied based on the    
advice of its counsel that such issuance will be in compliance with applicable  
federal and state securities laws. It is the intent of the Company that this    
Plan comply with Rule 16b-3 with respect to persons subject to Section 16 of the
Exchange Act unless otherwise provided herein or in an Award Agreement, that any
ambiguities or inconsistencies in the construction of this Plan be interpreted  
to give effect to such intention, and that if any provision of this Plan is     
found not to be in compliance with Rule 16b-3, such provision shall be null and 
void to the extent required to permit this Plan to comply with Rule 16b-3.      
Certificates evidencing shares of Common Stock delivered under this Plan may be 
subject to such stop transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations and other requirements of the       
Securities and Exchange Commission, any securities exchange or transaction      
reporting system upon which the Common Stock is then listed and any applicable  
federal and state securities law. The Committee may cause a legend or legends to
be placed upon any such certificates to make appropriate reference to such      
restrictions.                                                                   

    16. Unfunded Plan. Insofar as it provides for Awards of cash, Common Stock
or rights thereto, this Plan shall be unfunded. Although bookkeeping accounts   
may be established with respect to Participants who are entitled to cash, Common
Stock or rights thereto under this Plan, any such accounts shall be used merely 
as a bookkeeping convenience. The Company shall not be required to segregate any
assets that may at any time be represented by cash, Common Stock or rights      
thereto, nor shall this Plan be construed as providing for such                 

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segregation, nor shall the Company nor the Board nor the Committee be deemed to 
be a trustee of any cash, Common Stock or rights thereto to be granted under    
this Plan. Any liability or obligation of the Company to any Participant with   
respect to a grant of cash, Common Stock or rights thereto under this Plan shall
be based solely upon any contractual obligations that may be created by this    
Plan and any Award Agreement, and no such liability or obligation of the Company
shall be deemed to be secured by any pledge or other encumbrance on any property
of the Company. Neither the Company nor the Board nor the Committee shall be    
required to give any security or bond for the performance of any obligation that
may be created by this Plan.                                                    

    17. Governing Law. This Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by mandatory provisions of
the Code or the securities laws of the United States, shall be governed by and  
construed in accordance with the laws of the State of the State of Texas.       

 18. Effective Date of Plan. This Plan shall be effective as of June 19,
1996 (the "Effective Date). Notwithstanding the foregoing, the adoption of this 
Plan is expressly conditioned upon the approval by the holders of a majority of 
shares of Common Stock present, or represented, and entitled to vote at a       
meeting of the Company's stockholders held on or before June 19, 1997. If the   
stockholders of the Company should fail so to approve this Plan prior to such   
date, this Plan shall terminate and cease to be of any further force or effect  
and all grant of Awards hereunder shall be null and void.                       

                      Zapata Corporation
                 June 19, 1996

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ANNEX A 

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

UNITED STATES 
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, 1995

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)

                                        C-74-1339132
STATE OF DELAWARE                        (I.R.S. EMPLOYER 
(STATE OR OTHER JURISDICTION OF                IDENTIFICATION NO.)      
INCORPORATION OR ORGANIZATION)                                        
                                         77056
1717 ST. JAMES PLACE, SUITE 550                    (ZIP CODE)           
HOUSTON, TEXAS                                        

(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:                     

                                                                [Download Table]

                                                          NAME OF EACH EXCHANGE 
                  TITLE OF EACH CLASS                      ON WHICH REGISTERED  
                  -------------------                    -----------------------
                                                                                
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

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:                     
$2 Noncumulative Convertible Preference Stock, $1 par value.                

On December 15, 1995, there were outstanding 29,548,507 shares of the       
Company's Common Stock, $0.25 par value. The aggregate market value of the      
Company's voting stock held by nonaffiliates of the Company is $64,660,407,     
based on the closing price in consolidated trading on December 15, 1995 for the 
Company's Common Stock and the value of the number of shares of Common Stock    
into which the Company's $2 Noncumulative Convertible Preference Stock was      
convertible on such date.                                                       

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:                                            
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 1996 Annual Meeting of Stockholders are        
incorporated by reference into Part III hereof (to the extent set forth in Items
10, 11, 12 and 13 of Part III of this Annual Report on Form 10-K).              

--------------------------------------------------------------------------------
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TABLE OF CONTENTS 

                                                                [Download Table]

                                                                          PAGE
                                                                          ----
                                                                              
PART I                                                                        
   Items 1 and 2. Business and Properties..............................     1 
                   General.............................................     1 
                   Historical Contributions of Major Divisions.........     2 
                   Marine Protein Operations...........................     3 
                   Oil and Gas Operations..............................     5 
                   Employees...........................................     8 
                   Geographical Information............................     8 
                   Executive Officers of the Registrant................     9 
                   Properties..........................................    10 
   Item 3.        Legal Proceedings....................................    10 
   Item 4.        Submission of Matters to a Vote of Security Holders..    11 

PART II                                                                       
   Item 5.        Market for the Registrant's Common Equity and Related       
                   Stockholder Matters.................................    12 
   Item 6.        Selected Financial Data..............................    13 
   Item 7.        Management's Discussion and Analysis of Financial           
                   Condition and Results of Operations.................    14 
   Item 8.        Financial Statements and Supplementary Data..........    23 
   Item 9.        Changes in and Disagreements with Accountants on            
                   Accounting and Financial Disclosure.................    61 

PART III                                                                      
   Item 10.       Directors and Executive Officers of the Registrant...    61 
   Item 11.       Executive Compensation...............................    61 
   Item 12.       Security Ownership of Certain Beneficial Owners and         
                   Management..........................................    61 
   Item 13.       Certain Relationships and Related Transactions.......    61 

PART IV                                                                       
   Item 14.       Exhibits, Financial Statement Schedules and Reports         
                   on Form 8-K.........................................    62 

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PART I

ITEM 1 AND 2. BUSINESS AND PROPERTIES                                           

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 Corporation and its consolidated subsidiaries, as applicable.            

In fiscal 1993, Zapata began to redirect its operations into the natural gas
services market. The Company acquired the common stock of Cimarron Gas Holding  
Company ("Cimarron") 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 through the acquisition of 
Stellar Energy Corporation and three affiliated companies (collectively,        
"Stellar") in September 1993. Zapata acquired the natural gas compression       
businesses of Energy Industries, Inc. and certain other affiliated companies    
(collectively, "Energy Industries") in November 1993. Energy Industries was     
engaged in the business of renting, fabricating, selling, installing and        
servicing natural gas compressor packages.                                      

In late 1994 and early 1995, the Company began to develop a strategic plan  
involving the repositioning of the Company into the food packaging, food and    
food service equipment and supply (collectively, "food services") businesses    
and exiting the energy business. The strategic plan that was developed called   
for the divestiture of most of the Company's remaining energy operations,       
including 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 September 1994, Zapata's Board of Directors announced that the Company   
would 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, were sold in fiscal 1995. Zapata     
received cash of $4.0 million and recorded an $8.9 million receivable           
representing (i) a production payment entitling Zapata to a share of revenues   
from certain properties and (ii) a share of future proceeds from a revenue      
sharing agreement. No gain or loss resulted from the sales. The decision to     
sell its U.S. natural gas producing properties did not impact Zapata's Bolivian 
oil and gas operations.                                                         

In September 1995, Zapata entered into an agreement (the "Purchase          
Agreement") to sell the assets of Energy Industries (the "Energy Industries     
Sale") to Weatherford Enterra, Inc. and its wholly owned subsidiary, Enterra    
Compression Company (collectively, "Weatherford Enterra"). Pursuant to the      
Purchase Agreement, Weatherford Enterra purchased from the Company all of the   
assets of Energy Industries for approximately $131 million in cash and assumed  
certain liabilities of Energy Industries, subject to final post closing         
adjustments. The Energy Industries Sale closed on December 15, 1995 after       
receiving stockholder approval. The Energy Industries Sale resulted in an       
after-tax gain of approximately $14.0 million, which will be reflected in the   
Company's fiscal 1996 financial results. Although a sale price for Cimarron has 
not been determined, the Company estimates that, based on preliminary           
indications of interest from potential purchasers, the minimum sale price for   
Cimarron should be at least equal to book value. The Company expects to         
complete the sale of Cimarron in fiscal 1996.                                   

In 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.   
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 Company has since decided to retain the marine protein operations.          

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 In August 1995, the Company purchased 4,189,298 shares, or 31%, of the common
stock of Envirodyne Industries, Inc. ("Envirodyne") for $18.8 million from a    
trust controlled by 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 ownership 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, subject to prepayment at the        
Company's option. The Company has since prepaid approximately $15.6 million on  
the promissory note. Envirodyne is a major supplier of food packaging products  
and food service supplies and is a leading worldwide producer of cellulosic     
casings used in the preparation of packaging of processed meat products. It is  
the world's second largest producer of heat shrinkable plastic bags and         
specialty films for packaging and preserving fresh and processed meat products, 
poultry and cheeses. Envirodyne is also a leading domestic producer of (i)      
disposable plastic cutlery, drinking straws, custom dining kits and related     
products and (ii) 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 Company sold its remaining 673,077 shares of Tidewater Inc. ("Tidewater")
common stock in fiscal 1995. Zapata sold 3.5 million and 4.1 million shares of  
Tidewater common stock in 1993 and 1994, respectively.                          

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.  
As a result of the decision to sell the natural gas compression and natural gas 
gathering, processing and marketing operations, the Company's financial         
statements have been restated in 1995 to reflect these operations as            
discontinued operations, and therefore are not included below.                  

                                                        [Enlarge/Download Table]

                                  OPERATING                   DEPRECIATION,             
 AS OF OR FOR THE YEAR             INCOME       IDENTIFIABLE  DEPLETION AND   CAPITAL   
  ENDED SEPTEMBER 30,    REVENUES  (LOSS)          ASSETS     AMORTIZATION  EXPENDITURES
 ---------------------   -------- ---------     ------------  ------------- ------------
                                               (IN THOUSANDS)                           
                                                                                        
1995                                                                                    
Marine protein.......... $ 94,959 $ (6,437)(1)    $ 85,012       $14,977(1)   $ 5,573   
Oil and gas.............    8,109      658          13,571         2,856        1,767   
Corporate...............            (3,441)         38,914           115            1   
                         -------- --------        --------       -------      -------   
                         $103,068 $ (9,220)       $137,497       $17,948      $ 7,341   
                         ======== ========        ========       =======      =======   
1994                                                                                    
Marine protein.......... $ 96,614 $  5,445        $ 87,565       $ 4,535      $ 3,671   
Oil and gas.............   12,549  (28,285)(3)      20,062        33,770(3)    11,792   
Corporate...............            (8,767)         44,044(2)      2,321           67   
                         -------- --------        --------       -------      -------   
                         $109,163 $(31,607)       $151,671       $40,626      $15,530   
                         ======== ========        ========       =======      =======   
1993                                                                                    
Marine protein.......... $ 58,565 $  4,296        $ 92,728       $ 4,510      $ 1,477   
Oil and gas.............   20,189    6,032          41,630         7,688        1,327   
Corporate...............            (6,769)        169,888(2)        378            8   
                         -------- --------        --------       -------      -------   
                         $ 78,754 $  3,559        $304,246       $12,576      $ 2,812   
                         ======== ========        ========       =======      =======   

--------                                                                        
(1) Includes a $12.3 million provision for asset impairment to reduce the       
marine protein assets to their fair market value as a result of adopting
Statement of Financial Accounting Standards No. 121.                    

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(2) Includes Zapata's investment in Tidewater, which was sold through a series  
of transactions effected in fiscal 1995, 1994 and 1993.                 
(3) Includes a $29.2 million provision for oil and gas property valuation       
 required 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 are set forth       
below.                                                                          

                                                                [Download Table]

                                                                INCOME  
                                                                  TAX   
                                           INTEREST  OTHER      EXPENSE 
         YEAR ENDED SEPTEMBER 30,          EXPENSE  INCOME     (BENEFIT)
         ------------------------          -------- -------    ---------
                                                 (IN THOUSANDS)         
                                                                        
1995......................................  $1,789  $ 1,986(1)  $(3,179)
1994......................................   2,983   33,161(1)     (572)
1993......................................  12,414   23,523(1)    4,210 

--------                                                                        
(1) Includes pretax gains of $4.8 million, $37.5 million and $32.9 million in   
fiscal 1995, 1994 and 1993 respectively, from sales of Tidewater, Inc.  
common stock.                                                           

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. 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 aircraft where       
necessary to facilitate operations. During the 1995 fishing season in the Gulf  
of Mexico, where the fishing season runs from mid-April through October, the    
Company operated 32 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, which      
transport 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, and then are unloaded 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.                                                                      

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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 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
in Europe. 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 October 1995, the Company announced plans to cease processing operations 
in 1996 at its Dulac, Louisiana plant. The Company's decision was based on the  
anticipated capital expenditures and operating capital requirements necessary   
to maintain the long-term viability of the Dulac processing operation. The      
entire harvesting effort previously managed from this location, as well as a    
significant portion of the processing assets, will be redeployed to other       
Company facilities. Therefore, the Company's harvesting efforts in future years 
are expected to remain comparable to recent years, and the Company's processing 
capabilities will not be significantly changed.                                 

 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 independently of the     
Company. The Company consolidates the financial results of Venture. The         
Company's financial results for the 1995 or 1994 fiscal years were not          
materially impacted by activity related to Venture.                             

 Marketing. Most of the Company's marine protein 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 $22,947,000 as of September 30, 1995   
compared to $34,143,000 on September 30, 1994. 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. One customer for fish oil, Unilever Raw Material B.V., accounted 
for approximately 11.9% of the Company's consolidated revenues in fiscal 1995,  
and lesser amounts in the two preceding years. Sales to Unilever Raw Material   
B.V. were approximately $12.3 million in 1995.                                  

Competition. The principal competition for the Company's fish meal and fish 
solubles is from 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.             

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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 re-  
named 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      
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 any "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.                       

OIL AND GAS OPERATIONS                                                          

The Company's only significant remaining oil and gas exploration and        
production activity is the production of natural gas in Bolivia. During fiscal  
1995, the Company sold its U.S. oil and gas properties in the Gulf of Mexico    
for $4.0 million cash and an $8.9 million receivable representing (i) a         
production payment entitling Zapata to a share of revenues from certain         
properties and (ii) a share of future proceeds from a revenuing sharing         
agreement. No gain or loss resulted from the sales. The Company conducts oil    
and gas operations through its wholly owned subsidiary, Zapata Exploration      
Company ("Zapex").                                                              

The Company's decision to sell its U.S. properties did not impact its       
Bolivian oil and gas operations. The Company believes the value of the Bolivian 
operation would be enhanced by the construction of a proposed gas pipeline      
connecting Bolivia's gas producing regions to gas markets in Brazil. The        
governments of Bolivia and Brazil currently support this project and a multi-   
national group has been formed to construct and operate the pipeline. The       
project is progressing toward commencement of construction. Pipeline operations 
are currently projected to commence during the late 1990s.                      

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 an      
approximate 25% interest), and all cash proceeds received by the Company        
thereafter that relate to periods prior to 1988 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                                                                   

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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. 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. The Company recorded revenues of $4.1 million in     
fiscal 1994 from its Bolivian interest. During 1995, the Company recorded       
revenues of $2.7 million.                                                       

Since 1993, the Company committed to participate in the drilling of four    
exploratory wells in its Bolivian operation, two of which were drilled in 1994, 
one during 1995 and the fourth is scheduled to be drilled during 1996.          

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, including blowouts, cratering, oil spills and fires, as well as        
political, 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, the Company's          
investment in its Bolivian oil and gas properties is that of a minority         
interest owner. Accordingly, the majority owner has the right to 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, 1995, 1994 and 1993:                                              

                                                                [Download Table]

                                            UNITED STATES     BOLIVIA    
                                            -------------- --------------
                                             GAS   LIQUIDS  GAS   LIQUIDS
                                            (MMCF) (MBBL)  (MMCF) (MBBL) 
                                            ------ ------- ------ -------
                                                                         
TOTAL PROVED RESERVES AS OF:                                             
  September 30, 1995.......................     --     --  29,552  683.5 
  September 30, 1994....................... 34,736  366.8  27,317  744.4 
  September 30, 1993....................... 40,735  360.4  22,534  721.9 
TOTAL PROVED DEVELOPED RESERVES AS OF:                                   
  September 30, 1995.......................     --     --  29,552  683.5 
  September 30, 1994....................... 27,386  221.3  27,317  744.4 
  September 30, 1993....................... 28,181  200.9  22,534  721.9 

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, 1995, no major favorable or adverse event has occurred which the Company    
believes significantly affects or changes estimated reserve quantities as of    
that date. Zapata is not a party to any contracts that 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, 1994.                       

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                                                                              

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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.                                         

 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, 1995, 1994 and   
1993. Natural gas production refers only to marketable production of gas on an  
"as sold" basis.                                                                

                                                                [Download Table]

                                           UNITED STATES     BOLIVIA    
                                           -------------- --------------
                                            GAS   LIQUIDS  GAS   LIQUIDS
                                           (MMCF) (MBBL)  (MMCF) (MBBL) 
                                           ------ ------- ------ -------
                                                                        
PRODUCTION VOLUMES FOR THE YEAR ENDED:                                  
  September 30, 1995...................... 2,996   44.7   1,724   53.3  
  September 30, 1994...................... 3,456   73.0   1,967   68.9  
  September 30, 1993...................... 7,067   47.1   1,665   55.3  

The following table shows the average sales prices received by the Company  
for its production for the three years ended September 30, 1995, 1994 and 1993: 

                                                                [Download Table]

                                             UNITED STATES    BOLIVIA   
                                             ------------- -------------
                                              GAS  LIQUIDS  GAS  LIQUIDS
                                             (MCF)  (BBL)  (MCF)  (BBL) 
                                             ----- ------- ----- -------
                                                                        
AVERAGE SALES PRICES FOR THE YEAR ENDED:                                
  September 30, 1995........................ $1.54 $15.21  $1.28 $18.98 
  September 30, 1994........................  2.08  14.67   1.34  12.64 
  September 30, 1993........................  2.32  16.53   1.15  17.41 

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, 1995, 1994 and 1993:                                              

                                                                [Download Table]

                                                         UNITED         
                                                         STATES BOLIVIA 
                                                         ------ --------
                                                                        
AVERAGE PRODUCTION COSTS FOR THE YEAR ENDED:                            
  September 30, 1995.................................... $ .96  $.54    
  September 30, 1994....................................  1.42   .22    
  September 30, 1993....................................   .77   .05    

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 1994 include the effects of $600,000 in workover expense incurred as a   
part of the Wisdom gas field workover and recompletion programs completed in    
September 1994. Differences between sales prices and production (lifting) costs 
do not represent profit.                                                        

Productive Wells and Acreage. On September 30, 1995, the Company's Bolivian 
oil and gas properties consisted of working interests in 18 gross gas wells     
(4.65 net wells) capable of production. The Company does not operate any wells. 
The following table shows the number of producing wells and wells capable of    
production as of September 30, 1995:                                            

                                                                [Download Table]

                                                                  BOLIVIA 
                                                                  --------
                                                                  OIL GAS 
                                                                  --- ----
                                                                          
PRODUCTIVE OIL AND GAS WELLS:                                             
  Gross..........................................................  --   18
  Net............................................................  -- 4.65

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 One or more completions in the same bore hole are counted as one well. Twelve
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.                                                         

The following table sets forth certain information with respect to the      
developed and undeveloped acreage of the Company as of September 30, 1995:      

                                                                [Download Table]

                              DEVELOPED(1)    UNDEVELOPED(2)         TOTAL      
                             --------------- ----------------- -----------------
                             GROSS(3) NET(4) GROSS(3)  NET(4)  GROSS(3)  NET(4) 
                             -------- ------ --------- ------- --------- -------
                                                                                
ACREAGE                                                                         
  Bolivia...................  5,760   1,456  1,261,920 337,628 1,267,680 339,084

--------                                                                        
(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.                                                        
(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. Since September 30, 1993, the Company has participated in
drilling three exploratory wells in its Bolivian operation that achieved total  
depth. The first and third wells, the Los Suris #2 and the Palo Marcado #1,     
were successful in discovering gas reserves. 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 the worldwide surplus of supply over demand.             

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.                 

EMPLOYEES                                                                       

 At December 18, 1995, the Company and its subsidiaries employed approximately
1,150 persons. Approximately 117 employees of the Company's marine protein      
operations are represented by an affiliate of the United Food and Commercial    
Workers Union. The Company considers its employee relations to be generally     
satisfactory.                                                                   

GEOGRAPHICAL INFORMATION                                                        

Certain geographical information with respect to the Company's business is  
set forth in Note 16 of Notes to Consolidated Financial Statements.             

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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 1996, are set forth below. Also indicated is the date when each such    
person commenced serving as an executive officer of the Company.                

                                                                [Download Table]

                                                                DATE BECAME   
NAME AND AGE                               OFFICE            EXECUTIVE OFFICER
------------                               ------            -----------------
                                                                              
                                  President and Chief                         
Avram A. Glazer (34)............. Executive Officer            March 1995     
                                  Chairman of the Board of                    
Malcolm I. Glazer (67)........... Directors                    July 1994      
Ronald C. Lassiter (63).......... Chairman and Chief                          
                                   Executive Officer of                       
                                   Zapata Protein, Inc.        March 1970     
Lamar C. McIntyre (57)........... Vice President, Chief                       
                                   Financial Officer,                         
                                   Treasurer and Assistant                    
                                   Secretary                   October 1994   
Joseph L. von Rosenberg III (37). Executive Vice                              
                                   President, General                         
                                   Counsel and Corporate                      
                                   Secretary                   August 1994    

A description of the business experience during the past five years for each
of the executive officers of Zapata is set forth below.                         

Avram A. Glazer, a director since 1993, 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 Canadaigua Mobile Park.  
Mr. Glazer's principal responsibilities include identifying, implementing,      
monitoring and disposing of Malcolm I. Glazer's investment interests. Mr.       
Glazer also serves as director of the Houlihan's Restaurant Group, Inc. and is  
a director of Specialty Equipment Companies, Inc. and Envirodyne Industries,    
Inc. Avram A. Glazer is the son of Malcolm I. Glazer.                           

 Malcolm I. Glazer, a director since 1993, has served as Chairman of the Board
of Directors since July 1994 and served as President and Chief Executive        
Officer from August 1994 until March 1995. Mr. Glazer has been a self-employed, 
private investor whose diversified portfolio consists of investments in a       
National Football League football team, 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 the Houlihan's Restaurant Group, Inc. and 
also is a director of Specialty Equipment Companies, Inc. and Envirodyne        
Industries, Inc. He 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. Malcolm I. Glazer is the father of Avram A. Glazer.            

Ronald C. Lassiter 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 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. That        
proposed acquisition was not consummated, and Mr. Lassiter 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 Plans." 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.                                                                

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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.                                                    

Joseph L. von Rosenberg III has served as Executive Vice President since    
November 1995. He has served as General Counsel since August 1994 and Corporate 
Secretary since June 1993. From August 1994 through November 1995, Mr. von      
Rosenberg also held the position of Vice President of the Company. Prior to     
joining Zapata in June 1993, he served as General Counsel and Corporate         
Secretary of both The Permian Corporation and Simmons Corporation.              

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 2000. 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.                                            

ITEM 3. LEGAL PROCEEDINGS                                                       

 On August 11, 1995, a purported derivative lawsuit was filed in a case styled
Harwin v. Glazer, et al., in the Court of Chancery of the State of Delaware in  
and for New Castle County. The complaint names the Company and each of its      
directors as defendants and generally alleges that the Company's directors      
engaged in conduct constituting breach of fiduciary duty and waste of the       
Company's assets in connection with the Company's investment in Envirodyne (for 
information on the Company's investment in Envirodyne, see "Envirodyne          
Ownership Interest" above). The complaint alleges, among other things, that the 
purchase of the Envirodyne common stock from Malcolm Glazer's affiliate was a   
wrongful expenditure of the Company's funds and was designed to permit Malcolm  
Glazer to obtain substantial personal financial advantages to the detriment of  
the Company. The complaint seeks relief including, among other things,          
rescission of the Company's purchase of the shares of Envirodyne common stock   
from the trust controlled by Malcolm Glazer, voiding of the election of Robert  
V. Leffler, Jr. and W. George Loar (both of whom were elected at the Company's  
Annual Meeting of Stockholders held on July 27, 1995) and an award of           
unspecified compensatory damages and expenses, including attorneys' fees. The   
complaint alleges, among other things, that Messrs. Leffler and Loar (both of   
whom served on the special committee of the Company's Board of Directors that   
approved the investment in Envirodyne) lack independence from Malcolm Glazer    
because, in the case of Mr. Loar, he was employed by a corporation indirectly   
controlled by Malcolm Glazer until Mr. Loar's retirement (which occurred more   
than five years ago), and in the case of Mr. Leffler, that he has served as a   
paid consultant to Malcolm Glazer. The Company believes that the complaint and  
allegations contained therein are without merit and intends to defend the case  
vigorously.                                                                     

On November 16, 1995, a petition was filed in the 148th Judicial District   
Court of Nueces County, Texas by Peter M. Holt, a former director of the        
Company, and certain of his affiliates who sold their interests in Energy       
Industries to the Company in November 1993 (collectively, with Mr. Holt, the    
"Holt Affiliates"). The petition lists the Company, Malcolm Glazer and Avram    
Glazer as defendants and alleges several causes of action based on alleged      
misrepresentations on the part of the Company and the other defendants          
concerning the Company's intent to follow a long-term development strategy      
focusing its efforts on the natural gas services business. The petition did not 
allege a breach of any provision of the purchase agreement pursuant to which    
the Company acquired Energy Industries from the Holt Affiliates, but alleged    
that various representatives of Zapata and Malcolm Glazer made representations  
to Mr. Holt regarding Zapata's intention to continue in the natural gas         
services industry. Among the remedies sought by the petition are the following  
requests: (i) the Company's repurchase of the approximately 2.8 million shares  
of Zapata common stock owned by the Holt Affiliates for $15.6 million, an       
amount that represents a premium of approximately $4.7                          

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million, or more than 40%, over the market value of such number of shares based 
on the closing price of Zapata's common stock on November 16, 1995; (ii) the    
disgorgement to the Holt Affiliates of Zapata's profit to be made on its sale   
of Energy Industries; or (iii) money damages based on the alleged lower value   
of the Common Stock had the alleged misrepresentations not been made. The       
Company believes that the petition and the allegations made therein are without 
merit and intends to defend the case vigorously.                                

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. In the opinion of management, uninsured losses, if     
any, resulting from these matters and from the matters discussed above will not 
have a material adverse effect on Zapata's results of operations, cash flows or 
financial position.                                                             

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                     

 The information set forth in Item 4 of Zapata's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1995, as amended by a Form 10-Q/A filed   
on November 13, 1995, is incorporated herein by reference.                      

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PART II 

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER       
MATTERS                                                                         

Zapata's Common Stock is listed on the New York Stock Exchange. On April 27,
1994, Zapata's stockholders approved a one-for-five reverse stock split (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. Unless the context otherwise requires, 
all references in this Report to Common Stock share and per share amounts       
reflect the Reverse Stock Split. 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    
with respect to the Common Stock during such periods, are shown in the          
following table.                                                                

                                                        [Enlarge/Download Table]

                         SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
QUARTER ENDED:               1995        1995     1995        1994         1994        1994     1994        1993    
--------------           ------------- -------- --------- ------------ ------------- -------- --------- ------------
                                                                                                                    
High sales price........     $4.63      $4.38     $4.13      $4.50        $5.50       $6.25     $6.88      $8.13    
Low sales price.........      2.88       2.50      3.25       3.25         4.00        4.00      5.63       5.00    
Dividends declared......        --         --        --         --         0.035       0.035       --         --    

The Company announced in December 1994 that its Board of Directors had      
determined to discontinue indefinitely 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 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 $6 Cumulative Preferred Stock at $100 per   
share. The Company redeemed the balance of its outstanding $6 Cumulative        
Preferred Stock in January 1995.                                                

On December 15, 1995, there were 9,694 holders of record of Common Stock.   

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ITEM 6. SELECTED FINANCIAL DATA                                                 

 The following table sets forth certain selected financial information for the
periods presented and should be read in conjunction with the Consolidated       
Financial Statements of the Company and the related notes thereto and with      
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations" included in this Report. 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. The Company's financial statements were also restated in 1995 to     
reflect the Company's natural gas compression and natural gas gathering,        
processing and marketing operations as discontinued operations.                 

                                                                [Download Table]

                                      YEAR ENDED SEPTEMBER 30,                
                         -----------------------------------------------------
                           1995         1994        1993        1992    1991  
                         --------     --------     -------    -------- -------
                              (IN THOUSANDS, EXCEPT PER SHARE)                
                                                                              
INCOME STATEMENT DATA:                                                        
  Revenues.............. $103,068     $109,163     $78,754    $106,413 $93,410
  Operating income                                                            
   (loss)...............   (9,220)(1)  (31,607)(2)   3,559      10,901   3,063
  Income (loss) from                                                          
   continuing                                                                 
   operations...........   (5,844)        (857)(3)  10,458(4)    2,431   2,087
  Per share income                                                            
   (loss) from                                                                
   continuing                                                                 
   operations...........    (0.19)       (0.04)       0.37        0.08    0.07
  Cash dividends paid...    1,153        1,566       2,933          --      --
  Common Stock,                                                               
   dividends declared,                                                        
   per share............       --         0.07          --          --      --
CASH FLOW DATA:                                                               
  Capital expenditures..    7,341       15,530       2,812      11,595   8,730

                                                                [Download Table]

                                                SEPTEMBER 30,                  
                                 ----------------------------------------------
                                   1995     1994     1993       1992     1991  
                                 -------- -------- --------    ------- --------
                                               (IN THOUSANDS)                  
                                                                               
BALANCE SHEET DATA:                                                            
  Working capital............... $113,536 $139,526 $136,493(5) $30,281 $ 48,054
  Property and equipment, net...   39,238   48,642   86,372     97,768  101,156
  Assets of discontinued                                                       
   operations...................  101,894  103,117   17,827         --       --
  Total assets..................  239,391  254,788  322,073    304,339  318,021
  Current maturities of long-                                                  
   term debt....................   16,148      531      330     19,652   10,671
  Long-term debt................   37,468   52,581  135,659    120,298  139,951
  Stockholders' equity..........  145,290  154,542  146,264    124,880  122,853

--------                                                                        
(1) Includes a $12.3 million provision for asset impairment of the Company's    
marine protein assets.                                                  
(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 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.
(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 for the acquisition of Energy    
Industries.                                                             

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 
OF OPERATIONS                                                                   

The following is a discussion of the Company's financial condition and      
results of operations. This discussion should be read in conjunction with the   
Consolidated Financial Statements of the Company appearing under Item 8 herein. 

BACKGROUND                                                                      

 Zapata Corporation has undergone a significant transformation during the last
several years. The Company was previously engaged in the operation of offshore  
drilling rigs and 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 and its subsidiaries (collectively,       
"Cimarron") early in fiscal 1993 for $3.8 million, consisting of $2.5 million   
in cash and 437,333 shares of the Company's Common Stock ("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   
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 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 cash portions of the purchase      
prices were financed with working capital.                                      

Zapata completed a refinancing of its senior debt in fiscal 1993 which      
enabled the Company to move forward with its 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 an agreement (the "Norex            
Agreement") 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"). The Norex Agreement enabled the        
Company to refinance its then-outstanding senior debt. Such refinancing is      
collectively referred to as the "Norex Refinancing."                            

The Company sold 3.5 million shares of its Tidewater Inc. ("Tidewater")     
common stock in June 1993 in an underwritten public offering for net proceeds   
of $73.5 million. In November 1993, Zapata used the proceeds to purchase the    
natural gas compression businesses of Energy Industries, Inc. and certain other 
affiliated companies (collectively, "Energy Industries") as well as certain     
real estate used by the business. Total consideration paid for the purchase of  
Energy Industries, the related real estate 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 the Common Stock valued at $5.80 per share, which approximated the    
average trading price prior to closing of the acquisition.                      

In late 1994 and early 1995, the Company began to develop a strategic plan  
involving the repositioning of the Company into the food packaging, food and    
food service equipment and supply (collectively, "food services") businesses    
and exiting the energy business. The strategic plan that was developed called   
for the divestiture of most of the Company's remaining energy operations,       
including 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 September 1994, Zapata's Board of Directors announced that the Company   
would 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, were sold in fiscal 1995. Zapata     
received cash of $4.0 million and recorded an $8.9 million receivable           
representing (i) a production payment entitling Zapata to a share of revenues   
from certain properties and (ii) a share of future proceeds from a revenue      
sharing agreement. No gain or loss resulted from the sales. The decision to     
sell its U.S. natural gas producing properties did not impact Zapata's Bolivian 
oil and gas operations.                                                         

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In September 1995, Zapata entered into an agreement (the "Purchase          
Agreement") to sell the assets of Energy Industries (the "Energy Industries     
Sale") to Weatherford Enterra, Inc. and its wholly owned subsidiary, Enterra    
Compression Company (collectively, "Weatherford Enterra"). Pursuant to the      
Purchase Agreement, Weatherford Enterra purchased from the Company all of the   
assets of Energy Industries for approximately $131 million in cash and assumed  
certain liabilities of Energy Industries, subject to final post-closing         
adjustments. The Energy Industries Sale closed on December 15, 1995 after       
receiving stockholder approval. The Energy Industries Sale resulted in an       
after-tax gain of approximately $14.0 million which will be reflected in the    
Company's fiscal 1996 financial results. Although a sale price for Cimarron has 
not been determined, the Company estimates that, based on preliminary           
indications of interest from potential purchasers, the minimum sales price for  
Cimarron should be at least equal to book value. The Company expects to         
complete the sale of Cimarron in fiscal 1996.                                   

In 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 recorded an $8.9 million after-tax book loss in fiscal 1994. On May 5,  
1995, Zapata decided to retain the marine protein operations. 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 subsequently determined to retain these operations. As 
a result, the marine protein net assets, results of operations and cash flows   
have been reclassified from discontinued operations to continuing operations,   
and the $8.9 million after-tax book loss on disposition was reversed in fiscal  
1995.                                                                           

In August 1995, Zapata acquired 31% of the outstanding common stock of      
Envirodyne Industries, Inc. ("Envirodyne") for $18.8 million from a trust       
controlled by 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 the prime rate and maturing in 
August 1997, subject to prepayment at the Company's option. The Company has     
since prepaid approximately $15.6 million on the promissory note. Envirodyne is 
one of the world's major suppliers of food packaging products and food service  
supplies. This investment was the first step in the transformation of Zapata    
into the food-services businesses.                                              

The Energy Industries Sale is another significant step in the Company's     
transition from an energy company to a food services company. Of the            
approximately $131 million in cash proceeds received from the Energy Industries 
Sale, the Company has used approximately $26 million to repay certain bank      
debt. See "Liquidity and Capital Resources." Additionally, approximately $1     
million was used to pay commissions and fees associated with the sale. The      
Company intends to use the remaining net proceeds from the sale for general     
corporate purposes, which may include further repayment of debt, and for future 
expansion into the food services industry. While the Company is actively        
seeking acquisition and joint venture opportunities in the food services        
industry, there can be no assurances that the Company will succeed in           
consummating any such opportunities or that acquisitions or joint ventures, if  
consummated, will be successful. Zapata's Board of Directors has established a  
special committee for the purpose of investigating the legal and financial      
considerations of one or more merger or acquisition transactions involving the  
Company and Houlihan's Restaurant Group, Inc. ("Houlihan's") and Specialty      
Equipment Companies, Inc. ("Specialty"). Malcolm Glazer and members of his      
family beneficially own approximately 73% and 45% of the outstanding common     
stock of Houlihan's and Specialty, respectively, and Malcolm Glazer, Avram      
Glazer (the Company's President and Chief Executive Officer) and other members  
of their family serve as directors of both of those companies. The Special      
Committee was charged with recommending to the Board of Directors what further  
steps should be taken by the Company in connection with the above               
considerations. To date, the Special Committee has not issued any               
recommendations with respect to its consideration of possible transactions      
involving either Houlihan's or Specialty.                                       

LIQUIDITY AND CAPITAL RESOURCES                                                 

At September 30, 1995, Zapata's long-term debt of $37.5 million compared    
favorably to working capital of $113.5 million and stockholders' equity of      
$145.3 million. At September 30, 1994, the Company's long-                      

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term debt of $52.6 million also compared favorably to working capital of $139.5 
million and stockholder's equity of $154.5 million.                             

In November 1993 Zapata sold 3.75 million shares of its Tidewater common    
stock for $77.8 million. The proceeds were used to prepay $68.5 million of the  
13% senior indebtedness to Norex, along with accrued interest, and to pay a     
related $3.5 million prepayment premium. In September 1994, the Company prepaid 
the remaining $17.3 million of its 13% senior convertible indebtedness to Norex 
that was due in 1996. 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 Energy          
Industries in September 1994. In connection with the Energy Industries Sale,    
the TCB Loan Agreement was terminated and the outstanding indebtedness          
outstanding thereunder was repaid.                                              

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 
sold its remaining 673,077 shares of Tidewater common stock in March 1995 and   
used the $12.7 million proceeds to reduce the Company's $17.5 million in notes  
that are due to Norex in 1996.                                                  

In fiscal 1994, Zapata redeemed one-half of the approximately 45,000        
outstanding shares of the Company's $6 Cumulative Preferred Stock at $100 per   
share. The Company redeemed the balance of its outstanding $6 Cumulative        
Preferred Stock in January 1995 at $100 per share.                              

In April 1995, Zapata repurchased 2.25 million shares of Common Stock from  
Norex 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 fiscal 1995 and 1994, operating activities generated net cash flows of   
$7.4 million and $9.9 million, respectively, as compared to the fiscal 1993     
activities that consumed $22.3 million. The fiscal 1993 use of cash was         
attributable to the combination of the following: higher interest expense,      
expenses related to the Norex Refinancing and increased working capital         
requirements.                                                                   

Fiscal 1995 investing activities provided $16.7 million as compared to the  
fiscal 1994 activities that provided $74.9 million. The decrease in 1995 was    
primarily attributable to a reduction in proceeds from sales of Tidewater       
common stock.                                                                   

Due to the significant transactions that 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 $13.1 million during fiscal 1994 and $297,000 during fiscal 1993. The      
increase usage in fiscal 1994 can be attributed to higher capital expenditures  
and to the redemption of $6 Cumulative Preferred Stock. Capital expenditures    
increased in 1994 due primarily to workover projects in certain U.S. oil and    
gas operations.                                                                 

Net cash from financing activities consumed $31.4 million in fiscal 1995 as 
compared to $88.0 million in fiscal 1994. The higher use of cash in fiscal 1994 
was primarily attributable to the prepayments of Norex indebtedness.            

 The Company's capital expenditures for fiscal 1996 are currently projected to
be approximately $4.4 million.                                                  

Although Zapata currently has only one working capital facility, the Company
considers its current liquidity position to be adequate. A $15.0 million        
working capital based loan agreement ("ING Loan Agreement") between             
International Nederlanden (U.S.) Capital Corporation and two subsidiaries of    
the Company, Zapata Protein, Inc. and Zapata Protein (USA), Inc. (collectively, 
"Zapata Protein") provides the marine protein operation with financial          
flexibility.                                                                    

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The ING Loan Agreement provides Zapata Protein with a revolving credit      
facility that is due June 30, 1997. The ING Loan Agreement bears interest at a  
variable interest rate that is adjusted periodically based on the prime         
interest rate. Pursuant to the ING Loan Agreement, Zapata Protein agreed to     
maintain certain financial covenants and to limit additional indebtedness,      
dividends, dispositions and acquisitions. The amount of restricted net assets   
for Zapata Protein at September 30, 1995 was approximately $47.7 million.       
Zapata Corporation has guaranteed up to $10.0 million of the outstanding        
balance of debt related to the ING Loan Agreement. Pursuant to the ING Loan     
Agreement, Zapata Protein's ability to transfer funds to Zapata Corporation is  
limited to $10.0 million. As of September 30, 1995, Zapata Protein had already  
transferred the maximum amount of $10.0 million to Zapata Corporation. The      
Company remains subject to a covenant in the Norex Agreement that requires      
Zapata to maintain a consolidated tangible net worth as defined in such         
agreement of at least $100 million. Effective September 30, 1995, the Company   
was in compliance with all provisions governing its outstanding indebtedness.   

RESULTS OF OPERATIONS                                                           

General                                                                       

 Reflecting the Company's decision to retain the marine protein operations and
to sell the natural gas compression and natural gas gathering, processing and   
marketing operations, the Company's results from continuing operations include  
the marine protein and oil and gas operations and results from discontinued     
operations include the natural gas compression and natural gas gathering,       
processing and marketing operations.                                            

Fiscal 1995--1994                                                             

Zapata's fiscal 1995 net income of $4.2 million improved substantially from 
the fiscal 1994 net loss of $8.3 million. The Company's discontinued natural    
gas compression and natural gas gathering, processing and marketing operations  
contributed net income of $1.2 million in fiscal 1995 and $1.4 million in       
fiscal 1994. The discontinued operating results include pretax allocations of   
interest on general corporate debt of $2.1 million and $4.3 million in 1995 and 
1994, respectively. Fiscal 1995 discontinued operations also include net income 
of $8.9 million reflecting the reversal of the estimated loss on the            
disposition of the marine protein operations that was recorded in fiscal 1994.  

 The Company recorded a net loss from continuing operations of $5.8 million in
fiscal 1995 as compared to a net loss of $857,000 in 1994. Sales of the         
Company's Tidewater common stock generated pretax gains of $4.8 million in      
fiscal 1995 and $37.5 million in fiscal 1994. The fiscal 1995 results also      
include a $12.3 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 $29.2 million associated with Company's oil and gas      
operations in the Gulf of Mexico as a result of low gas prices and revision of  
estimated future costs.                                                         

Revenues of $103.1 million and an operating loss of $9.2 million in fiscal  
1995 compared to revenues of $109.2 million and an operating loss of $31.6      
million in fiscal 1994. The operating losses are due primarily to the valuation 
provisions recorded in both years. The 1994 operating loss also includes a $2.4 
million expense related to a reduction in staff at the Company's headquarters.  

Fiscal 1994--1993                                                             

 Zapata's net loss of $8.3 million for fiscal 1994 compared unfavorably to net
income of $9.4 million in fiscal 1993. The Company's discontinued natural gas   
compression and natural gas gathering, processing and marketing operations      
contributed net income of $1.4 million in fiscal 1994 as compared to a $1.1     
million net loss in fiscal 1993 from the natural gas gathering, processing and  
marketing operations. Discontinued operating results include allocations of     
interest on general corporate debt of $4.3 million and $968,000 in              

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1994 and 1993, respectively. Fiscal 1994 discontinued operations also includes  
the estimated net loss of $8.9 million related to the disposition of the marine 
protein operations.                                                             

On a continuing operations basis, a net loss of $857,000 in fiscal 1994     
compared unfavorably to net income of $10.5 million in fiscal 1993. The fiscal  
1994 loss includes the $29.2 million pretax write-down of the Company's oil and 
gas properties in the Gulf of Mexico. 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          
(Offshore) Limited ("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 $109.2 million and an operating loss of $31.6 million in fiscal 
1994 compared to revenues of $78.8 million and operating income of $3.6 million 
in fiscal 1993. The 1994 operating loss was primarily attributable to the oil   
and gas valuation provision, as well as to a reduced contribution from the      
Company's domestic oil and gas operations. The 1994 operating loss also         
included a $2.4 million expense related to the reduction in staff at the        
Company's corporate headquarters and the related write-off of leasehold         
improvements.                                                                   

Marine Protein                                                                

Reflecting 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 
related $8.9 million after-tax loss on disposition recorded in fiscal 1994 has  
been reversed in fiscal 1995. As a result of adopting SFAS 121, in April 1995   
the Company recorded a $12.3 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 on the highest   
third-party competitive bid that 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.                                      

Revenues of $95.0 million and operating loss of $6.4 million in fiscal 1995 
compared unfavorably to revenues of $96.6 million and operating income of $5.4  
million in fiscal 1994, reflecting the effects of the provision for asset       
impairment and a lower fish catch in fiscal 1995. Fiscal 1995 sales volume of   
fish meal declined 11% from the fiscal 1994 level while the average per-ton     
price of $350 was approximately 2% higher. The decline in fish meal sales       
volume was attributable to a 22% drop in the fiscal 1995 fish catch as compared 
to the fiscal 1994 fish catch. Sales volume of fish oil increased 4% in 1995 as 
compared to 1994 while the average per ton price of $321 was 7% higher.         
Reflecting the lower fish catch, the Company's product inventories at September 
30, 1995 for fish meal and fish oil were approximately 37% and 45% lower,       
respectively, than the September 30, 1994 inventory levels.                     

Fiscal 1994 revenues of $96.6 million and operating income of $5.4 million  
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 that 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.  

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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 dropped in fiscal 1995 after improving during
fiscal 1994 but remained at a higher level than the 1993 catch. The fiscal 1995 
fish catch dropped approximately 22% from the 1994 level while the fiscal 1994  
catch improved approximately 37% from the catch in fiscal 1993. 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.                                                                          

Oil and Gas Operations                                                        

In September 1994, Zapata's Board of Directors announced that the Company   
would 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, were sold in fiscal 1995. Zapata     
received cash of $4.0 million and recorded an $8.9 million receivable           
representing (i) a production payment entitling Zapata to a share of revenues   
from certain properties and (ii) a share of future proceeds from a revenue      
sharing agreement. No gain or loss was recorded from the sales. The decision to 
sell its U.S. natural gas properties did not impact Zapata's Bolivian oil and   
gas operations.                                                                 

Revenues of $8.1 million and operating income of $658,000 for fiscal 1995   
compared to revenues of $12.6 million and an operating loss of $28.3 million in 
fiscal 1994. The decline in fiscal 1995 revenues reflects the sales of the      
Company's domestic oil and gas properties during the third and fourth quarters  
of fiscal 1995. The fiscal 1994 operating results include the $29.2 million     
property valuation provision.                                                   

 Bolivian operations contributed revenues of $2.7 million and operating income
of $1.4 million in fiscal 1995 as compared to revenues of $4.1 million and      
operating income of $3.5 million in fiscal 1994. In fiscal 1994 Zapata returned 
to the accrual method of accounting for its Bolivian oil and gas operations     
based on the Bolivian oil and gas company's performance under negotiated        
contracts and improved operating conditions.                                    

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  
$12.5 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 in connection   
with several workover wells at the Company's Wisdom gas field and an increase   
in estimated future costs. The Bolivian operations contributed $3.5 million and 
$3.1 million to operating income in fiscal 1994 and 1993, respectively.         

The Company's domestic natural gas production for fiscal 1995 was           
approximately 14% lower than the fiscal 1994 level of production as a result of 
the sale of its domestic properties. Zapata's domestic natural gas production   
for fiscal 1994 was approximately one-half of the fiscal 1993 period's level of 
production due to production difficulties encountered at the Wisdom gas field   
which was the Company's most significant domestic oil and gas property.         

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. In November 1993, Zapata sold an 
additional 3.75                                                                 

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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. In March 1995, 
the Company sold its remaining 673,077 shares of Tidewater common stock for a   
net price of $18.87 per share or $12.7 million resulting in a $4.8 million      
pretax gain. All gains from the sales of Tidewater common stock are reflected   
on the statement of operations as other income.                                 

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 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.                                                                      

Envirodyne                                                                    

For fiscal 1995, Zapata's reported equity loss of $719,000 was based on 31% 
of Envirodyne's results for the three months ended September 28, 1995 prorated  
to Zapata's August 1995 acquisition.                                            

OTHER INCOME (EXPENSE)                                                          

Other expense of $2.1 million in fiscal 1995 includes a $2.8 million loss   
related to an investment in subordinated debentures of Wherehouse               
Entertainment, Inc. This loss was partially offset by a $453,000 gain from the  
sale of the Company's corporate aircraft and the receipt of $595,000 from a     
note that was written down in previous years.                                   

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 $719,000 dividend income from Zapata's Tidewater common    
stock. Also, fiscal 1994 other expense includes a $1.4 million expense related  
to a terminated pension plan.                                                   

Other expense of $10.5 million incurred during fiscal 1993 includes 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.                                                                          

TAXES                                                                           

The provisions for U.S. income tax for 1995 and 1994 reflect a benefit      
resulting from pretax losses from consolidated operations. In 1993, the         
provision reflects expense resulting from pretax consolidated income.           

DISCONTINUED OPERATIONS--NATURAL GAS SERVICES OPERATIONS--COMPRESSION           

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   
(which was approved by Zapata's stockholders) was finalized in December 1995.   
As a result, these operations are reflected as a discontinued operation in the  
Company financial statements. The gain from the sale will be reflected in the   
Company's fiscal 1996 financial statements.                                     

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 The major segments of Energy Industries' natural gas compression revenues and
operating results for the twelve-month period ended September 30, 1995 and the  
eleven-month period ended September 30, 1994, in thousands, are identified      
below.                                                                          

                                                                [Download Table]

                                  REVENUES                OPERATING RESULTS     
                         --------------------------- ---------------------------
                         TWELVE MONTHS ELEVEN MONTHS TWELVE MONTHS ELEVEN MONTHS
                             ENDED         ENDED         ENDED         ENDED    
                         SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
                             1995          1994          1995          1994     
                         ------------- ------------- ------------- -------------
                                                                                
Compressor Rental.......    $17,706       $16,252       $4,858        $4,866    
Fabrication and Sales...     24,358        27,560        2,095         5,384    
Parts and Service.......     19,805        19,608        3,853         3,958    
Other...................      4,766         9,102          732         1,492    
Selling &                                                                       
 Administrative.........         --            --       (5,521)       (7,730)   
                            -------       -------       ------        ------    
                            $66,635       $72,522       $6,017        $7,970    
                            =======       =======       ======        ======    

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 improved during fiscal 1995 and 1994 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. Rental      
rates declined in fiscal 1995 as a result of lower prices for U.S. natural gas. 
For the same reason, revenues and operating results from compressor package     
sales declined in fiscal 1995 as compared to fiscal 1994. Energy Industries'    
utilization, rental rates and fleet size as of September 30, 1995 and 1994 are  
set forth in the following table.                                               

                                                                [Download Table]

                                                          SEPTEMBER 30,   
                                                         ---------------- 
                                                          1995     1994   
                                                         -------  ------- 
                                                                          
Fleet utilization:                                                        
  Horsepower............................................    83.5%    82.6%
Monthly rental rate, based on:                                            
  Horsepower............................................ $ 15.40  $ 16.61 
Fleet size:                                                               
  Number of units.......................................     785      706 
  Horsepower............................................ 131,382  113,786 

Energy Industry disposed of its heat exchanger manufacturing operation in   
fiscal 1995. The sale of the heat exchanger operation did not have a material   
impact on Energy Industries' results of operations or financial position.       

DISCONTINUED OPERATIONS--NATURAL GAS SERVICES OPERATIONS--GATHERING, PROCESSING 
AND MARKETING                                                                   

In late 1994 and early 1995, the Company began to develop a strategic plan  
that called for the divesture of most of the Company's remaining energy         
operations, including the Company's natural gas gathering, processing and       
marketing operations. Although a sales price has not been determined, the       
Company estimates that, based on preliminary indications of interest from       
potential purchasers, the minimum sales price for these operations should be at 
least equal to book value. The Company expects to complete the sale in fiscal   
1996. As a result of the Company's decision to sell, these operations are       
reported as a discontinued operation.                                           

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Revenues and operating results for fiscal 1995, 1994 and 1993 are presented 
in the following table by major category, in thousands.                         

                                                                [Download Table]

                                    REVENUES             OPERATING RESULTS      
                            ------------------------- ------------------------- 
                             1995     1994     1993    1995     1994     1993   
                            ------- -------- -------- -------  -------  ------- 
                                                                                
Gathering and Processing... $18,080 $ 22,867 $ 11,671 $   442  $   718  $   427 
NGL Marketing..............  49,749  133,274  174,620      21      703    1,345 
Selling & Administrative...      --       --       --  (1,193)  (2,484)  (2,324)
                            ------- -------- -------- -------  -------  ------- 
                            $67,829 $156,141 $186,291 $  (730) $(1,063) $  (552)
                            ======= ======== ======== =======  =======  ======= 

 For fiscal 1995, gathering and processing revenues and operating results were
lower than the prior year as a result of the negative impact of lower natural   
gas prices. Marketing revenues and operating results declined in fiscal 1995 as 
compared to 1994, due to the Company's decision to reduce its natural gas       
trading activities.                                                             

For fiscal 1994, gathering and processing revenues and operating results    
increased as a result of the expansion of the division's gathering and          
processing operations during fiscal 1994 and 1993 while marketing revenues and  
operating results declined primarily due to the Company's decision to reduce    
its natural gas trading activities.                                             

RECENTLY ISSUED ACCOUNTING STANDARDS                                            

In April 1995, Zapata adopted 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 in April 1995 the Company      
recorded a $12.3 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 that had been received by the Company.                    

 In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based             
Compensation" ("SFAS 123"). The Company does not intend to adopt the            
recognition provisions of the statement but will adopt the disclosure           
requirements in fiscal year 1997. The Company does not expect that the adoption 
of SFAS 123's disclosure requirements will have a significant effect on the     
Company's financial statements.                                                 

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ITEM 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, 1995 and 1994 and the related  
consolidated statements of operations, cash flows and stockholders' equity for  
the years 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 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 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 consolidated financial position of Zapata            
Corporation and subsidiaries as of September 30, 1995 and 1994 and the          
consolidated results of their operations and their cash flows for the years     
then ended, in conformity with generally accepted accounting principles. We     
also audited the adjustments for discontinued operations described in Note 5    
that were applied to restate the 1993 financial statements. In our opinion,     
such adjustments are appropriate and have been properly applied to those        
financial statements.                                                           

As described in Notes 1 and 10, the Company adopted Statement of Financial  
Accounting Standards No. 109, "Accounting for Income Taxes" and No. 115,        
"Accounting for Certain Investments in Debt and Equity Securities" in 1994 and  
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived 
Assets to be Disposed Of," in 1995.                                             

                            COOPERS & LYBRAND L.L.P.

Houston, Texas                                                                  
December 15, 1995                                                               

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors,                                     
Zapata Corporation:                                                             

We have audited the accompanying income statement, statement of cash flows  
and reinvested earnings (deficit) and capital in excess of par value of Zapata  
Corporation (a Delaware corporation) and subsidiary companies for the year      
ended September 30, 1993 prior to restatement (and, therefore, are not          
presented herein) for discontinued operations as described in Note 5 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 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 the 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 results of operations and cash flows of Zapata       
Corporation and subsidiary companies for the year ended September 30, 1993, in  
conformity with generally accepted accounting principles.                       

                       ARTHUR ANDERSEN LLP

Houston, Texas                                                                  
December 17, 1993                                                               

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ZAPATA CORPORATION

CONSOLIDATED BALANCE SHEET

ASSETS

                                                                [Download Table]

                                                    SEPTEMBER 30, SEPTEMBER 30,
                                                        1995          1994     
                                                    ------------- -------------
                                                          (IN THOUSANDS)       
                                                                               
Current assets:                                                                
  Cash and cash equivalents........................   $  2,488      $  9,717   
  Receivables......................................     17,550        17,996   
  Inventories:                                                                 
    Fish products..................................     22,947        34,143   
    Materials, parts and supplies..................      3,358         3,601   
  Prepaid expenses and other current assets........      2,400         2,478   
  Net assets of discontinued operations............    101,894       103,117   
                                                      --------      --------   
      Total current assets.........................    150,637       171,052   
                                                      --------      --------   
Investments and other assets:                                                  
  Notes receivable (net of a $4.3 million                                      
   allowance)......................................         --         1,925   
  Production payment and other receivable..........      8,864            --   
  Investments in unconsolidated affiliates and                                 
   equity securities...............................     18,235        14,471   
  Deferred income taxes............................      6,247         2,915   
  Other assets.....................................     16,170        15,783   
                                                      --------      --------   
      Total investments and other assets...........     49,516        35,094   
                                                      --------      --------   
Property and equipment:                                                        
  Marine protein...................................     67,553        60,188   
  Oil and gas, full cost method....................      3,359        77,066   
  Corporate........................................      3,363         5,213   
                                                      --------      --------   
                                                        74,275       142,467   
  Accumulated depreciation, depletion and                                      
   amortization....................................    (35,037)      (93,825)  
                                                      --------      --------   
                                                        39,238        48,642   
                                                      --------      --------   
      Total assets.................................   $239,391      $254,788   
                                                      ========      ========   

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

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ZAPATA CORPORATION

CONSOLIDATED BALANCE SHEET

LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                [Download Table]

                                                    SEPTEMBER 30, SEPTEMBER 30,
                                                        1995          1994     
                                                    ------------- -------------
                                                          (IN THOUSANDS)       
                                                                               
Current liabilities:                                                           
  Current maturities of long-term debt.............   $ 16,148      $    531   
  Accounts payable.................................      2,356         4,804   
  Accrued liabilities:                                                         
    Compensation and employee benefits.............      9,102         9,960   
    Insurance......................................      2,851         4,774   
    Other..........................................      6,644        11,457   
                                                      --------      --------   
      Total current liabilities....................     37,101        31,526   
                                                      --------      --------   
Long-term debt.....................................     37,468        52,581   
                                                      --------      --------   
Other liabilities..................................     19,532        16,139   
                                                      --------      --------   
Commitments and contingencies (Note 11)                                        
Stockholders' equity:                                                          
  $6.00 cumulative preferred stock (no par),                                   
   outstanding: 22,498 shares (1994)...............         --         2,255   
  $2.00 noncumulative convertible preference stock                             
   ($1.00 par), outstanding: 2,627 shares (1995 and                            
   1994)...........................................          3             3   
  Common Stock ($0.25 par), outstanding: 29,548,407                            
   shares (1995) and 31,716,991 shares (1994)......      7,387         7,929   
  Capital in excess of par value...................    131,962       138,294   
  Reinvested earnings, from October 1, 1990                                    
   (deficit balance prior to quasi-reorganization                              
   at September 30, 1990: $296,850,000)............      5,938         1,785   
  Investment in equity securities-unrealized gain,                             
   net of taxes....................................         --         4,276   
                                                      --------      --------   
      Total stockholders' equity...................    145,290       154,542   
                                                      --------      --------   
      Total liabilities and stockholders' equity...   $239,391      $254,788   
                                                      ========      ========   

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

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ZAPATA CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

                                                                [Download Table]

                                                   YEARS ENDED SEPTEMBER 30,   
                                                   --------------------------- 
                                                     1995      1994     1993   
                                                   --------  --------  ------- 
                                                   (IN THOSUANDS, EXCEPT PER   
                                                        SHARE AMOUNTS)         
                                                                               
Revenues.......................................... $103,068  $109,163  $78,754 
                                                   --------  --------  ------- 
Expenses:                                                                      
  Operating.......................................   86,739    88,148   51,704 
  Provision for asset write-downs.................   12,341    29,152       -- 
  Depreciation, depletion and amortization........    5,607    11,474   12,576 
  Selling, general and administrative.............    7,601    11,996   10,915 
                                                   --------  --------  ------- 
                                                    112,288   140,770   75,195 
                                                   --------  --------  ------- 
Operating income (loss)...........................   (9,220)  (31,607)   3,559 
                                                   --------  --------  ------- 
Other income (expense):                                                        
  Interest income.................................      905     1,653    2,322 
  Interest expense................................   (2,694)   (4,636) (14,736)
  Gain on sale of Tidewater common stock..........    4,811    37,457   32,928 
  Equity in income (loss) of unconsolidated                                    
   affiliates.....................................     (719)       --    1,125 
  Other...........................................   (2,106)   (4,296) (10,530)
                                                   --------  --------  ------- 
                                                        197    30,178   11,109 
                                                   --------  --------  ------- 
Income (loss) from continuing operations before                                
 income taxes.....................................   (9,023)   (1,429)  14,668 
Provision (benefit) for income taxes..............   (3,179)     (572)   4,210 
                                                   --------  --------  ------- 
Income (loss) from continuing operations..........   (5,844)     (857)  10,458 
                                                   --------  --------  ------- 
Discontinued operations (Notes 2, 4 and 5):                                    
  Income (loss) from discontinued operations, net                              
   of income taxes................................    1,151     1,435   (1,085)
  Reversal (recognition) of loss on disposition,                               
   net of income taxes............................    8,897    (8,897)      -- 
                                                   --------  --------  ------- 
                                                     10,048    (7,462)  (1,085)
                                                   --------  --------  ------- 
Net income (loss).................................    4,204    (8,319)   9,373 
Preferred and preference stock dividends..........       51       356      404 
                                                   --------  --------  ------- 
Net income (loss) to Common Stockholders.......... $  4,153  $ (8,675) $ 8,969 
                                                   ========  ========  ======= 
Per share data:                                                                
  Income (loss) from continuing operations........ $  (0.19) $  (0.04) $  0.37 
  Income (loss) from discontinued operations......     0.33     (0.24)   (0.04)
                                                   --------  --------  ------- 
  Net income (loss) per share..................... $   0.14  $  (0.28) $  0.33 
                                                   ========  ========  ======= 

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

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ZAPATA CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

                                                                [Download Table]

                                                     YEARS ENDED SEPTEMBER     
                                                              30,              
                                                    -------------------------- 
                                                     1995     1994      1993   
                                                    -------  -------  -------- 
                                                         (IN THOUSANDS)        
                                                                               
Cash flow provided (used) by operating activities:                             
 Continuing operations:                                                        
  Net income (loss) from continuing operations..... $(5,844) $  (857) $ 10,458 
                                                    -------  -------  -------- 
  Adjustments to reconcile net income (loss) to net                            
   cash provided (used) by operating activities:                               
   Depreciation, amortization and valuation                                    
    provision......................................  17,948   40,848    12,576 
   Gain on sale of assets, net.....................  (5,268) (37,457)  (27,303)
   Equity in (income) loss of unconsolidated                                   
    affiliates.....................................     719       --    (1,125)
   Cash dividends received.........................      --       --     1,238 
   Changes in assets and liabilities:                                          
    Receivables....................................    (446)  (7,008)    3,893 
    Inventories....................................  11,439   (1,236)  (13,880)
    Accounts payable and accrued liabilities.......  (9,347)  10,616      (445)
    Deferred income taxes..........................  (2,828)  (3,608)    3,006 
    Other assets and liabilities...................  (1,320)   3,528    (5,263)
                                                    -------  -------  -------- 
     Total adjustments.............................  10,897    5,683   (27,303)
                                                    -------  -------  -------- 
    Cash flow provided (used) by continuing                                    
     operations....................................   5,053    4,826   (16,845)
                                                    -------  -------  -------- 
 Discontinued operations:                                                      
  Income (loss) from discontinued operations.......   1,151    1,435    (1,085)
  Decrease (increase) in net assets of discontinued                            
   operations......................................   1,223    3,592    (4,400)
                                                    -------  -------  -------- 
   Cash flow provided (used) by discontinued                                   
    operations.....................................   2,374    5,027    (5,485)
                                                    -------  -------  -------- 
    Net cash provided (used) by operating                                      
     activities....................................   7,427    9,853   (22,330)
                                                    -------  -------  -------- 
Cash flow provided (used) by investing activities:                             
 Proceeds from disposition of investments and                                  
  other............................................  18,546   88,533    85,245 
 Restricted cash investments.......................      --   74,083   (74,083)
 Proceeds from notes receivable....................   5,505    1,061       994 
 Discontinued business acquisitions, net of cash                               
  acquired.........................................      --  (73,222)  (12,139)
 Capital expenditures..............................  (7,341) (15,530)   (2,812)
                                                    -------  -------  -------- 
     Net cash provided (used) by investing                                     
      activities...................................  16,710   74,925    (2,795)
                                                    -------  -------  -------- 
Cash flow provided (used) by financing activities:                             
 Borrowings........................................  11,439    1,873   101,375 
 Proceeds from issuance of Common Stock............      --       --    11,250 
 Principal payments of long-term obligations....... (29,889) (86,040) (107,194)
 Preferred stock redemption........................  (2,255)  (2,245)       -- 
 Common Stock buyback..............................  (9,508)      --        -- 
 Dividend payments.................................  (1,153)  (1,566)   (2,933)
                                                    -------  -------  -------- 
     Net cash provided (used) by financing                                     
      activities................................... (31,366) (87,978)    2,498 
                                                    -------  -------  -------- 
Net decrease in cash and cash equivalents..........  (7,229)  (3,200)  (22,627)
Cash and cash equivalents at beginning of year.....   9,717   12,917    35,544 
                                                    -------  -------  -------- 
Cash and cash equivalents at end of year........... $ 2,488  $ 9,717  $ 12,917 
                                                    =======  =======  ======== 

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

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ZAPATA CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                                        [Enlarge/Download Table]

                                                        CAPITAL                        
                                                           IN                          
                                                         EXCESS              INVETMENTS
                          PREFERRED PREFERENCE COMMON    OF PAR   REINVESTED IN EQUITY 
                            STOCK     STOCK     STOCK    VALUE     EARNINGS  SECURITIES
                          --------- ---------- -------  --------  ---------- ----------
                                                (IN THOUSANDS)                         
                                                                                       
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...................                            35      (139)                      
                           ------      ---     -------  --------    ------     ------  
Balance at September 30,                                                               
 1994...................    2,255        3       7,929   138,294     1,785      4,276  
Net income..............                                             4,204             
Preferred stock dividend                                                               
 declared...............                                               (51)            
Preferred stock                                                                        
 redemption.............   (2,255)                                                     
Common Stock buyback....                           (23)     (485)                      
Repurchase Common Stock                                                                
 (2.25 million shares)                                                                 
 from Norex.............                          (563)   (8,438)                      
Reverse unrealized gain                                                                
 (net of taxes).........                                                       (4,276) 
Reclassification of                                                                    
 deferred tax asset.....                                   2,573                       
Other...................                            44        18                       
                           ------      ---     -------  --------    ------     ------  
Balance at September 30,                                                               
 1995...................   $   --      $ 3     $ 7,387  $131,962    $5,938     $   --  
                           ======      ===     =======  ========    ======     ======  

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

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ZAPATA CORPORATION

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 natural gas compression and natural 
gas gathering, processing and marketing operations as discontinued operations.  

Inventories                                                                   

Materials, parts and supplies are stated at average cost. Fish product      
inventories are stated at the lower of average cost or market.                  

 The marine protein division allocates costs to production from its fish catch
on a basis of 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 period of January through mid-April are deferred to the   
next fishing season (mid-April through December) and allocated to production as 
the fish catch is processed. The off-season deferred cost was approximately     
$2.2 million and $1.9 million at September 30, 1995 and 1994, respectively.     

Investments in unconsolidated affiliates and 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. At September 30, 1994, Zapata owned     
673,077 shares of Tidewater Inc. ("Tidewater") common stock. These securities   
were 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 was   
determined on the average cost method. In March 1995, Zapata sold its remaining 
shares of Tidewater common stock.                                               

In August 1995, Zapata acquired 4,189,298 common shares of Envirodyne       
Industries, Inc. ("Envirodyne"), representing 31% of the then-outstanding       
common stock of Envirodyne. Zapata's investment in Envirodyne is accounted for  
using the equity method of accounting. Envirodyne is one of the world's major   
suppliers of food packaging products and food service supplies.                 

Investment in Debentures                                                      

In May 1995, Zapata acquired $7,000,000 of 13% Wherehouse Entertainment     
senior subordinated debentures due August 1, 2002 ("Wherehouse Debentures") for 
$3,238,750 plus accrued interest. At September 30, 1995, Zapata's investment in 
the Wherehouse Debentures has been written down to its estimated fair market    
value of $910,000. The write-down was based on quoted prices of the Wherehouse  
Debentures and the current financial condition of Wherehouse Entertainment,     
Inc. which is currently operating as a debtor in possession under Chapter 11 of 
the U.S. Bankruptcy Code.                                                       

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ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)                            

Property, equipment and depreciation                                          

Property and equipment are recorded at cost except as adjusted by the quasi-
reorganization as of October 1, 1990. As a result of the quasi-reorganization   
the carrying value of the assets utilized in the marine protein operations was  
reduced to estimated fair value.                                                

 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 or to be disposed of. As a 
result of adopting SFAS 121, in April 1995 the Company recorded a $12.3 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 in connection with a contemplated sale of the  
marine protein operations in 1995. In accordance with SFAS 121, the Company     
periodically evaluates its long-lived assets, except for its oil and gas        
properties, for impairment if events or changes in circumstances indicate that  
the carrying amount of an asset may not be recoverable. Oil and gas properties  
are evaluated in accordance with the full cost ceiling test as described below. 

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:                       

                                                                [Download Table]

                                                              USEFUL LIVES
                                                              ------------
                                                                (YEARS)   
                                                                          
Fishing vessels and fish processing plants...................    15-20    
Furniture and fixtures.......................................     3-10    

Losses resulting from sales and retirements of property and equipment are   
included in operating income while gains are included in other income. Property 
and equipment no longer in service pending disposition are classified as other  
assets and 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.                                                         

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ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)                            

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, 1995.                      

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. The Bolivian oil and gas 
properties contributed revenues and operating income as follows (in millions):  

                                                                [Download Table]

                                                            1995 1994 1993
                                                            ---- ---- ----
                                                                          
Revenues................................................... $2.7 $4.1 $3.2
Operating income...........................................  1.4  3.5  3.1

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 30,706,256 in    
fiscal 1995, 31,377,498 in fiscal 1994 and 27,324,993 in fiscal 1993.           

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 that 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                                        

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ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)                            
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. Capital in excess of par value may be     
adjusted in the future as a result of the resolution of pre-quasi               
reorganization liabilities.                                                     

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 common shares outstanding have been restated  
to reflect the reverse stock split.                                             

NOTE 2. DISCONTINUED MARINE PROTEIN OPERATIONS SUBSEQUENTLY RETAINED            

In July 1994, Zapata announced that it intended to separate its marine      
protein operations from its energy-related businesses. 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 1993 and 1992 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 received in 1994 to purchase the marine protein operations, the Company  
recorded an $8.9 million after-tax book loss in fiscal 1994 to reflect the      
estimated loss on disposition of the marine protein operations.                 

On May 5, 1995, the Board of Directors decided to retain the marine protein 
operations. 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. As a result, the marine protein net assets and 
results of operations and cash flows for all periods have been reclassified     
from discontinued operations to continuing operations. Additionally, the $8.9   
million after-tax book loss that was recorded in fiscal 1994 was reversed in    
fiscal 1995.                                                                    

The following is a summary of certain selected financial data for the marine
protein operations for the periods presented herein in which these operations   
were previously reported as a discontinued operation (amounts in millions):     

                                                                [Download Table]

                                                             YEARS ENDED 
                                                              SEPTEMBER  
                                                                 30,     
                                                             ----------- 
                                                             1994  1993  
                                                             ----- ----- 
                                                                         
FINANCIAL RESULTS                                                        
  Revenues.................................................. $96.6 $58.6 
  Expenses..................................................  94.3  59.2 
                                                             ----- ----- 
  Income (loss) before taxes................................   2.3   (.6)
  Income tax provision......................................   1.1   (.2)
                                                             ----- ----- 
    Net income (loss) *..................................... $ 1.2 $ (.4)
                                                             ===== ===== 

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ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 2. DISCONTINUED MARINE PROTEIN OPERATIONS SUBSEQUENTLY RETAINED--          
(CONTINUED)                                                       

                                                                [Download Table]

                                                             SEPTEMBER 30,
                                                                 1994     
                                                             -------------
                                                                          
FINANCIAL POSITION                                                        
  Current assets............................................     $49.0    
  Investments and other.....................................       8.0    
  Property and equipment, net...............................      30.5    
                                                                 -----    
                                                                  87.5    
                                                                 -----    
  Debt......................................................       9.7    
  Other liabilities and deferred income taxes...............      26.5    
                                                                 -----    
                                                                  36.2    
                                                                 -----    
    Net book value..........................................     $51.3    
                                                                 =====    

--------                                                                        
* Net income (loss) includes allocations of interest expense on general       
corporate debt of $2.5 million in 1994 and $3.9 million in 1993. 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 DOMESTIC OIL & GAS ASSETS                                

In September 1994, the Board of Directors determined that the Company would 
immediately undertake efforts to sell its U.S. natural gas producing            
properties. Zapata's Bolivian oil and gas operations were not impacted by this  
decision. The six properties in the Gulf of Mexico, representing Zapata's       
domestic oil and gas producing operations, were sold during fiscal 1995. Zapata 
received cash of $4.0 million and an $8.9 million production payment and other  
receivable. No gain or loss was recorded from the sales.                        

 The production payment and other receivable received in partial consideration
for the sale of the domestic oil and gas properties consists of a $6.1 million  
production payment receivable and a $2.8 million receivable related to future   
proceeds from a revenue sharing agreement. The Company will begin collecting    
the production payment receivable only after certain cumulative production      
volumes have been achieved; collection will cease upon the earlier of (i)       
receipt of $13.5 million or (ii) when the designated oil and gas reserves have  
been depleted. The $2.8 million receivable related to the revenue sharing       
agreement will be collected based on payments made by a third party for the use 
of a platform and related facilities. Receipts under the revenue sharing        
agreement are expected to begin in 1996 and will cease at the earlier of (i)    
the receipt of $6.0 million or (ii) the cessation of payments made by a third   
party for usage of the platform and related facilities. The receivable's        
estimated fair market value of $8.9 million is based on discounted expected     
cash flows and approximates book value at September 30, 1995.                   

 Following is a summary of the results of operations of the Company's domestic
oil and gas operations (amounts in millions):                                   

                                                                [Download Table]

                                                              YEAR ENDED  
                                                             SEPTEMBER 30,
                                                                 1995     
                                                             -------------
                                                                          
Revenues....................................................     $ 5.4    
Expenses....................................................      (9.2)   
                                                                 -----    
Loss before income taxes....................................     $(3.8)   
                                                                 =====    

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ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 4. DISCONTINUED NATURAL GAS COMPRESSION OPERATIONS                         

Acquisition                                                                   

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. 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 the 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 was 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):         

                                                                [Download Table]
                                                                         
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
                                                                    =====

Disposition                                                                   

In late 1994 and early 1995, the Company began to develop a strategic plan  
which involves repositioning the Company in the food packaging, food and food   
service equipment and supply (collectively, "food services") businesses and     
exiting the energy business. The strategic plan that was developed called for   
the divestiture of most of the Company's remaining energy operations, including 
Energy Industries, and the acquisition of, or joint ventures with, selected     
companies in the food services industry.                                        

In September 1995, Zapata entered into an agreement (the "Purchase          
Agreement") to sell the assets of Energy Industries (the "Energy Industries     
Sale") to Weatherford Enterra, Inc. and its wholly owned subsidiary, Enterra    
Compression Company (collectively, "Weatherford Enterra"). Pursuant to the      
Purchase Agreement, Weatherford Enterra purchased from the Company all of the   
assets of Energy Industries for approximately $131 million in cash, and assumed 
certain liabilities of Energy Industries, subject to final post closing         
adjustments. The Energy Industries Sale closed in December 1995 after receiving 
stockholder approval. The Energy Industries Sale resulted in an after-tax gain  
of approximately $14.0 million, which will be reflected in the Company's fiscal 
1996 financial results.                                                         

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 4. DISCONTINUED NATURAL GAS COMPRESSION OPERATIONS--(CONTINUED)            

The consolidated financial statements have been restated to report the net  
assets and operating results of the Energy Industries operations as a           
discontinued operation. Summarized results and financial position of the Energy 
Industries discontinued operations are shown below (amounts in millions):       

                                                                [Download Table]

                                                             YEARS ENDED 
                                                            SEPTEMBER 30,
                                                            -------------
                                                             1995   1994 
                                                            ------ ------
                                                                         
FINANCIAL RESULTS                                                        
  Revenues................................................. $ 66.6 $ 72.5
  Expenses.................................................   63.2   67.7
                                                            ------ ------
  Income before taxes......................................    3.4    4.8
  Income tax provision.....................................    1.4    1.9
                                                            ------ ------
  Net income*.............................................. $  2.0 $  2.9
                                                            ====== ======

                                                            SEPTEMBER 30,
                                                            -------------
                                                             1995   1994 
                                                            ------ ------
                                                                         
FINANCIAL POSITION                                                       
  Current assets........................................... $ 32.1 $ 30.7
  Investments and other assets.............................   20.3   19.4
  Property and equipment, net..............................   61.5   52.5
                                                            ------ ------
                                                             113.9  102.6
                                                            ------ ------
  Debt.....................................................   27.8   15.2
  Other liabilities........................................    5.6    6.7
                                                            ------ ------
                                                              33.4   21.9
                                                            ------ ------
    Net book value......................................... $ 80.5 $ 80.7
                                                            ====== ======

--------                                                                        
* Net income includes allocations of interest expense on general corporate    
  debt of $1.7 million in 1995, and $3.4 million in 1994. 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 5. DISCONTINUED NATURAL GAS GATHERING, PROCESSING AND MARKETING OPERATIONS 

Acquisition                                                                   

During the first quarter of fiscal 1993, Zapata acquired the common stock of
Cimarron Gas Holding Company ("Cimarron") for $3.8 million consisting of $2.5   
million in cash and 437,333 shares of Common Stock. Zapata accounted for the    
acquisition using the purchase method of accounting and recorded $2.0 million   
of goodwill in connection therewith. The goodwill was being amortized over 20   
years. The following assets and liabilities were acquired effective October 1,  
1992 (in millions):                                                             

                                                                [Download Table]
                                                                         
Current assets..................................................... $20.3
Property and equipment, net........................................   2.0
                                                                    -----
                                                                    $22.3
                                                                    =====
Current liabilities................................................ $19.6
Long-term debt.....................................................    .7
                                                                    -----
                                                                    $20.3
                                                                    =====

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ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 5. DISCONTINUED NATURAL GAS GATHERING, PROCESSING AND MARKETING            
OPERATIONS--(CONTINUED)                                           
 In September 1993, Cimarron acquired the natural gas gathering and processing
plant interests of Stellar Energy Corporation and three affiliated companies    
(collectively, "Stellar") for approximately $16.4 million. The acquisition was  
financed through the use of working capital cash and assumption of certain      
indebtedness of Stellar. Zapata accounted for the acquisition using the         
purchase method of accounting and recorded $5.5 million of goodwill in          
connection therewith. The goodwill was being amortized over 20 years.           

Proposed Disposition                                                          

In late 1994 and early 1995, the Company developed a strategic plan that    
calls for the divesture of substantially all of the Company's remaining energy  
operations including Cimarron. Although a sales price for Cimarron has not been 
determined, the Company estimates that, based on preliminary indications of     
interest from potential purchasers, the sales price for Cimarron should be at   
least book value. The Company expects to complete the sale of Cimarron in       
fiscal 1996.                                                                    

The consolidated financial statements have been restated to report the net  
assets and operating results of Cimarron's operations as a discontinued         
operation. Summarized results and financial position of Cimarron's discontinued 
operations are shown below (amounts in millions):                               

                                                                [Download Table]

                                                        YEARS ENDED       
                                                       SEPTEMBER 30,      
                                                    --------------------- 
                                                    1995    1994    1993  
                                                    -----  ------  ------ 
                                                                          
FINANCIAL RESULTS                                                         
  Revenues......................................... $67.8  $156.1  $186.3 
  Expenses.........................................  69.1   158.4   187.9 
                                                    -----  ------  ------ 
  Loss before taxes................................  (1.3)   (2.3)   (1.6)
  Income tax benefit...............................  (0.5)   (0.8)   (0.5)
                                                    -----  ------  ------ 
    Net loss*...................................... $(0.8) $ (1.5) $ (1.1)
                                                    =====  ======  ====== 

                                                                [Download Table]

                                                               SEPTEMBER 
                                                                  30,    
                                                              -----------
                                                              1995  1994 
                                                              ----- -----
                                                                         
FINANCIAL POSITION                                                       
  Current assets............................................. $ 9.6 $13.2
  Other assets...............................................   6.7   7.0
  Property and equipment, net................................  16.9  16.5
                                                              ----- -----
                                                               33.2  36.7
                                                              ----- -----
  Debt.......................................................   2.2   3.8
  Other liabilities..........................................   9.6  10.5
                                                              ----- -----
                                                               11.8  14.3
                                                              ----- -----
  Net book value............................................. $21.4 $22.4
                                                              ===== =====

--------                                                                        
* Net loss includes allocations of interest expense on general corporate debt 
  of $452,000 in 1995, $932,000 in 1994 and $968,000 in 1993. 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.                                                                     

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ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 6. UNCONSOLIDATED AFFILIATES                                               

In August 1995, Zapata acquired 4,189,298 common shares of Envirodyne,      
representing 31% of the outstanding common stock of Envirodyne, for $18.8       
million from a trust controlled by 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, subject to prepayment at the Company's option.         
Subsequently, the Company prepaid approximately $15.6 million on the promissory 
note. Zapata follows the equity method of accounting for its investment in      
Envirodyne. The difference between Zapata's share of Envirodyne's equity and    
Zapata's recorded investment in Envirodyne is being amortized over 15 years. At 
September 30, 1995, the unamortized balance of this difference was $19.3        
million. The aggregate market value of Zapata's shares of Envirodyne's common   
stock as of September 30, 1995 was $18.9 million based on the closing price of  
$4.50 per publicly traded share on that date.                                   

Due to the significance of the Company's investment, the unaudited financial
position and results of operations of Envirodyne are summarized below. The      
financial statement information presented below for Envirodyne is based upon    
its interim report for the quarter ended September 28, 1995 (unaudited, in      
millions, except per share amounts):                                            

ENVIRODYNE INDUSTRIES, INC. 

                                                                [Download Table]

                                                             SEPTEMBER 28,
                                                                 1995     
                                                             -------------
                                                                          
BALANCE SHEET                                                             
Current assets..............................................    $255.3    
Other.......................................................     190.0    
Property and equipment, net.................................     467.4    
                                                                ------    
  Total assets..............................................    $912.7    
                                                                ======    
Current liabilities.........................................    $129.8    
Long-term debt..............................................     529.7    
Deferred income taxes and other.............................     132.1    
Stockholders' equity........................................     121.1    
                                                                ------    
  Total liabilities and stockholders' equity................    $912.7    
                                                                ======    

                                                                [Download Table]

                                                             THREE MONTHS 
                                                                 ENDED    
                                                             SEPTEMBER 28,
                                                                 1995     
                                                             -------------
                                                                          
INCOME STATEMENT                                                          
Revenues....................................................    $167.7    
                                                                ======    
Loss before income taxes....................................    $ (7.5)   
                                                                ======    
Net loss....................................................    $ (4.5)   
                                                                ======    
Net loss per share..........................................    $(0.33)   
                                                                ======    

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 673,077, 4.1 million and 3.5 million shares of its    
Tidewater common stock in fiscal 1995, 1994 and 1993, respectively. Initially,  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 6. UNCONSOLIDATED AFFILIATES--(CONTINUED)                                  
Zapata followed the equity method of accounting for its investment in Tidewater 
based on its percentage 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 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 $135,000, $719,000 and $1.3     
million were included in other income in 1995, 1994 and 1993, respectively.     
Zapata received dividends from Tidewater totalling $135,000, $719,000 and $2.5  
million in fiscal 1995, 1994 and 1993, 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 (loss) of and investments in unconsolidated
affiliates is shown below:                                                      

                                                                [Download Table]

                                                              INVESTMENTS 
                                                EQUITY IN NET    AS OF    
                                                INCOME (LOSS) SEPTEMBER 30
                                                ------------- ------------
                                                      (IN THOUSANDS)      
                                                                          
1995                                                                      
Envirodyne.....................................    $ (719)      $18,235   
                                                   ======       =======   
1994                                                                      
Tidewater......................................    $ ----       $14,471   
                                                   ======       =======   
1993                                                                      
Tidewater......................................    $1,125       $56,289   
                                                   ======       =======   

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, and the  
sale resulted in a pretax gain of $33.9 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.  
In March 1995, Zapata sold its remaining 673,077 shares of Tidewater common     
stock for a net price of $18.87 per share, or $12.7 million, resulting in a     
pretax gain of $4.8 million. These gains are reflected on the statement of      
operations as other income.                                                     

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 7. DEBT                                                                    

At September 30, 1995 and 1994, Zapata's consolidated debt consisted of the 
following:                                                                      

                                                                [Download Table]

                                                                  1995    1994  
                                                                 ------- -------
                                                                 (IN THOUSANDS) 
                                                                                
Senior debt:                                                                    
  Norex unsecured notes due in 1996 interest at 8.5%............ $ 4,796 $17,500
  ING Bank revolving credit facility for marine protein due June                
   30, 1997 interest at prime plus 1%, 9.75% at September 30,                   
   1995, collateralized by certain current assets...............  10,000      --
  U.S. government-guaranteed obligations:                                       
   Amounts due in installments through 2009, interest from 6.63%                
    to 6.85%....................................................   7,626   7,961
   Amounts due in installments through 2014, interest at                        
    Eurodollar rates plus .45%, 6.33% and 5.51% at September 30,                
    1995 and 1994, respectively.................................   1,528   1,588
  Other debt at 8.1% and 7.7% at September 30, 1995 and 1994,                   
   respectively.................................................     992     200
                                                                 ------- -------
                                                                  24,942  27,249
                                                                 ------- -------
Subordinated debt:                                                              
  10 1/4% debentures due 1997...................................  15,621  15,621
  10 7/8% debentures due 2001...................................   9,872  10,242
  Malcolm I. Glazer Trust unsecured subordinated promissory note                
   due in 1997 at prime, 8.75% at September 30, 1995............   3,181      --
                                                                 ------- -------
                                                                  28,674  25,863
                                                                 ------- -------
Total debt......................................................  53,616  53,112
                                                                 ------- -------
Less current maturities.........................................  16,148     531
                                                                 ------- -------
Long-term debt.................................................. $37,468 $52,581
                                                                 ======= =======

The fair value of total long-term debt at September 30, 1995 and 1994       
approximates book value.                                                        

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, each      
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 note, maturing May 16, 1996. 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                                        

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 7. 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 penalty of $655,000 with proceeds from the      
initial drawdown of $15 million from a $30 million bank credit facility         
provided by Texas Commerce Bank National Association (the "TCB Loan             
Agreement").                                                                    

In April 1995, Zapata used proceeds of $12.7 million from the sale of its   
remaining 673,077 shares of Tidewater common stock to reduce the Company's      
$17.5 million in notes due to Norex in May 1996.                                

In 1995, two of the Company's subsidiaries, Zapata Protein, Inc. and Zapata 
Protein (USA), Inc. (collectively "Zapata Protein") entered into a loan         
agreement with Internationale Nederlanden (U.S.) Capital Corporation ("ING Loan 
Agreement"). The ING Loan Agreement provides Zapata Protein with a $15 million  
revolving credit facility that is due June 30, 1997. The ING Loan Agreement     
bears interest at a variable interest rate that is adjusted periodically based  
on prime interest rate plus 1%. Pursuant to the ING Loan Agreement, Zapata      
Protein agreed to maintain certain financial covenants and to limit additional  
indebtedness, dividends, dispositions and acquisitions. Zapata Corporation has  
guaranteed up to $10.0 million of the outstanding balance of debt related to    
the ING Loan Agreement. The amount of restricted net assets for Zapata Protein  
at September 30, 1995 was approximately $47.7 million. Pursuant to the ING Loan 
Agreement, Zapata Protein's ability to transfer funds to Zapata Corporation is  
limited to $10.0 million. As of September 30, 1995, Zapata Protein had already  
transferred the maximum amount of $10.0 million to Zapata Corporation. 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. Effective September 30, 1995, the Company   
was in compliance with all provisions governing its outstanding indebtedness.   

In August 1995, Zapata acquired 31% of the outstanding common stock of      
Envirodyne for $18.8 million from a trust controlled by 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, subject to prepayment at the     
Company's option. The Company has since prepaid approximately $15.6 million on  
the promissory note.                                                            

During 1993, the Company refinanced its U.S. government-guaranteed debt in  
order to achieve lower interest rates; other significant terms were unchanged.  
The U.S. government-guaranteed debt is collateralized by a first lien on all of 
the vessels refurbished by the refinancing proceeds and certain plant assets.   

Annual maturities                                                             

The annual maturities of long-term debt for the five years ending September 
30, 2000 are as follows (in thousands):                                         

                                                                [Download Table]

 1996     1997    1998  1999  2000
 ----    -------  ----  ----  ----
                                  
$16,148  $19,288  $514  $537  $555

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

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 (used) by operating activities reflects cash payments of  
interest and income taxes.                                                      

                                                                [Download Table]

                                                     1995   1994   1993   
                                                    ------ ------ ------- 
                                                       (IN THOUSANDS)     
                                                                          
Cash paid during the fiscal year for:                                     
  Interest......................................... $6,609 $7,142 $12,836 
  Income tax payments (refund).....................    544  4,507     (10)

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 7, these  
notes were prepaid in full in fiscal 1994.                                      

During fiscal 1995, the Company exchanged certain other assets held for sale
for property and equipment and also exercised an option to purchase certain     
real estate resulting in the reclassification of a deposit from other assets to 
property and equipment. These transactions resulted in the reclassification of  
approximately $2.0 million from other assets to property and equipment.         

NOTE 9. PREFERRED, PREFERENCE AND COMMON STOCK                                  

Preferred stock                                                               

Zapata has authorized two million shares of preferred stock issuable in one 
or more series. In 1994, Zapata redeemed one-half of the approximately 45,000   
outstanding shares of the Company's preferred stock and redeemed the balance of 
its outstanding preferred stock in January 1995. The preferred stock was        
redeemed at $100 a share. Quarterly dividends of $2.25 per share were declared  
and paid in fiscal 1995 and 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 $80.00 per share and       
$30.00 per share in liquidation. The stated quarterly dividend, which is        
noncumulative, 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 preference stock.     

Common stock                                                                  

 Zapata has authorized 165 million shares of Common Stock, of which 29,548,407
were issued and outstanding at September 30, 1995.                              

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 9. PREFERRED, PREFERENCE AND COMMON STOCK--(CONTINUED)                     

In April 1995, Zapata repurchased 2.25 million shares of Common Stock from  
Norex 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.                                                                    

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 shares of Common Stock 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 Company's 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 1995, options to purchase 18,000 shares under the   
1981 Plan were exercised at $3.13. At September 30, 1995, options to purchase   
12,000 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 ten 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, 1995, a total of 203,666 shares of Common Stock     
were reserved for the future granting of stock options or the awarding of       
restricted stock under the 1987 Plan. During 1995, options to purchase 80,000   
shares under the 1987 Plan at prices ranging from $3.38 to $3.94 were granted   
and options to purchase 120,000 shares at prices ranging from $3.94 to $4.22    
were cancelled. At September 30, 1995, 132,000 options were outstanding under   
the 1987 Plan at prices ranging from $3.13 to $7.19 and 58,667 options were     
exercisable.                                                                    

On December 6, 1990, the Company's stockholders approved a new stock option 
plan (the "1990 Plan"). The 1990 Plan provides for the granting of nonqualified 
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         

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 9. PREFERRED, PREFERENCE AND COMMON STOCK--(CONTINUED)                     
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 ten years from the date of      
grant. The 1990 Plan provides for the issuance of options to purchase up to     
1,000,000 shares of Common Stock. At September 30, 1995, a total of 32,666      
shares of Common Stock were reserved for the future granting of stock options   
under the 1990 Plan. During 1995, options to purchase 621,900 shares under the  
1990 Plan at $3.13 were exercised. At September 30, 1995, a total of 42,000     
options at a price of $3.13 were outstanding and exercisable under the 1990     
Plan. No options were granted in 1995 under the 1990 Plan.                      

NOTE 10. 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 base of 
assets and liabilities, and operating loss and tax credit carryforwards for tax 
purposes. 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, 
if any, in the deferred tax valuation allowance relating to tax attributes that 
existed at the time of the quasi-reorganization will also 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:                                                                      

                                                                [Download Table]

                                                    1995     1994    1993 
                                                   -------  ------  ------
                                                      (IN THOUSANDS)      
                                                                          
Current                                                                   
  State........................................... $   268  $  507  $   75
  U.S.............................................      --   5,403     619
Deferred                                                                  
  State...........................................    (300)    150      --
  U.S.............................................  (3,147) (6,632)  3,516
                                                   -------  ------  ------
                                                   $(3,179) $ (572) $4,210
                                                   =======  ======  ======

Income tax expense (benefit) was allocated to operations as follows:        

                                                                [Download Table]

                                                  1995     1994     1993  
                                                 -------  -------  ------ 
                                                     (IN THOUSANDS)       
                                                                          
Continuing Operations                                                     
  Domestic operations........................... $(3,676) $(1,812) $3,135 
  Foreign operations............................     497    1,240   1,075 
                                                 -------  -------  ------ 
    Total.......................................  (3,179)    (572)  4,210 
Discontinued Operations.........................   4,579   (2,564)   (560)
                                                 -------  -------  ------ 
    Total....................................... $ 1,400  $(3,136) $3,650 
                                                 =======  =======  ====== 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 10. INCOME TAXES--(CONTINUED)                                              

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:        

                                                                [Download Table]

                                                     1995      1994     1993   
                                                   --------  --------  ------- 
                                                        (IN THOUSANDS)         
                                                                               
Book depreciation in excess of tax depreciation... $ (4,292) $ (1,145) $(1,468)
Tax deduction related to oil and gas exploration                               
 and production over (under) book expenses........    2,825    (6,277)    (163)
Tax gain in excess of book gain on stock sale.....   (1,650)  (10,116)  (8,065)
Changes to tax carryforwards and other............     (330)    8,266   13,212 
Charge off uncollectible note.....................       --     2,790       -- 
                                                   --------  --------  ------- 
                                                   $(3,447)  $ (6,482) $ 3,516 
                                                   ========  ========  ======= 

For federal income tax purposes, Zapata has $12.1 million of net operating  
losses expiring in 2010, $17.5 million of investment tax credit carryforwards   
expiring in 1997 through 2001, and $10.9 million of alternative minimum tax     
credit carryforwards. The use of some of the 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 fiscal 1995,   
1994 and 1993 computed using the U.S. statutory rate of 35%, 35% and 34%,       
respectively, to the provisions from continuing operations as reflected in the  
financial statements.                                                           

                                                                [Download Table]

                                                         1995    1994    1993  
                                                       --------  -----  ------ 
                                                          (IN THOUSANDS)       
                                                                               
Taxes at statutory rate............................... $ (3,158) $(500) $4,987 
Recovery of nondeductible book losses.................       --     --    (259)
Amortization of intangibles not deductible for tax....       11     10      -- 
Other.................................................       33   (563)    (26)
Equity/dividend income not recognized for tax                                  
 purposes.............................................      (33)  (176)   (567)
State taxes...........................................      (32)   657      75 
                                                       --------  -----  ------ 
                                                       $(3,179)  $(572) $4,210 
                                                       ========  =====  ====== 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 10. INCOME TAXES--(CONTINUED)                                              

Temporary differences and tax credit carryforwards that gave rise to        
significant portions of deferred tax assets and liabilities are as follows:     

                                                                [Download Table]

                               SEPTEMBER 30,   
                              ---------------- 
                               1995     1994   
                              -------  ------- 
                              (IN THOUSANDS)   
                                               
Deferred Tax Assets:                           
  Asset write-downs not yet                    
   deductible...............  $ 4,956  $ 5,150 
  Net operating loss                           
   carryforwards............    4,246       -- 
  Investment tax credit                        
   carryforwards............   17,490   17,639 
  Alternative minimum tax                      
   credit carryforwards.....   10,927   11,683 
  Other.....................    2,404    2,555 
                              -------  ------- 
    Total deferred tax                         
     assets.................   40,023   37,027 
  Valuation allowance.......  (16,857) (19,429)
                              -------  ------- 
    Net deferred tax assets.   23,166   17,598 
                              -------  ------- 
Deferred Tax Liabilities:                      
  Property and equipment....   (9,628)  (3,477)
  Basis difference on stock                    
   investment...............       --   (1,650)
  Pension...................   (3,554)  (3,356)
  Unrealized investment gain                   
   on Tidewater common                         
   stock....................       --   (2,302)
  Other.....................   (3,737)  (3,898)
                              -------  ------- 
    Total deferred tax                         
     liabilities............  (16,919) (14,683)
                              -------  ------- 
    Net deferred tax asset..  $ 6,247  $ 2,915 
                              =======  ======= 

 The valuation allowance represents managements estimates of tax carryforwards
that may not be ultimately utilized given current facts and circumstances.      

NOTE 11. COMMITMENTS AND CONTINGENCIES                                          

Operating leases payable                                                      

Future minimum payments under non-cancelable operating lease obligations    
aggregate $5.8 million. The total future minimum rental payments have not been  
reduced by $4.1 million of sublease rentals to be received in the future under  
noncancelable subleases. Future minimum payments, net of sublease rentals, for  
the five years ending September 30, 2000 are:                                   

                                                                [Download Table]

                                                  1996 1997 1998 1999 2000
                                                  ---- ---- ---- ---- ----
                                                       (IN THOUSANDS)     
                                                                          
Lease obligations................................ $348 $325 $310 $310 $303

 Rental expenses for operating leases were $1.8 million, $2.3 million and $2.4
million in 1995, 1994 and 1993, respectively.                                   

Litigation                                                                    

 On August 11, 1995, a purported derivative lawsuit was filed in a case styled
Harwin v. Glazer, et al., in the Court of Chancery of the State of Delaware in  
and for New Castle County. The complaint names the Company and each of its      
directors as defendants and generally alleges that the Company's directors      
engaged                                                                         

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NOTE 11. COMMITMENTS AND CONTINGENCIES--(CONTINUED)                             
in conduct constituting breach of fiduciary duty and waste of the Company's     
assets in connection with the Company's investment in Envirodyne. The complaint 
alleges, among other things, that the purchase of the Envirodyne common stock   
from Malcolm Glazer's affiliate was a wrongful expenditure of the Company's     
funds and was designed to permit Malcolm Glazer to obtain substantial personal  
financial advantages to the detriment of the Company. The complaint seeks       
relief including, among other things, rescission of the Company's purchase of   
the shares of Envirodyne common stock from the trust controlled by Malcolm      
Glazer, voiding of the election of Robert V. Leffler, Jr. and W. George Loar    
(both of whom were elected at the Company's Annual Meeting of Stockholders held 
on July 27, 1995) and an award of unspecified compensatory damages and          
expenses, including attorneys' fees. The compliant alleges, among other things, 
that Messrs. Leffler and Loar (both of whom served on the special committee of  
the Company's Board of Directors that approved the investment in Envirodyne)    
lack independence from Malcolm Glazer because, in the case of Mr. Loar, he was  
employed by a corporation indirectly controlled by Malcolm Glazer until his     
retirement (which occurred more than five years ago), and in the case of Mr.    
Leffler, that he has served as a paid consultant to Malcolm Glazer. The Company 
believes that the complaint and allegations contained therein are without merit 
and intends to defend the case vigorously.                                      

On November 16, 1995, a petition was filed in the 148th Judicial District   
Court of Nueces County, Texas by Peter M. Holt, a former director of the        
Company, and certain of his affiliates who sold their interests in Energy       
Industries to the Company in November 1993 (collectively, with Mr. Holt, the    
"Holt Affiliates"). The petition lists the Company, Malcolm Glazer and Avram    
Glazer as defendants and alleges several causes of action based on alleged      
misrepresentations on the part of the Company and the other defendants          
concerning the Company's intent to follow a long-term development strategy      
focusing its efforts on the natural gas services business. The petition did not 
allege a breach of any provision of the purchase agreement pursuant to which    
the Company acquired Energy Industries from the Holt Affiliates, but alleged    
that various representatives of Zapata and Malcolm Glazer made representations  
to Mr. Holt regarding Zapata's intention to continue in the natural gas         
services industry. Among the remedies sought by the petition are the following  
requests: (i) the Company's repurchase of the approximately 2.8 million shares  
of Zapata common stock owned by the Holt Affiliates for $15.6 million, an       
amount that represents a premium of approximately $4.7 million, or more than    
40%, over the market value of such number of shares based on the closing price  
of Common Stock on November 16, 1995; (ii) the disgorgement to the Holt         
Affiliates of Zapata's profit to be made on its sale of Energy Industries; or   
(iii) money damages based on the alleged lower value of the Common Stock had    
the alleged misrepresentations not been made. The Company believes that the     
petition and the allegations made therein are without merit and intends to      
defend the case vigorously.                                                     

 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 matters discussed above will not 
have a material adverse effect on Zapata's results of operations, cash flows or 
financial position.                                                             

NOTE 12. 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 related to the  
marine protein operations whose customers consist primarily of domestic feed    
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.                                                                   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 12. FINANCIAL INSTRUMENTS--(CONTINUED)                                     

At September 30, 1995 and 1994 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 13. BENEFIT PLANS                                                          

Qualified Defined Benefit Plans                                               

 Zapata has two noncontributory defined benefit 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. The plans have 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 1995, 1994 and 1993 included the following          
components:                                                                     

                                                                [Download Table]

                                                  1995    1994    1993   
                                                 ------  ------  ------- 
                                                    (IN THOUSANDS)       
                                                                         
Service cost--benefits earned during the year... $  567  $  692  $   660 
Interest cost on projected benefit obligations..  2,354   2,278    1,982 
Actual loss (gain) on plan assets............... (6,452) (2,730)   1,028 
Amortization of transition assets and other                              
 deferrals......................................  2,864    (546)  (5,445)
                                                 ------  ------  ------- 
  Net pension credit............................ $ (667) $ (306) $(1,775)
                                                 ======  ======  ======= 

The Company's funding policy is to make contributions as required by        
applicable regulations. No contributions to the plans have been required since  
1984. The plans' funded status and amounts recognized in the Company's balance  
sheet at September 30, 1995 and 1994 are presented below:                       

                                                                [Download Table]

                                                         1995     1994   
                                                        -------  ------- 
                                                        (IN THOUSANDS)   
                                                                         
Fair value of plan assets.............................. $43,242  $38,899 
                                                        -------  ------- 
Actuarial present value of benefit obligations:                          
  Vested benefits......................................  33,664   31,503 
  Nonvested benefits...................................     348      782 
                                                        -------  ------- 
  Accumulated benefit obligation.......................  34,012   32,285 
  Additional benefits based on projected salary                          
   increases...........................................   1,741    2,126 
                                                        -------  ------- 
  Projected benefit obligations........................  35,753   34,411 
                                                        -------  ------- 
Excess of plan assets over projected benefit                             
 obligations...........................................   7,489    4,488 
Unrecognized transition asset..........................  (5,861)  (6,698)
Unrecognized prior service cost........................     123      151 
Unrecognized net loss..................................   8,404   11,547 
                                                        -------  ------- 
Prepaid pension cost................................... $10,155  $ 9,488 
                                                        =======  ======= 

The unrecognized transition assets at October 1, 1987, was $10.6 million,   
which is being amortized over 15 years. For 1995 and 1994 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. Pension plan assets  
are                                                                             

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 13. BENEFIT PLANS--(CONTINUED)                                             
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 1995 and 1994. The unrecognized net loss of $8.4 million at September   
30, 1995 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 has negotiated 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 settlement is subject to        
approval of the Internal Revenue Service. The accumulated benefit obligation at 
September 30, 1995 that would be assumed by the plan is estimated to be $2.3    
million, of which $1.4 million has been expensed in the 1994 income statement   
as other expense.                                                               

Supplemental Retirement 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 frozen.              

For 1994 and 1993, the actuarial present value of the projected benefit     
obligations was based on weighted-average annual increase in salary levels of   
2.1%. For 1995, 1994 and 1993 the discount rate was 7.5%.                       

Net pension expense for 1995, 1994 and 1993 included the following          
components:                                                                     

                                                                [Download Table]

                                                           1995 1994 1993
                                                           ---- ---- ----
                                                           (IN THOUSANDS)
                                                                         
Service cost--benefits earned during the year............. $--  $ 68 $ 86
Interest cost on projected benefit obligations............  67    72   53
Amortization of prior service cost........................  --   487   87
                                                           ---  ---- ----
  Net pension expense..................................... $67  $627 $226
                                                           ===  ==== ====

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NOTE 13. BENEFIT PLANS--(CONTINUED)                                             

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, 1995 and 1994 are presented below:                             

                                                                [Download Table]

                                                             1995   1994  
                                                             -----  ----- 
                                                                 (IN      
                                                             THOUSANDS)   
                                                                          
Fair value of plan assets................................... $  --  $  -- 
                                                             -----  ----- 
Actuarial present value of benefit obligations:                           
  Vested benefits...........................................   950    935 
  Nonvested benefits........................................    --     -- 
                                                             -----  ----- 
  Accumulated benefit obligation............................   950    935 
  Additional benefits based on projected salary increases...    --     -- 
                                                             -----  ----- 
  Projected benefit obligation..............................   950    935 
                                                             -----  ----- 
Excess of projected benefit obligations over plan assets....  (950)  (935)
Unrecognized net loss.......................................    --     -- 
Unrecognized prior service costs............................    --     -- 
Additional minimum liability................................    --     -- 
                                                             -----  ----- 
Unfunded accrued liability.................................. $(950) $(935)
                                                             =====  ===== 

Qualified Defined Contribution Plan                                           

The Company sponsors a defined contribution plan, the Zapata Profit Sharing 
Plan (the "Plan"), for certain eligible employees of the Company. Effective     
October 1, 1994, the Company merged a defined contribution plan of Zapata       
Protein with and into the Plan. The Company's combined contributions to these   
plans totalled $573,225, $577,903 and $473,034 in 1995, 1994 and 1993,          
respectively. The Company's contributions are based on employee earnings and    
contributions.                                                                  

NOTE 14. RELATED PARTY TRANSACTIONS                                             

In August 1995, Zapata acquired 31% of the outstanding common stock of      
Envirodyne for $18.8 million from a trust controlled by 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, subject to prepayment at the     
Company's option. The Company has since prepaid approximately $15.6 million on  
the promissory note.                                                            

During 1995 and 1994, Zapata made purchases totalling $10.4 million and $7.3
million from a company owned by a shareholder and former director of Zapata. At 
September 30, 1995, Zapata owed $326,000 related to these purchases.            

Zapata received $7,000, $317,000 and $249,000 in 1995, 1994 and 1993,       
respectively, from a former 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.                                              

During 1995, 1994 and 1993, Zapata received $24,000, $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 7 and Note 9 for discussions of additional          
transactions with Norex.                                                        

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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.          

In September 1994, Zapata's Board of Directors announced that the Company   
would 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, were sold during fiscal 1995. The    
Company completed the sale of its domestic properties in August 1995. Zapata    
received cash of $4.0 million and recorded an $8.9 million receivable           
representing (i) a production payment entitling Zapata to a share of revenues   
from certain properties and (ii) a share of future proceeds from a revenue      
sharing agreement. No gain or loss was recorded from the sales. The decision to 
sell its U.S. natural gas producing properties did not impact Zapata's Bolivian 
oil and gas operations.                                                         

 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.                                               

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)                        

CAPITALIZED COSTS OF OIL AND GAS PROPERTIES 

                                                                [Download Table]

                                                     UNITED                     
                                                     STATES   BOLIVIA   TOTAL   
                                                    --------  -------  -------- 
                                                         (IN THOUSANDS)         
                                                                                
1995                                                                            
Capitalized costs                                                               
  Evaluated properties............................. $     --  $3,359   $  3,359 
Accumulated depreciation, depletion and                                         
 amortization......................................       --    (245)      (245)
                                                    --------  ------   -------- 
Net capitalized costs.............................. $     --  $3,114   $  3,114 
                                                    ========  ======   ======== 
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 
                                                    ========  ======   ======== 

COSTS INCURRED IN PROPERTY ACQUISITION, 
EXPLORATION AND DEVELOPMENT ACTIVITIES

                                                                [Download Table]

                                                     UNITED                    
                                                     STATES   BOLIVIA  TOTAL   
                                                    --------  ------- -------- 
                                                         (IN THOUSANDS)        
                                                                               
1995                                                                           
Expenditures:                                                                  
  Acquisition of unproved properties............... $     --  $  103  $    103 
  Development......................................      335   1,061     1,396 
  Sale of proved properties........................  (11,732)     --   (11,732)
                                                    --------  ------  -------- 
                                                    $(11,397) $1,164  $(10,233)
                                                    ========  ======  ======== 
1994                                                                           
Expenditures:                                                                  
  Development...................................... $  9,598  $2,194  $ 11,792 
                                                    ========  ======  ======== 
1993                                                                           
Expenditures:                                                                  
  Acquisition of unproved properties............... $     12  $   --  $     12 
  Development......................................     (466)     --      (466)
                                                    --------  ------  -------- 
                                                    $  (454)  $   --  $   (454)
                                                    ========  ======  ======== 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)                        
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES

                                                                [Download Table]

                                                     UNITED                    
                                                     STATES   BOLIVIA  TOTAL   
                                                    --------  ------- -------- 
                                                         (IN THOUSANDS)        
                                                                               
1995                                                                           
Revenues........................................... $  5,400  $2,709  $  8,109 
Production costs...................................    3,156   1,097     4,253 
Depreciation, depletion and amortization...........    2,666     190     2,856 
                                                    --------  ------  -------- 
Income before income taxes*........................     (422)  1,422     1,000 
Income taxes.......................................     (143)    483       340 
                                                    --------  ------  -------- 
Net income (loss)*................................. $   (279) $  939  $    660 
                                                    ========  ======  ======== 
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 (loss)*................................. $(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 
                                                    ========  ======  ======== 

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

Oil and gas reserves                                                          

During fiscal 1995, the Company sold its U.S. oil and gas properties in the 
Gulf of Mexico for $12.9 million which equalled the net book values of the      
properties.                                                                     

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 on 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.                                                              

It should be stressed that 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                                                                      

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)                        
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.                                                            

NATURAL GAS AND LIQUIDS RESERVES

                                                                [Download Table]

                                     UNITED STATES    BOLIVIA         TOTAL     
                                     -------------  ------------  ------------- 
                                     LIQUIDS  GAS   LIQUIDS GAS   LIQUIDS  GAS  
                                     ------- -----  ------- ----  ------- ----- 
                                     (LIQUIDS IN MILLIONS OF BARRELS, GAS IN    
                                             BILLIONS OF CUBIC FEET)            
                                                                                
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 
  Revisions of previous estimates...    --      --     --    3.9     --     3.9 
  Production........................   (.1)   (3.0)    --   (1.7)   (.1)   (4.7)
  Sale of reserves in place.........   (.3)  (31.7)    --     --    (.3)  (31.7)
                                       ---   -----    ---   ----    ---   ----- 
Proved reserves as of                                                           
  September 30, 1995................    --      --     .7   29.5     .7    29.5 
                                       ===   =====    ===   ====    ===   ===== 
Proved developed reserves as of                                                 
  September 30, 1993................    .2    28.2     .7   22.5     .9    50.7 
  September 30, 1994................    .2    27.4     .7   27.3     .9    54.7 
  September 30, 1995................    --      --     .7   29.5     .7    29.5 

Standardized measure of discounted future net cash flows                      

 The information presented below concerning the net present value of after-tax
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.                                                         

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)                        

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.             

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. 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. In 1994 Zapata participated in  
drilling two exploratory wells in its Bolivian operation. In 1995, Zapata       
participated in drilling an additional exploratory well. 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. 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.                               

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)                        

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

                                                                [Download Table]

                                                       UNITED                  
                                                       STATES  BOLIVIA  TOTAL  
                                                      -------- ------- --------
                                                           (IN THOUSANDS)      
                                                                               
1995                                                                           
  Estimated future cash flows                                                  
    Revenues from hydrocarbon sales.................. $     -- $46,512 $ 46,512
    Production costs.................................       --  18,621   18,621
    Development costs................................       --     775      775
                                                      -------- ------- --------
  Future net cash flows before income taxes..........       --  27,116   27,116
  Estimated income tax payments......................       --   8,356    8,356
                                                      -------- ------- --------
  Future net cash flows..............................       --  18,760   18,760
  10% discount.......................................       --   8,359    8,359
                                                      -------- ------- --------
  Standardized measure of discounted future net cash                           
   flows............................................. $     -- $10,401 $ 10,401
                                                      ======== ======= ========
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
                                                      ======== ======= ========

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 15. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)                        

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

                                                                [Download Table]

                                                     1995      1994      1993   
                                                   --------  --------  -------- 
                                                         (IN THOUSANDS)         
                                                                                
Standardized measure, beginning of year--U.S.....  $ 13,914  $ 37,902  $ 47,002 
Standardized measure, beginning of year--Bolivia.    11,331    10,312        -- 
  Change in sales prices, net of production                                     
   costs.........................................    (4,267)  (24,990)    8,163 
  Costs incurred or transferred into the                                        
   amortization pool during the period that                                     
   reduced estimated future development costs....       825     4,975        -- 
  Changes in estimated future development and                                   
   abandonment costs.............................     9,493    (4,638)   (4,679)
  Sales, net of production costs.................    (3,856)   (6,281)  (11,369)
  Revisions of quantity estimates................     2,020     3,243    (1,800)
  Purchase (sales) of reserves in-place..........   (29,399)              1,098 
  Accretion of discount..........................     3,032     4,283     5,397 
  Net change in income taxes.....................     1,023      (149)    2,048 
  Changes in production rates and other..........     6,285       588    (7,958)
                                                   --------  --------  -------- 
Standardized measure, end of year................  $ 10,401  $ 25,245  $ 37,902 
                                                   ========  ========  ======== 

NOTE 16. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION (UNAUDITED)                

Zapata's continuing businesses are comprised of two 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 oil and gas segment was engaged in the production of crude oil and     
natural gas in the U.S. and Bolivia. In 1995, the Company sold its domestic oil 
and gas properties; the Bolivian operations were retained. Export sales of fish 
oil and fish meal were approximately $26.7 million, $25.8 million and $12.8     
million in 1995, 1994 and 1993, respectively. Such sales were made primarily to 
European markets. In 1995, net sales to one customer by the marine protein      
segment were approximately $12.3 million.                                       

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 16. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION (UNAUDITED)--(CONTINUED)   

INDUSTRY SEGMENT INFORMATION

                                                        [Enlarge/Download Table]

                                   OPERATING                   DEPRECIATION,             
                                    INCOME       IDENTIFIABLE  DEPLETION AND   CAPITAL   
YEAR ENDED SEPTEMBER 30,  REVENUES  (LOSS)          ASSETS     AMORTIZATION  EXPENDITURES
------------------------  -------- ---------     ------------  ------------- ------------
                                                (IN THOUSANDS)                           
                                                                                         
1995                                                                                     
Marine protein..........  $ 94,959 $ (6,437)(1)    $ 85,012       $14,977(1)   $ 5,573   
Oil and gas.............     8,109      658          13,571         2,856        1,767   
Corporate...............        --   (3,441)         38,914           115            1   
                          -------- --------        --------       -------      -------   
                          $103,068 $ (9,220)       $137,497       $17,948      $ 7,341   
                          ======== ========        ========       =======      =======   
1994                                                                                     
Marine protein..........  $ 96,614 $  5,445        $ 87,565       $ 4,535      $ 3,671   
Oil and gas.............    12,549  (28,285)(3)      20,062        33,770(3)    11,792   
Corporate...............        --   (8,767)         44,044(2)      2,321           67   
                          -------- --------        --------       -------      -------   
                          $109,163 $(31,607)       $151,671       $40,626      $15,530   
                          ======== ========        ========       =======      =======   
1993                                                                                     
Marine protein..........  $ 58,565 $  4,296        $ 92,728       $ 4,510      $ 1,477   
Oil and gas.............    20,189    6,032          41,630         7,688        1,327   
Corporate...............        --   (6,769)        169,888(2)        378            8   
                          -------- --------        --------       -------      -------   
                          $ 78,754 $  3,559        $304,246       $12,576      $ 2,812   
                          ======== ========        ========       =======      =======   

--------                                                                        
(1) Includes a $12.3 million provision for asset impairment to reduce the       
marine protein assets to their fair market value as a result of adopting
SFAS 121.                                                               
(2) Includes Zapata's investment in Tidewater. See Note 6.                      
(3) Includes a $29.2 million provision for oil and gas property valuation       
 required as a result of low gas prices and a revision of estimated future
costs.                                                                  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED)                                   

CONSOLIDATED QUARTERLY INFORMATION

                                                                [Download Table]

                                       THREE MONTHS ENDED                       
                                --------------------------------------------    
                                DEC. 31    MAR. 31     JUN. 30      SEP. 30     
                                -------    -------     --------     --------    
                                 (IN THOUSANDS, EXCEPT PER SHARE                
                                            AMOUNTS)                            
                                                                                
FISCAL 1995                                                                     
Revenues......................  $22,357    $22,237     $ 24,199     $ 34,275    
                                =======    =======     ========     ========    
Operating income (loss).......  $   311    $  (202)    $(11,129)(2) $  1,800    
Other income (expense), net...      145      4,434 (1)     (382)      (4,000)(4)
Provision (benefit) for income                                                  
 taxes........................      181      1,518       (3,964)        (914)   
                                -------    -------     --------     --------    
Income (loss) from continuing                                                   
 operations...................      275      2,714       (7,547)      (1,286)   
Income (loss) from                                                              
 discontinued operations......      473        217          405           56    
Reversal of reserve for loss                                                    
 on disposition, net of income                                                  
 taxes........................       --         --        8,897 (3)       --    
                                -------    -------     --------     --------    
Net income (loss).............  $   748    $ 2,931     $  1,755     $ (1,230)   
                                =======    =======     ========     ========    
Per share:                                                                      
Income (loss) from continuing                                                   
 operations...................  $  0.01    $  0.08     $  (0.25)    $  (0.04)   
Income from discontinued                                                        
 operations...................     0.01       0.01         0.31           --    
                                -------    -------     --------     --------    
Net income (loss).............  $  0.02    $  0.09     $   0.06     $  (0.04)   
                                =======    =======     ========     ========    
FISCAL 1994                                                                     
Revenues......................  $24,126    $24,739     $ 22,729     $ 37,569    
                                =======    =======     ========     ========    
Operating income (loss).......  $   606    $   692     $(18,045)(7) $(14,860)(8)
Other income (expense), net...   26,445(5)   3,382 (6)    2,437       (2,086)   
Provision (benefit) for income                                                  
 taxes........................    9,526      1,668       (5,393)      (6,373)   
                                -------    -------     --------     --------    
Income (loss) from continuing                                                   
 operations...................   17,525      2,406      (10,215)     (10,573)   
Income (loss) from                                                              
 discontinued operations......     (197)      (134)         641        1,125    
Loss on disposition, net of                                                     
 income taxes.................       --         --           --       (8,897)(9)
                                -------    -------     --------     --------    
Net income (loss).............  $17,328    $ 2,272     $ (9,574)    $(18,345)   
                                =======    =======     ========     ========    
Per share:                                                                      
Income (loss) from continuing                                                   
 operations...................  $  0.56    $  0.07     $  (0.33)    $  (0.34)   
Income (loss) from                                                              
 discontinued operations......       --         --         0.02        (0.24)   
                                -------    -------     --------     --------    
Net income (loss).............  $  0.56    $  0.07     $  (0.31)    $  (0.58)   
                                =======    =======     ========     ========    

--------                                                                        
(1) Includes a pretax gain of $4.8 million from the sale of 673,077 shares of   
Tidewater common stock.                                                 
(2) Includes a $12.3 million pretax provision for asset impairment to reduce    
the marine protein assets to their estimated fair market value that was 
recorded in the third and fourth fiscal quarters.                       
(3) Includes the reversal of an $8.9 million after-tax loss due to the decision 
to retain Zapata Protein.                                               
(4) Includes a $2.8 million write-down of an investment in Wherehouse           
Entertainment, Inc. debentures.                                         
(5) 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 indebtedness to Norex.
(6) Includes a pretax gain of $3.6 million from the sale of 375,175 shares of   
Tidewater common stock.                                                 
(7) Includes an $18.8 million valuation provision for oil and gas property      
valuation.                                                              
(8) Includes a $10.4 million valuation provision for oil and gas property       
valuation.                                                              
(9) Includes the estimated loss to be realized on disposal of the marine        
protein operations.                                                     

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

NOTE 18. SUBSEQUENT EVENT                                                       

On December 15, 1995, Zapata completed the Energy Industries Sale after     
receiving stockholder approval. Pursuant to the Purchase Agreement, Weatherford 
Enterra purchased from the Company all of the assets of Energy Industries.      
Consideration received by the Company was approximately $131 million in cash    
and the assumption of certain current liabilities of Energy Industries by       
Weatherford Enterra, subject to final post-closing adjustments. The cash        
portion of the consideration represented a purchase price of $130 million, as   
adjusted by a closing date net adjustment provided for in the Purchase          
Agreement. The Energy Industries Sale will result in an after-tax book gain of  
approximately $14.0 million which will be recognized by the Company in fiscal   
1996.                                                                           

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND         
FINANCIAL DISCLOSURE.                                                           

 On February 23, 1994, the Board of Directors of Zapata Corporation decided to
change the Company's principal independent accountants from Arthur Andersen &   
Co. ("Arthur Andersen") to Coopers & Lybrand L.L.P. During the Company's two    
most recently-completed fiscal years and the subsequent interim period          
preceding such change there were no disagreements with Arthur Andersen on any   
matters of accounting principles or practice, financial statement disclosure,   
or auditing scope or procedure, which, if not resolved to the satisfaction of   
Arthur Andersen, would have caused it to make a reference to the subject matter 
of the disagreement in connection with its report. Arthur Andersen's report on  
the Company's financial statements for the two years prior to dismissal did not 
contain an adverse opinion or a disclaimer of opinion, nor was it qualified or  
modified as to uncertainty, audit scope or accounting principles.               

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.                    

 Pursuant to General Instruction G of Form 10-K, the information called for by
Item 10 of Part III of Form 10-K is incorporated by reference to the            
information set forth in the Company's definitive proxy statement relating to   
the 1996 Annual Meeting of Stockholders of the Company (the "1996 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 1996 Proxy Statement is not so filed 
within 120 days after September 30, 1995 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 and Properties--         
Executive Officers of the Registrant."                                          

ITEM 11. EXECUTIVE COMPENSATION.                                                

 Pursuant to General Instruction G of Form 10-K, the information called for by
Item 11 of Part III of Form 10-K is incorporated by reference to the            
information set forth in the 1996 Proxy Statement in response to Item 402 of    
Regulation S-K, or if the 1996 Proxy Statement is not so filed within 120 days  
after September 30, 1995 such information will be included in an amendment to   
this report filed not later than the end of such period.                        

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.        

 Pursuant to General Instruction G of Form 10-K, the information called for by
Item 12 of Part III of Form 10-K is incorporated by reference to the            
information set forth in the 1996 Proxy Statement in response to Item 403 of    
Regulation S-K, or if the 1996 Proxy Statement is not so filed within 120 days  
after September 30, 1995 such information will be included in an amendment to   
this report filed not later than the end of such period.                        

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                        

 Pursuant to General Instruction G of Form 10-K, the information called for by
Item 13 of Part III of Form 10-K is incorporated by reference to the            
information set forth in the 1996 Proxy Statement in response to Item 404 of    
Regulation S-K, or if the 1996 Proxy Statement is not so filed within 120 days  
after September 30, 1995 such information will be included in an amendment to   
this report filed not later than the end of such period.                        

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PART IV 

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.       

(A) LIST OF DOCUMENTS FILED.                                                

                                                                [Download Table]

                                                                           PAGE
                                                                           ----
                                                                               
(1) Consolidated financial statements, Zapata Corporation and                  
        subsidiary companies--                                                 
     Report of Coopers & Lybrand L.L.P., independent public accountants...  23 
     Report of Arthur Andersen LLP independent public accountants, dated       
      December 17, 1993...................................................  24 
     Consolidated balance sheet--September 30, 1995 and 1994..............  25 
     Consolidated statement of operations for the years ended September        
      30, 1995, 1994 and 1993.............................................  27 
     Consolidated statement of cash flows for the years ended September        
      30, 1995, 1994 and 1993.............................................  28 
     Consolidated statement of stockholders' equity for the years ended        
      September 30, 1995, 1994 and 1993...................................  29 
     Notes to consolidated financial statements...........................  30 
(2) Supplemental Schedule:                                                     
     Report of Coopers & Lybrand L.L.P., independent public accountants...  65 
     I--Zapata Corporation (parent company financial statements)               
      as of and for the years ended September 30, 1995 and 1994...........  66 

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.      

(3) Exhibits                                                                

The exhibits indicated by an asterisk (*) are incorporated by reference.        

                                                                [Download Table]

EXHIBIT                                                                        
NUMBER                            DESCRIPTION OF EXHIBIT                       
-------                           ----------------------                       
                                                                               
    2(a)* --Agreement dated as of September 20, 1995 by and among Zapata       
            Corporation, Energy Industries, Inc., Zapata Energy Industries, L. 
            P., Enterra Corporation and Enterra Compression Company (Exhibit 2 
            to Current Report on Form 8-K dated September 20, 1995 (File No.   
            1-4219)).                                                          
    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 November 21, 1995.         
    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 (File No. 33-68034)).                                     

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                                                                [Download Table]

EXHIBIT                                                                        
NUMBER                            DESCRIPTION OF EXHIBIT                       
-------                           ----------------------                       
                                                                               
    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 party 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 (Exhibit 4(e) to Zapata's Quarterly 
            Report on Form 10-Q for the fiscal quarter ended March 31, 1995    
            (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.           

                                                                [Download Table]
                                                                               
 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)*+ --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(h)*+ --Noncompetition Agreement dated as of November 9, 1993 by and among  
           Zapata and Peter M. Holt and Benjamin D. Holt, Jr. (Exhibit 10(q) to
           Zapata's Annual Report on form 10-K for the fiscal year ended       
           September 30, 1994 (File No. 1-4219)).                              
 10(i)*+ --Termination Agreement between Cimarron Gas Companies, Inc. and James
           C. Jewett dated as of January 24, 1994 (Exhibit 10(a) to Zapata's   
           Quarterly Report on Form 10-Q for the fiscal quarter ended December 
           31, 1993 (File No. 1-4219)).                                        
 10(j)*+ --Consulting Agreement dated as of July 1, 1994 between Zapata        
           Corporation and Thomas H. Bowersox (Exhibit 10(w) to Zapata's Annual
           Report on Form 10-K for the fiscal year ended September 30, 1994    
           (File No. 1-4219)).                                                 
 10(k)*+ --Consulting Agreement between Ronald C. Lassiter and Zapata 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(l)*+ --Employment Agreement between Lamar C. McIntyre and Zapata dated as  
           of October 1, 1994 (Exhibit 10(v) to Zapata's Annual Report on Form 
           10-K for the fiscal year ended September 30, 1994 (File             
           No. 1-4219)).                                                       

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                                                                [Download Table]
                                                                               
 10(m)*+ --Purchase Agreement dated as of April 10, 1995 by and between Norex  
           America, Inc. and Zapata relating to 2,250,000 shares of Zapata     
           Common Stock (Exhibit 10(c) to Zapata's Quarterly Report on Form 10-
           Q for the fiscal quarter ended March 31, 1995 (File No. 1-4219)).   
 10(n)*+ --Assignment and Assumption of Consulting Agreement effective as of   
           July 1, 1995 by and between Zapata and Zapata Protein, Inc. (Exhibit
           10(b) to Zapata's Quarterly Report on Form 10-Q for the fiscal      
           quarter ended June 30, 1995 (File No. 1-4219)).                     
 10(o)   --Stock Purchase Agreement dated as of August 7, 1995 between Zapata  
           Corporation and Malcolm I. Glazer.                                  
 10(p)+  --Mutual Release Agreement dated as of December 1, 1995 by and among  
           Zapata Corporation, Cimarron Gas Holding Company, Robert W. Jackson 
           and the Robert W. Jackson Trust.                                    
 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.                                            

--------                                                                        
+  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 on Form 8-K dated September 20, 1995 announcing (1) that     
Zapata, Energy Industries, Inc. and Zapata Energy Industries, L. P.             
(collectively "Energy Industries") had entered into an agreement with Enterra   
Corporation and Enterra Compression Company (collectively "Enterra") pursuant   
to which Enterra agreed to purchase substantially all of the assets, and assume 
certain liabilities, of Energy Industries; and (2) that the Malcolm I. Glazer   
Trust ("Trust") executed a letter to Enterra Corporation agreeing to vote the   
shares owned by the Trust in accordance with the recommendation of the          
Company's Board of Directors.                                                   

(C) FINANCIAL STATEMENT SCHEDULE.                                           

Filed herewith as a financial statement schedule 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.      

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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 years ended September 30, 1995 and 1994, is      
included on page 23 of this Form 10-K. In connection with our audits of such    
financial statements, we have also audited the related financial statement      
schedule for the year ended September 30, 1995 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,      
presents fairly, in all material respects, the information required to be       
included herein.                                                                

                            Coopers & Lybrand L.L.P.

Houston, Texas                                                                  
December 15, 1995                                                               

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                                                                      SCHEDULE I

ZAPATA CORPORATION

(PARENT COMPANY ONLY) 

CONDENSED BALANCE SHEET 

                                                                [Download Table]

                                                              SEPTEMBER 30,    
                                                            ------------------ 
                                                              1995      1994   
                                                            --------  -------- 
                                                             (IN THOUSANDS)    
                                                                               
Current assets:                                                                
  Cash and cash equivalents................................ $  1,418  $ 11,096 
  Receivables..............................................    1,361       700 
  Prepaid expenses and other current assets................    1,961     1,918 
                                                            --------  -------- 
    Total current assets...................................    4,740    13,714 
                                                            --------  -------- 
Investments and other assets:                                                  
  Investments in and advances to subsidiaries*.............  155,135   175,029 
  Investments in unconsolidated affiliates and equity                          
   securities..............................................   18,235    14,471 
  Other assets.............................................   14,881     5,626 
                                                            --------  -------- 
    Total investments and other assets.....................  188,251   195,126 
                                                            --------  -------- 
Property and equipment:                                                        
  Cost.....................................................    3,363     5,213 
  Accumulated depreciation, depletion and amortization.....   (3,080)   (3,316)
                                                            --------  -------- 
                                                                 283     1,897 
                                                            --------  -------- 
    Total assets........................................... $193,274  $210,737 
                                                            ========  ======== 
Current liabilities:                                                           
  Notes payable............................................ $    792  $     -- 
  Current maturities of long-term debt.....................    4,795        -- 
  Accrued liabilities......................................    1,597     2,871 
  Accrued interest.........................................      513       533 
  Income taxes payable.....................................       16       268 
                                                            --------  -------- 
    Total current liabilities..............................    7,713     3,672 
                                                            --------  -------- 
Long-term debt.............................................   28,674    43,363 
                                                            --------  -------- 
Other liabilities..........................................   11,597     9,160 
                                                            --------  -------- 
Stockholders' equity.......................................  145,290   154,542 
                                                            --------  -------- 
    Total liabilities and stockholders' equity............. $193,274  $210,737 
                                                            ========  ======== 

--------                                                                        
* 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. 

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                                                                      SCHEDULE I
                                                                     (continued)

ZAPATA CORPORATION

(PARENT COMPANY ONLY) 

CONDENSED STATEMENT OF OPERATIONS 

                                                                [Download Table]

                                                              SEPTEMBER 30,    
                                                             ----------------- 
                                                              1995      1994   
                                                             -------  -------- 
                                                              (IN THOUSANDS)   
                                                                               
Expenses:                                                                      
  Depreciation.............................................. $   115  $  2,321 
  General and administrative................................   1,693     4,127 
                                                             -------  -------- 
                                                               1,808     6,448 
                                                             -------  -------- 
Operating loss..............................................  (1,808)   (6,448)
                                                             -------  -------- 
Other income (expense):                                                        
  Interest income...........................................     468       841 
  Interest expense..........................................  (1,586)   (3,949)
  Gain on sale of Tidewater common stock....................   4,811    37,457 
  Equity in income (loss) of subsidiaries...................   1,967   (23,897)
  Other.....................................................   1,584    (4,429)
                                                             -------  -------- 
                                                               7,244     6,023 
                                                             -------  -------- 
Income (loss) before income taxes...........................   5,436      (425)
Provision (benefit) for income taxes........................   1,232     7,894 
                                                             -------  -------- 
Net income (loss)........................................... $ 4,204  $ (8,319)
                                                             =======  ======== 

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

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                                                                      SCHEDULE I
                                                                     (continued)

ZAPATA CORPORATION

(PARENT COMPANY ONLY) 

CONDENSED STATEMENT OF CASH FLOWS 

                                                                [Download Table]

                                                              SEPTEMBER 30,    
                                                            ------------------ 
                                                              1995      1994   
                                                            --------  -------- 
                                                             (IN THOUSANDS)    
                                                                               
Cash flow used by operating activities:                                        
  Net income (loss)........................................ $  4,204  $ (8,319)
                                                            --------  -------- 
  Adjustments to reconcile net income (loss) to net cash                       
   used by operating activities:                                               
    Depreciation...........................................      115     2,321 
    Gain on sale of assets.................................   (5,268)  (37,457)
    Equity in loss of subsidiaries.........................    2,686    23,897 
    Changes in assets and liabilities:                                         
      Receivables..........................................     (661)     (700)
      Accounts payable and accrued liabilities.............     (444)     (991)
      Deferred income taxes................................    1,443    (4,137)
      Other assets and liabilities.........................   (5,388)    5,844 
                                                            --------  -------- 
        Total adjustments..................................   (7,517)  (11,223)
                                                            --------  -------- 
        Net cash provided (used) by operating activities...   (3,313)  (19,542)
                                                            --------  -------- 
Cash flow provided by investing activities:                                    
  Proceeds from sale of assets.............................   14,481    85,853 
  Restricted cash investments..............................       --    74,083 
  Advances from subsidiaries...............................   20,127    23,137 
  Business acquisitions, net of cash acquired..............       --   (73,222)
  Capital expenditures.....................................       (1)      (67)
                                                            --------  -------- 
        Net cash provided by investing activities..........   34,607   109,784 
                                                            --------  -------- 
Cash flow used by financing activities:                                        
  Borrowings...............................................    1,419        -- 
  Principal payments of long-term obligations..............  (29,475)  (85,524)
  Common stock buyback.....................................   (9,508)       -- 
  Preferred stock redemption...............................   (2,255)   (2,245)
  Dividend payments........................................   (1,153)   (1,566)
                                                            --------  -------- 
        Net cash used by financing activities..............  (40,972)  (89,335)
                                                            --------  -------- 
Net increase (decrease) in cash and cash equivalents.......   (9,678)      907 
Cash and cash equivalents at beginning of year.............   11,096    10,189 
                                                            --------  -------- 
Cash and cash equivalents at end of year................... $  1,418  $ 11,096 
                                                            ========  ======== 

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

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                                                                      SCHEDULE I
                                                                     (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. Such office space has been fully subleased. In          
accordance with the lease agreement annual payments are approximately $480,000  
until August 31, 1997 and approximately $629,000 thereafter, however, the lease 
payments are fully offset by the sublease receipts.                             

NOTE 2. ANNUAL MATURITIES OF LONG-TERM DEBT                                     

The annual maturities of long-term debt for the five years ending September 
30, 2000 are as follows (in thousands):                                         

                                                                [Download Table]

 1996    1997    1998  1999  2000
 ----   -------  ----  ----  ----
                                 
$5,587  $18,802  $--   $--   $-- 

NOTE 3. RECLASSIFICATIONS                                                       

 Certain reclassifications of prior year information have been made to conform
with current year presentation. These reclassifications had no effect on net    
income (loss), total assets or stockholders' equity.                            

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

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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, Chief Financial
                                        Officer, Treasurer and Assistant
                                        Secretary)

December 20, 1995                                                               

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.                    

                                                        [Enlarge/Download Table]

             SIGNATURE                           TITLE                    DATE              
             ---------                           -----                    ----              

                                                                                            
         Avram A. Glazer*                    President and Chief           December 20, 1995
------------------------------------         Executive Officer (Principal                   
         (Avram A. Glazer)                   Executive Officer)                             

         Lamar C. McIntyre                   Vice President, Chief         December 20, 1995
------------------------------------         Financial Officer,                             
        (Lamar C. McIntyre)                  Treasurer and Assistant                        
                                             Secretary (Principal                           
                                             Financial and Accounting                       
                                             Officer)                                       
        Malcolm I. Glazer*             +++                                                  
------------------------------------     +                                                  
        (Malcolm I. Glazer)              +                                                  
                                         +                                                  
       Ronald C. Lassiter*               +                                                  
------------------------------------     +                                                  
        (Ronald C. Lassiter)             ++  Directors of the Registrant   December 20, 1995
                                         +                                                  
     Robert V. Leffler, Jr.*             +                                                  
------------------------------------     +                                                  
      (Robert V. Leffler, Jr.)           +                                                  
                                         +                                                  
         W. George Loar*               +++                                                  
------------------------------------                                                        
          (W. George Loar)                                                                  

*By:   Lamar C. McIntyre                                                                    
    ---------------------------------                                                       
      (Lamar C. McIntyre,                                                                   
       Attorney-in-Fact)                                                                    

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UNITED STATES 
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, 1995

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.)       

1717 ST. JAMES PLACE, SUITE 550                                         
HOUSTON, TEXAS                                  77056   
(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:                     

                          NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS               WHICH REGISTERED                
 -------------------               ---------------------------------

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             

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:                     
$2 Noncumulative Convertible Preference Stock, $1 par value.            

         On December 15, 1995, there were outstanding 29,548,407 shares of the
Company's Common Stock, $0.25 par value.  The aggregate market value of the     
Company's voting stock held by nonaffiliates of the Company is $64,660,407,     
based on the closing price in consolidated trading on December 15, 1995, for the
Company's Common Stock and the value of the number of shares of Common Stock    
into which the Company's $2 Noncumulative Convertible Preference Stock was      
convertible on such date.                                                       

   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:  None                                      

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         The information appearing in Item 3 of Part I of the Company's Annual
Report on Form 10-K for the year ended September 30, 1995 is amended to read in 
its entirety as set forth below.                                                

ITEM 3.  LEGAL PROCEEDINGS                                                      

         On August 11, 1995, a purported derivative action (the "Harwin Case")
was filed by Elly Harwin against the Company and its then directors in the Court
of Chancery of the State of Delaware, New Castle County. On January 18, 1996, a 
second purported derivative action (the "Crandon Case") was filed by Crandon    
Capital Partners against the Company and its directors in the same court.       
The complaint filed in the Harwin Case alleges that the Company's directors     
engaged in conduct constituting breach of fiduciary duty and waste of the       
Company's assets in connection with the Company's investment in Envirodyne.  The
complaint filed in the Crandon Case makes similar allegations concerning the    
Company's investment in Envirodyne and makes more general allegations of breach 
of fiduciary duty and waste in connection with the decision to shift the        
Company's business focus from energy to food services.  Both complaints allege, 
among other things, that the purchase of the Envirodyne common stock from Mr. M.
Glazer's affiliate was a wrongful expenditure of the Company's funds and was    
designed to permit Mr. M. Glazer to obtain personal financial advantage to the  
detriment of the Company.  The complaints also allege that the Company's Board  
of Directors is controlled by Mr. M. Glazer, and in that connection, one or both
complaints variously allege that Mr. Loar lacks independence from Mr. M. Glazer 
because he was employed by a corporation indirectly controlled by Mr. M. Glazer 
until his retirement (which occurred more than five years ago), that Mr. Leffler
lacks such independence because he has served as a paid consultant to Mr. M.    
Glazer, that Mr. A. Glazer lacks such independence because of familial          
relationship and that Messrs. Lassiter and Holt lack such independence by reason
of employment or consulting relationships with the Company.  The complaint filed
in the Harwin Case seeks relief including, among other things, rescission of the
Company's purchase of the shares of Envirodyne common stock from the trust      
controlled by Mr. M. Glazer, voiding of the election of Messrs. Leffler and Loar
as directors at the Company's Annual Meeting of Stockholders held on July 27,   
1995 and an award of unspecified compensatory damages and expenses, including   
attorneys' fees.  The complaint filed in the Crandon Case seeks relief          
including, among other things, an accounting from the individual defendants for 
unspecified damages and profits and an award of costs and disbursements,        
including attorneys' fees.  The Company believes that both complaints and the   
allegations contained therein are without merit and intends to defend both cases
vigorously.  In the Harwin Case, the Company and the individual defendants have 
filed motions to dismiss on the basis that the plaintiff has neither made the   
requisite demand on the Board of Directors prior to filing the lawsuit nor      
alleged sufficient grounds for failure to make a demand and that the complaint  
fails to state a proper claim for relief. The Company has not yet been served   
with legal process in the Crandon Case.                                         

    On November 16, 1995, a petition was filed in the 148th Judicial
District Court of Nueces County, Texas by Peter M. Holt, a former director of   
the Company, and certain of his affiliates who sold their interests in Energy   
Industries to the Company in November 1993 (collectively, with Mr. Holt, the    
"Holt Affiliates"). The petition lists the Company, Mr. M. Glazer and Mr. A.    
Glazer as defendants and alleges several causes of action based on alleged      
misrepresentations on the part of the defendants concerning the Company's intent
to follow a long-term development strategy focusing its efforts on the natural  
gas services business. The petition does not allege a breach of any provision of
the purchase agreement pursuant to which the Company acquired Energy Industries 
from the Holt Affiliates, but alleged that various representatives of the       
Company and Mr. M. Glazer made representations to Mr. Holt regarding Zapata's   
intention to continue in the natural gas services industry. Among the remedies  
sought by the petition are the following requests: (i) the Company's repurchase 
of the approximately 2.8 million shares of Zapata Common Stock owned by the Holt
Affiliates for $15.6 million, an amount that represents a premium of            
approximately $4.7 million, or more than 40%, over the market value of such     
number of shares based on the closing price of Zapata's Common Stock on November
16, 1995; (ii) the disgorgement to the Holt Affiliates of Zapata's profit on its
sale of Energy Industries; or (iii) money damages based on the alleged lower    
value of the Common Stock had the alleged misrepresentations not been made. The 
Company believes that the petition and the allegations made therein are without 
merit and intends to defend the case vigorously.                                

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        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      
it believes to be adequate.  In the opinion of management, uninsured losses, if 
any, resulting from these matters and from the matters discussed above will not 
have a material adverse effect on Zapata's results of operations, cash flows or 
financial position.                                                             

================================================================================

        The information appearing in Part III of the Company's Annual Report
on Form 10-K for the year ended September 30, 1995 is amended to read in its    
entirety as set forth below.                                                    

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                    

 The information set forth under "Items 1. and 2. Business and
Properties--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, 1995.

       Malcolm I. Glazer, a director since 1993, has served as Chairman of
the Board of Directors since July 1994, and served as President and Chief       
Executive Officer of Zapata from August 1994 until March 1995. He also has been 
a self-employed, private investor for more than the past five years.  His       
diversified portfolio consists of ownership of the Tampa Bay Buccaneers National
Football League franchise and investments in television broadcasting,           
restaurants, food services equipment, health care, banking, real estate, stocks,
government securities and corporate bonds.  He is a director and Chairman of the
Board of The Houlihan's Restaurant Group, Inc., and also is a director of       
Specialty Equipment Companies, Inc. and Envirodyne Industries, Inc.  He is 67   
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 1996.           

       Avram A. Glazer, a director since 1993, 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.  He also    
serves as a director of Envirodyne Industries, Inc., The Houlihan's Restaurant  
Group, Inc. and Specialty Equipment Companies, Inc.  He is 35 years of age and  
his current term of office as a director expires in 1997.  Avram A. Glazer is   
the son of Malcolm I. Glazer.                                                   

        Ronald C. Lassiter, a director since 1974, has been the Chairman and
Chief Executive Officer of Zapata Protein, Inc. (a wholly owned subsidiary of   
the Company) since January 1993.  He served as Acting Chief Operating Officer of
Zapata from December 1994 to March 1995, Chairman of the Board of Directors of  
Zapata from December 1985 to July 1994, Chief Executive Officer of Zapata from  
January 1983 to July 1994, and various other positions with Zapata since 1970.  
Mr. Lassiter is also a director of Daniel Industries, Inc.  He is 63 years of   
age and serves on the Compensation Committee of the Company's Board of          
Directors.  His current term of office as a director expires in 1996.           

        Robert V. Leffler, Jr. has served as a director since May 1995.  For
more than the past five years, he has operated the Leffler Agency, an           
advertising and marketing/public relations firm in Baltimore, Maryland that     
specializes in sports, rental real estate and medical areas.  Mr. Leffler is 50 
years of age and serves on the Audit Committee and the Compensation Committee of
the Company's Board of Directors.  His current term of office as a director     
expires in 1998.                                                                

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         W. George Loar has served as 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.  He is 73 years of age and serves on the Audit Committee and the       
Nominating Committee of the Company's Board of Directors.  His current term of  
office as a director expires in 1998.                                           

        Based solely upon a review of copies of Forms 3 and 4 and amendments
thereto furnished to the Company during the fiscal year ended September 30, 1995
and Forms 5 and amendments thereto with respect to such year and certain written
representations that no Form 5 is required, the Company is not aware of any     
failure on the part of any person subject to Section 16 of the Securities       
Exchange Act of 1934, as amended (the "Exchange Act"), with respect to the      
Company during fiscal 1995 to file on a timely basis any form or report required
by Section 16(a) of the Exchange Act during such fiscal year or prior fiscal    
years. However, the Company has not received copies of Form 5s from any of the  
following former officers and directors of the Company with respect to fiscal   
1995 (each of whom served as an officer, director or both of Zapata for all or a
part of fiscal 1995), and has not received a written representation from any of 
such persons that no Form 5 was required with respect to such fiscal year: Peter
M. Holt, Robert W. Jackson, Joseph B. Mokry and Kristian Siem.                  

ITEM 11.  EXECUTIVE COMPENSATION.                                               

          The following table sets forth information regarding compensation with
respect to the fiscal years ended September 30, 1995, 1994 and 1993 for services
in all capacities rendered to the Company and its subsidiaries by the persons   
who served as chief executive officer during fiscal 1995, the four most highly  
compensated executive officers of the Company other than the chief executive    
officer who were serving as executive officers on September 30, 1995 and one    
additional individual who would have been in that category but for the fact that
he was not serving as an executive officer on September 30, 1995 (the "Named    
Officers").                                                                     

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SUMMARY COMPENSATION TABLE  

                                                                [Download Table]

                                            ANNUAL COMPENSATION                  
                                          ------------------------  ALL OTHER    
                                                 SALARY     BONUS     COMP.      
  NAME AND PRINCIPAL POSITION             YEAR      $         $        ($)       
----------------------------------------  ----  --------  --------  ---------    
                                                                                 

Avram A. Glazer, President and            1995   192,634        --         --    
 Chief Executive Officer (1)                                                     

Malcolm I. Glazer, Chairman (2)           1995    11,250        --         --    
                                          1994    29,800        --         --    

Ronald C. Lassiter, Chairman and          1995   196,220        --         --    
 Chief Executive Officer of               1994   361,779        --         --    
 Zapata Protein, Inc. (3)                 1993   358,600   175,000      2,100 (8)

Robert W. Jackson, President and          1995   200,000        --         --    
 Chief Executive Officer of               1994   200,000        --         --    
 Cimarron (4)                             1993   200,000        --         --    

Joseph B. Mokry, President and            1995   192,855    83,460         --    
 Chief Operating Officer of               1994   172,260   100,080      8,512 (8)
 Energy Industries, Inc. (5)                                                     

Lamar C. McIntyre, Vice President,        1995   131,943        --      7,800 (8)
 Chief Financial Officer and              1994   113,881        --      2,230 (8)
 Assistant Secretary (6)                  1993   108,964    18,000      2,382 (8)

Bruce K. Williams, Chairman, President    1995   140,434        --     22,645 (7)
 and Chief Executive Officer of           1994   160,824    39,000      3,596 (8)
 Zapata Exploration Company (7)           1993   156,240    54,684      3,193 (8)

________________                                                                
(1)  In March 1995, Mr. A. Glazer was elected as President and Chief Executive  
   Officer.  In addition to regular salary, the amount shown in the "Salary"
  column includes director and board committee fees for the portion of the
fiscal year during which Mr. A. Glazer was not an executive officer.  

(2)  Mr. M. Glazer currently serves as Chairman, and served as President and    
 Chief Executive Officer from August 1994 to March 1995.  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.                                                               

(3)  Amounts in the "Salary" column include amounts paid to Mr. Lassiter under  
   the consulting agreement described below under "Employment Agreements and
Other Incentive Plans."                                               

(4)  Mr. Jackson ceased serving as an executive officer effective December 1,   
1995.                                                                 

(5)  In connection with the sale of the assets of Energy Industries, Mr. Mokry  
ceased serving as an executive officer in December 1995.              

(6)  Mr. McIntyre ceased serving as an executive officer of the Company         
effective January 15, 1996.                                           

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(7)  In connection with the closing of the sale of the assets of Zapata         
     Exploration Company, Mr. Williams ceased serving as an executive officer on
August 14, 1995.  The amount included in the "All Other Compensation" 
    column for 1995 includes amounts paid to Mr. Williams under the Consulting
    Agreement described below under "Employment Agreements and Other Incentive
Plans."                                                               

(8)  The amounts indicated represent the Company's contributions to its profit- 
sharing plan.                                                         

     While the officers of the Company receive benefits in the form of
certain perquisites, none of the Named Officers has received perquisites which  
exceed in value the lessor of $50,000 or 10% of such officer's salary and bonus 
for any of the fiscal years shown in the Summary Compensation Table.            

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION      
VALUES                                                                          

                                                        [Enlarge/Download Table]

                                                                                  VALUE OF          
                                                        NUMBER OF                UNEXERCISED        
                                                  SECURITIES UNDERLYING      IN-THE MONEY OPTIONS   
                           SHARES                  UNEXERCISED OPTIONS        AT FISCAL YEAR-END    
                          ACQUIRED      VALUE       AT FISCAL YEAR-END     -------------------------
 NAME                    ON EXERCISE  REALIZED  EXERCISABLE/UNEXERCISABLE  EXERCISABLE/UNEXERCISABLE
-----------------------  -----------  --------  -------------------------  -------------------------
                                                                                                    
Avram A. Glazer........            0         0         13,333/6,667                  0/0            
Malcolm I. Glazer......            0         0         13,333/6,667                  0/0            
Ronald C. Lassiter.....      244,000  $289,750                  0/0                  0/0            
Robert W. Jackson......            0         0                  0/0                  0/0            
Lamar C. McIntyre......            0         0             42,000/0            $52,500/0            
Joseph B. Mokry........            0         0                  0/0                  0/0            
Bruce K. Williams......       98,000  $122,500                  0/0                  0/0            

          The options included in the foregoing table were granted in 1990 under
Zapata's 1990 Stock Option Plan, except in the case of Messrs. A. Glazer and M. 
Glazer, whose options were granted in 1993 under the Company's Amended and      
Restated Special Incentive Plan with respect to their service as nonemployee    
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, 1995, the closing price of Common Stock on the NYSE was  
$4.375 per share. No options were granted to any of the Named Officers in fiscal
1995.                                                                           

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. A.       
Glazer,  M. 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.   
McIntyre's estimated annual benefit under the Pension Plan is $48,941.00        
(assuming payments commence after Mr. McIntyre reaches age 61 on a single-life  
annuity basis).  Mr. Williams will be eligible to receive annual benefits under 
the Pension Plan when he turns 55 years of age.                                 

EMPLOYMENT AGREEMENTS AND OTHER INCENTIVE PLANS                                 

     Effective as of March 15, 1991, Zapata entered into an employment
agreement with Mr. Lassiter. The agreement provided for continuation of salary  
for a three-year period following termination of                                

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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 (the   
"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 the
provisions of the Consulting Agreement are included in the "Salary" column of   
the Summary Compensation Table.                                                 

Effective as of September 30, 1992, Cimarron entered into an
employment agreement with Robert W. Jackson (the "Jackson Agreement").  The     
Jackson Agreement provided for Mr. Jackson's continuing employment as President,
Chief Executive Officer and Director of Cimarron for a period of five years and 
contained provisions requiring salary continuation payments for the remainder of
the term of the agreement in the event of a termination without cause or a      
voluntary resignation for "good reason."  On December 1, 1995, the Company and  
Cimarron entered into a Mutual Release Agreement (the "Mutual Release           
Agreement") with Mr. Jackson, pursuant to which Mr. Jackson resigned from his   
position as Chairman, President and Chief Executive Officer of Cimarron, and the
parties compromised, settled and resolved all rights and obligations pursuant to
all contracts, agreements or benefit plans by or among the parties, as well as  
all controversies among them.  Under the Mutual Release Agreement, the Jackson  
Agreement was terminated and Zapata and Cimarron agreed to make a one-time      
payment of $306,534 to Mr. Jackson, representing the present value of the       
continuing payments that would have been due under the Jackson Agreement, less a
negotiated amount reflecting settlement of certain unresolved disputes and early
termination of certain other various agreements.                                

     Effective October 1, 1994, the Company entered into an employment
agreement with Mr. McIntyre. The agreement provided for continuing employment of
Mr. McIntyre as Vice President, Treasurer and Chief Financial Officer until     
December 17, 1998 at a compensation level at least equal to Mr. McIntyre's base 
salary as of October 1, 1994.  The agreement provided that if Zapata terminated 
Mr. McIntyre's employment for any reason other than for cause, Zapata would be  
obligated to pay Mr. McIntyre's base salary in effect on September 30, 1994     
(approximately $8,825 per month) until December 17, 1998.  The Company          
terminated Mr. McIntyre's employment effective January 15, 1996, thereby        
triggering the Company's obligation to make such payments through December 17,  
1998.                                                                           

    Effective March 15, 1991, the Company entered into an employment
agreement with Mr. Williams. As a result of the termination of his employment on
August 14, 1995, Mr. Williams will receive payments for three years equivalent  
to his base salary in effect at the time of the termination ($163,116 annually).
Effective August 16, 1995, Zapata Exploration Company, a wholly owned subsidiary
of the Company ("Zapex"), entered into a consulting agreement (the "Consulting  
Agreement") with Mr. Williams whereby he agreed to provide services including   
operational oversight for Zapex's Bolivia investment, direction of the winding- 
down of Zapex's domestic oil and gas operations, and other services in exchange 
for a monthly payment equal to a retainer plus an hourly fee. The Consulting    
Agreement is terminable by either Zapex or Mr. Williams upon written notice of  
an election to terminate which such termination shall be effective upon the last
day of the month following the month during which any such notice is given.     
Payments to Mr. Williams under the provisions of the Consulting Agreement during
the portion of fiscal 1995 following the termination of his employment are      
included in the "All Other Compensation" column of the Summary Compensation     
Table.                                                                          

COMPENSATION OF DIRECTORS                                                       

       During the year ended September 30, 1995, those members of Zapata's
Board of Directors who were not employees of the Company were paid an annual    
retainer of $20,000, plus $1,000 for each Committee of the Board on which a     
Board member served.  Effective April 1, 1995, the Company changed the payment  
schedule of directors' fees from an annual payment of $20,000 to a quarterly    
retainer of $5,000.  Those directors who are also Zapata employees do not       
receive any additional compensation for their services as directors.            

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          Pursuant to the Company's Amended and Restated Special Incentive Plan,
each nonemployee 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.                                       

        In November 1993, Peter M. Holt and Zapata entered into a three-year
Consulting Agreement pursuant to which Zapata agreed to 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 18 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 provided that, commencing in May    
1995 and for the remaining 18 months of the term of the Consulting Agreement,   
Mr. Holt would serve as Chairman of such divisions or subsidiaries.  Mr. Holt   
also served as the Chief Executive Officer of such divisions or subsidiaries.   
In November 1995, Mr. Holt resigned from the Board of Directors of the Company  
and from all of his management and board positions with affiliates of the       
Company, thereby terminating the Company's remaining obligations under the      
Consulting Agreement.                                                           

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION                     

  For the fiscal year ended September 30, 1995, the Compensation
Committee of the Board of Directors (the "Committee") was initially comprised of
Malcolm I. Glazer, Avram A. Glazer, Peter M. Holt, Daniel P. Whitty and Ronald  
C. Lassiter (as a nonvoting member).  Mr. Whitty served on the Committee until  
his resignation from the Board of Directors in November 1994.  Mr. M. Glazer    
resigned from the Committee on December 29, 1994 and was replaced by Myrl S.    
Gelb, who served on the committee from that date until his resignation from the 
Board of Directors in May 1995.  Mr. Robert V. Leffler, Jr. became a member of  
the Committee in May 1995.  Mr. Lassiter became a voting member of the Committee
in September 1995.  Mr. Holt's membership on the Committee ceased when he       
resigned from the Board in November 1995.  Mr. A. Glazer resigned from the      
Committee in January 1996.  Committee members M. Glazer, A. Glazer, Holt and    
Lassiter were officers of the Company (or one or more of its subsidiaries)      
during the fiscal year ended September 30, 1995.                                

       In November 1993, the Company purchased the natural gas compression
business of Energy Industries for an aggregate of $74 million in cash and       
2,700,000 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. In fiscal 1995, the Company made indemnification claims   
against Mr. Holt and the other sellers aggregating approximately $7 million     
under the purchase agreement relating to the Company's acquisition of Energy    
Industries. As of January 26, 1996, such claims remained unresolved. In         
connection with the acquisition of Energy Industries, the Company entered into a
three-year noncompetition agreement and a three-year Consulting Agreement with  
Mr. Holt. These agreements were not affected by the Energy Industries Sale.     
However, as a result of Mr. Holt's resignation in November 1995, the Company's  
obligations under the Consulting Agreement were terminated. See "Compensation of
Directors," above.                                                              

       During fiscal 1995, Energy Industries purchased Caterpillar engines
and parts from Holt Company of Texas, a corporation owned by Mr. Holt, for      
consideration totalling $10.4 million.  At September 30, 1995, Energy Industries
owed $326,000 related to these purchases.  The Company believes that such       
payments are comparable to those that would have been made to nonaffiliated     
entities for comparable products.                                               

       For information on a lawsuit filed by Mr. Holt against the Company,
see, Part I, Item 3. "Legal Proceedings," above.                                

   On February 14, 1995, the Company entered into a stock purchase
agreement with ZP Acquisition Corp. ("ZP") for the sale of Zapata Protein, Inc. 
R. C. Lassiter held an ownership interest in ZP, which                          

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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 failure to close the Zapata     
Protein transaction.                                                            

          In August 1995, the Company purchased 4,189,298 shares, or 31%, of the
common stock of Envirodyne for $18.8 million from a trust controlled by Malcolm 
I. Glazer.  Mr. M. Glazer is also a director of Envirodyne.  Such shares        
represented all of Mr. M. Glazer's ownership interest in Envirodyne.  The       
Company paid the purchase price by issuing a subordinated promissory note in a  
principal amount of $18.8 million, bearing interest at the prime rate and       
maturing in August 1997, subject to prepayment at the Company's option.  This   
transaction was approved by a special committee of the Company's Board of       
Directors comprised of Messrs. Lassiter, Leffler and Loar. The Company prepaid  
the entire principal amount of the promissory note during the first quarter of  
fiscal 1996.                                                                    

        In September 1995, Zapata's Board of Directors established a Special
Committee for the purpose of investigating the legal and financial              
considerations of one or more merger or acquisition transactions involving the  
Company and Houlihan's Restaurant Group, Inc. ("Houlihan's") and Speciality     
Equipment Companies, Inc. ("Specialty"). Mr. M. Glazer and members of his family
beneficially own approximately 73% and 45% of the outstanding common stock of   
Houlihan's and Specialty, respectively, and Mr. M. Glazer, Mr. A. Glazer and    
other members of their family serve as directors of both of those companies. The
Special Committee, consisting of Messrs. Lassiter, Leffler and Loar, was charged
with determining what further steps, if any, should be taken by the Company to  
pursue any such transaction. The Special Committee's investigation is           
continuing, but it has made no determination with respect to possible           
transactions involving either Houlihan's or Specialty.                          

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ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.       

     The following table sets forth information as to persons known by
Zapata to be the beneficial owners of more than 5% of any class of Zapata's     
outstanding voting securities as of December 31, 1995.  For purposes of this    
Item 12, beneficial ownership of securities is defined in accordance with the   
applicable 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.                                                      

                                                                [Download Table]


                                                     SHARES OWNED    PERCENT 
TITLE OF CLASS              NAME AND ADDRESS         BENEFICIALLY   OF CLASS 
---------------------  ---------------------------  --------------  ---------
                                                                             

Common Stock.........  The Malcolm I. Glazer Trust      10,408,717 (1)  35.3%
                       and Malcolm I. Glazer                                 
                       1482 South Ocean Boulevard                            
                       Palm Beach, Florida                                   

                       Peter M. Holt                     2,824,289 (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                        

________________                                                                
(1)  Based on information contained in a Schedule 13D, as amended as of April   
27, 1993, which was filed with the Commission by The Malcolm I. Glazer
Trust and Mr. M. Glazer.  The Schedule 13D states that Mr. M. Glazer  
  contributed all of his shares of Common Stock to such trust and that, as
    trustee and beneficiary of such trust, Mr. M. 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 that Mr. M. Glazer has the
   right to acquire within 60 days of December 31, 1995 through the exercise
of nonqualified stock options.                                        
(2)  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 additional information 
indicate 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.  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 13,333 shares of Common Stock that
Mr. Holt has the right to acquire within 60 days of December 31, 1995 
through the exercise of nonqualified stock options.                   

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   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 31, 1995:                                   

                                                                [Download Table]


SHARES OWNED                  PERCENT                                         
TITLE OF CLASS                  NAME                BENEFICIALLY(1)   OF CLASS
----------------  --------------------------------  ----------------  --------
                                                                              

Common Stock      Avram A. Glazer                          13,333          *  
                  Malcolm I. Glazer                    10,408,717 (2)    35.3 
                  Peter M. Holt                         2,824,289 (3)     9.6 
                  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          *  
                  Bruce Williams                                0          0  
                  Directors and executive officers                            
                   as a group (10 persons)             13,717,278        46.5 

________________                                                                
*    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 that are subject to options exercisable within 60 days
of December 31, 1995.  The number of such shares is 13,333 for each of
    Messrs. A. Glazer, M. Glazer and Holt; 42,000 for Mr. McIntyre; and 88,665
shares for the directors and executive officers as a group.           
(2)  Based on information contained in a Schedule 13D, as amended as of April   
27, 1993, which was filed with the Commission by The Malcolm I. Glazer
Trust and Mr. M. Glazer.  The Schedule 13D states that Mr. M. Glazer  
  contributed all of his shares of Common Stock to such trust and that, as
    trustee and beneficiary of such trust, Mr. M. 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 that Mr. M. Glazer has the
   right to acquire within 60 days of December 31, 1995 through the exercise
of nonqualified 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 additional information 
indicate 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.  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 13,333 shares of Common Stock, that
Mr. Holt has the right to acquire within 60 days of December 31, 1995 
through the exercise of nonqualified stock options.                   
(4)  All such shares are owned by the Robert W. Jackson Trust.                  

                                                                              11

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ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                       

         Mr. Kristian Siem served as a director of the Company from 1993 until
his resignation in April 1995. 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"), a company of which Mr. Siem was  
the Chairman and Chief Executive Officer.  In these transactions, Zapata raised 
$111.4 million from the issuance of debt and equity securities pursuant to a    
Second Amended and Restated Master Restructuring Agreement dated as of April 16,
1993, as 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 three       
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.                                                                 

For further information concerning certain transactions and 
relationships of Peter M. Holt, Ronald C. Lassiter and Malcolm I. Glazer with   
the Company, see Item 11. "Executive Compensation--Compensation Committee       
Interlocks and Insider Participation," above.                                   

                                                                              12

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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)

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

January 29, 1996                                                                

                                                                              13

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ANNEX B 

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UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

_____________________ 

FORM 10-Q 

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE                    
SECURITIES EXCHANGE ACT OF 1934 

For the quarterly period ended March 31, 1996 

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)

STATE OF DELAWARE                 C-74-1339132    
(STATE OR OTHER JURISDICTION OF     (I.R.S. EMPLOYER        
INCORPORATION OR ORGANIZATION)     IDENTIFICATION NO.)    

1717 ST. JAMES PLACE, SUITE 550                               
     HOUSTON, TEXAS                              77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)          (ZIP CODE)  

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 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 [_]                       

  NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK, PAR VALUE
$0.25 PER SHARE, ON MAY 13, 1996:  29,548,407.                                  

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PART I.  FINANCIAL INFORMATION

                                                                [Download Table]


ITEM 1.  FINANCIAL STATEMENTS                                  
                                                               
     Zapata Corporation                                        

          Condensed Consolidated Balance Sheet............  3  
          Condensed Consolidated Income Statement.........  4  
          Condensed Consolidated Statement of Cash Flows..  5  
          Notes to Financial Statements...................  6  


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ZAPATA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
------------------------------------
(in thousands)

                                                                [Download Table]


                                                   MARCH 31,   SEPTEMBER 30, 
                ASSETS                                1996          1995     
                                                   ----------  --------------
                                                                             
Current assets:                                                              
  Cash and cash equivalents                         $ 88,386        $  2,488 
  Receivables                                          5,360          17,550 
  Inventories:                                                               
     Fish products                                    20,629          22,947 
     Materials, parts and supplies                     3,594           3,358 
  Prepaid expenses and other current assets            3,457           2,400 
  Net assets of discontinued operations               22,724         101,894 
                                                    --------        -------- 

     Total current assets                            144,150         150,637 
                                                    --------        -------- 

Investments and other assets:                                                
  Notes receivable                                     8,864           8,864 
  Investments in unconsolidated affiliates            16,833          18,235 
  Deferred income taxes                                2,973           6,247 
  Other assets                                        16,220          16,170 
                                                    --------        -------- 
                                                      44,890          49,516 
                                                    --------        -------- 

Property and Equipment                                76,998          74,275 
Accumulated depreciation                             (36,579)        (35,037)
                                                    --------        -------- 
                                                      40,419          39,238 
                                                    --------        -------- 
     Total assets                                   $229,459        $239,391 
                                                    ========        ======== 

  LIABILITIES AND STOCKHOLDERS' EQUITY                                       
Current liabilities:                                                         
  Current maturities of long-term debt              $ 16,098        $ 16,148 
  Accounts payable and accrued liabilities            20,825          20,953 
                                                    --------        -------- 

     Total current liabilities                        36,923          37,101 
                                                    --------        -------- 

Long-term debt                                        18,406          37,468 
                                                    --------        -------- 

Other liabilities                                     18,552          19,532 
                                                    --------        -------- 

Stockholders' equity:                                                        
  Preference stock                                         3               3 
  Common stock                                         7,387           7,387 
  Capital in excess of par value                     131,962         131,962 
  Reinvested earnings from October 1, 1990            16,226           5,938 
                                                    --------        -------- 
                                                     155,578         145,290 
                                                    --------        -------- 
     Total liabilities and stockholders' equity     $229,459        $239,391 
                                                    ========        ======== 

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

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ZAPATA CORPORATION  
CONDENSED CONSOLIDATED INCOME STATEMENT 
--------------------------------------- 
(in thousands, except share and per share amounts)

                                                        [Enlarge/Download Table]


                                                     THREE MONTHS ENDED      SIX MONTHS ENDED  
                                                          MARCH 31,              MARCH 31,     
                                                    ---------------------  --------------------
                                                       1996       1995       1996       1995   
                                                    ----------  ---------  ---------  ---------
                                                                                               
Revenues                                              $14,800    $22,237    $38,742    $44,594 
                                                      -------    -------    -------    ------- 
Expenses:                                                                                      
  Operating                                            10,732     18,748     29,967     37,341 
  Depreciation, depletion and amortization                778      1,639      1,553      3,318 
  Selling, general and administration                   1,865      2,052      3,430      3,826 
                                                      -------    -------    -------    ------- 
                                                       13,375     22,439     34,950     44,485 
                                                      -------    -------    -------    ------- 

Operating income (loss)                                 1,425       (202)     3,792        109 
                                                      -------    -------    -------    ------- 

Other income (expense):                                                                        
  Interest income                                       1,323        212      1,602        470 
  Interest expense                                       (888)      (630)    (1,898)    (1,270)
  Gain on sale of Tidewater common stock                  ---      4,811        ---      4,811 
  Equity in loss of unconsolidated affiliate           (1,438)       ---     (1,438)       --- 
  Other                                                  (144)        41        (18)       568 
                                                      -------    -------    -------    ------- 
                                                       (1,147)     4,434     (1,752)     4,579 
                                                      -------    -------    -------    ------- 
Income from continuing operations                                                              
  before income taxes                                     278      4,232      2,040      4,688 
                                                      -------    -------    -------    ------- 

Provision for income taxes                                                                     
  State                                                    87         56        174         89 
  Federal                                                  68      1,462        654      1,610 
                                                      -------    -------    -------    ------- 
                                                          155      1,518        828      1,699 
                                                      -------    -------    -------    ------- 

Income from continuing operations                         123      2,714      1,212      2,989 

Discontinued operations:                                                                       
  Income (loss) from discontinued operations,                                                  
     net of income taxes                                  ---        217        (42)       690 
  Gain (loss) on disposition of Energy Industries,                                             
     net of income taxes                                 (610)       ---     12,618        --- 
  Loss on sale of Cimarron, net of income taxes        (3,500)       ---     (3,500)       --- 
                                                      -------    -------    -------    ------- 

Net income (loss)                                      (3,987)     2,931     10,288      3,679 
                                                      -------    -------    -------    ------- 

Preferred stock dividends                                 ---        ---        ---         51 
                                                      -------    -------    -------    ------- 

Net income (loss) to common stockholders              $(3,987)   $ 2,931    $10,288    $ 3,628 
                                                      =======    =======    =======    ======= 

Per share data:                                                                                
  Income from continuing operations                   $   ---    $  0.08    $  0.04    $  0.09 
  Income (loss) from discontinued operations            (0.13)      0.01       0.31       0.02 
                                                      -------    -------    -------    ------- 
  Net income (loss) per share                         $ (0.13)   $  0.09    $  0.35    $  0.11 
                                                      =======    =======    =======    ======= 

Average common shares and                                                                      
  equivalents outstanding                              29,558     31,779     29,562     31,768 
                                                      =======    =======    =======    ======= 

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

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ZAPATA CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------
(in thousands)

                                                                [Download Table]

                                                                 SIX MONTHS ENDED  
                                                                     MARCH 31,     
                                                               --------------------
                                                                 1996       1995   
                                                               ---------  ---------
                                                                                   

Cash flow provided (used) by operating activities:                                 
  Continuing operations:                                                           
     Net income from continuing operations                     $  1,212   $  2,989 
                                                               --------   -------- 
     Adjustments to reconcile net income to net cash provided                      
       (used) by operating activities:                                             
         Depreciation and amortization                            1,553      3,318 
         Gain on sale of assets                                     ---     (5,268)
         Equity in loss of unconsolidated affiliate               1,438        --- 
         Changes in other assets and liabilities                  2,926       (247)
                                                               --------   -------- 
            Total adjustments                                     5,917     (2,197)
                                                               --------   -------- 
         Cash flow provided by continuing operations              7,129        792 
                                                               --------   -------- 

  Discontinued operations:                                                         
     Income from discontinued operations                          9,076        690 
     Net gain on sales of assets, net of taxes                   (9,118)       --- 
     Change in net assets of discontinued operations             (2,770)    (2,577)
                                                               --------   -------- 
         Cash flow used by discontinued operations               (2,812)    (1,887)
                                                               --------   -------- 
            Net cash provided (used) by operating activities      4,317     (1,095)
                                                               --------   -------- 

Cash flow provided (used) by investing activities:                                 
  Proceeds from dispositions                                    103,421     14,481 
  Proceeds from notes receivable                                    ---        920 
  Restricted cash investments                                       ---    (12,704)
  Capital Expenditures                                           (2,728)    (3,715)
                                                               --------   -------- 
            Net cash provided (used) by investing activities    100,693     (1,018)
                                                               --------   -------- 

Cash flow used by financing activities:                                            
  Repayments of long-term obligations, net                      (19,112)      (582)
  Preferred stock redemption and common stock buybacks              ---     (2,758)
  Dividend payments                                                 ---     (1,153)
                                                               --------   -------- 
            Net cash used by financing activities               (19,112)    (4,493)
                                                               --------   -------- 

Net increase (decrease) in cash and cash equivalents             85,898     (6,606)
Cash and cash equivalents at beginning of period                  2,488      9,717 
                                                               --------   -------- 
Cash and cash equivalents at end of period                     $ 88,386   $  3,111 
                                                               ========   ======== 


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

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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 a description of 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.  These condensed financial      
statements should be read in conjunction with the financial statements and the  
notes thereto included in Zapata's latest annual report on Form 10-K.           

    In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based          
Compensation" ("SFAS 123").  The Company does not intend to adopt the           
recognition provisions of the statement but will adopt the disclosure           
requirements in fiscal year 1997.                                               

NOTE 2.  DISCONTINUED NATURAL GAS COMPRESSION OPERATIONS                        

In September 1995, Zapata entered into an agreement (the "Purchase    
Agreement") to sell the assets of its natural gas compression operations to     
Weatherford Enterra, Inc. and its wholly owned subsidiary, Enterra Compression  
Company (collectively, "Weatherford Enterra").  Pursuant to the Purchase        
Agreement, Weatherford Enterra purchased from the Company all of the assets of  
its natural gas compression operations, and assumed certain liabilities relating
to those operations, for approximately $131 million in cash including a post-   
closing adjustment of $300,000 which was finalized in April 1996.  A portion of 
the proceeds from the sale was used to repay certain indebtedness of            
approximately $26 million and expenses of approximately $1.4 million. The sale  
closed on December 15, 1995, after receiving stockholder approval, and resulted 
in a pre-tax gain of approximately $20.8 million or an after-tax gain of        
approximately $12.6 million.                                                    

 The Company's consolidated financial statements reflect the natural gas
compression operations as a discontinued operation.  Summarized results of the  
discontinued natural gas compression operations are shown below (amounts in     
millions):                                                                      

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                                                                [Download Table]


                          SIX MONTHS ENDED MARCH 31,
                          --------------------------
                                1996   1995         
                               ------  -----        
                                                    
FINANCIAL RESULTS                                   
Revenues..............          $13.1  $33.8        
Expenses *............           13.0   31.7        
                                -----  -----        
Income before taxes...             .1    2.1        
Income tax provision..             .1     .9        
                                -----  -----        
Net income (loss).....          $  --  $ 1.2        
                                =====  =====        

_____________                                                                   
*    Expenses include allocations of interest expense on general corporate debt 
     of $260,000 and $878,000 in the six-month periods ending March 31, 1996 and
1995, respectively.  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.  DISCONTINUED NATURAL GAS GATHERING, PROCESSING AND MARKETING OPERATIONS

  During fiscal 1995, the Company determined to dispose of its natural gas
gathering, processing and marketing operations, which were conducted through a  
wholly owned subsidiary of the Company, Cimarron Gas Holding Company (together  
with its subsidiaries, "Cimarron").  On April 9, 1996, Zapata sold substantially
all of the assets of Cimarron in two separate transactions with Conoco Inc.     
("Conoco") and Enogex Products Corporation ("Enogex").  Conoco purchased certain
of the Texas-based assets and Enogex purchased certain of the Oklahoma-based    
assets of Cimarron.  The aggregate cash consideration paid by Conoco and Enogex 
totaled approximately $23 million, subject to final post-closing adjustments.   
Subsequently, the Company sold Cimarron's remaining assets for an additional    
$900,000.  A portion of the proceeds from the sales was used to repay $1.0      
million of Cimarron's debt and approximately $1.8 million for commissions, fees 
and other expenses associated with the sales.  The sales resulted in an after-  
tax loss of approximately $3 million.  Additionally, Cimarron recognized an     
after-tax loss of approximately $500,000 from operations for fiscal 1996 that   
had previously been deferred against a reserve for discontinued operations.     

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    The consolidated financial statements reflect the net assets and operating
results of Cimarron's operations as a discontinued operation.  The summarized   
financial position of Cimarron's discontinued operations is shown below (amount 
in millions):                                                                   

                                                                [Download Table]


                               MARCH 31,  SEPTEMBER 30,
                                 1996         1995     
                               ---------  -------------
                                                       
FINANCIAL POSITION                                     
Current assets...............      $ 7.8          $ 9.6
Other assets.................        6.5            6.7
Property and equipment, net..       16.3           16.9
                                   -----          -----
                                    30.6           33.2
                                   -----          -----
Debt.........................        1.2            2.2
Other liabilities............        6.7            9.6
                                   -----          -----
                                     7.9           11.8
                                   -----          -----
Net book value...............      $22.7          $21.4
                                   =====          =====


NOTE 4.  DIVISIONAL REVENUES AND OPERATING RESULTS                              

    The Company's divisional revenues and operating results for the three- and
six-month periods ended March 31, 1996 and 1995 are as follows:                 

ZAPATA CORPORATION
DIVISIONAL REVENUES AND OPERATING RESULTS 
(in thousands)

                                                                [Download Table]


                           THREE MONTHS ENDED     SIX MONTHS ENDED  
                                MARCH 31,            MARCH 31,      
                          --------------------  --------------------
                            1996       1995       1996       1995   
                          --------  ----------  --------  ----------
                                                                    

Revenues:                                                           
Marine protein            $14,383     $19,993   $37,849     $39,574 
Oil and gas                   417       2,244       893       5,020 
                          -------     -------   -------     ------- 

                          $14,800     $22,237   $38,742     $44,594 
                          =======     =======   =======     ======= 

Operating income (loss):                                            
Marine protein            $ 1,980     $ 1,095   $ 5,043     $ 1,829 
Oil and gas                   224        (192)      153         218 
Corporate                    (779)     (1,105)   (1,404)     (1,938)
                          -------     -------   -------     ------- 

                          $ 1,425     $  (202)  $ 3,792     $   109 
                          =======     =======   =======     ======= 

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NOTE 5.  UNCONSOLIDATED AFFILIATES                                              

  The Company's financial statements for the six-month period ending March
31, 1996 include Zapata's 31% equity interest in Envirodyne Industries, Inc.    
("Envirodyne") for the three-month period ending December 31, 1995.  Zapata's   
investment in Envirodyne is accounted for under the equity method of accounting.
Since Envirodyne's financial statements are not available to the Company on a   
timely basis, Zapata reports its equity in Envirodyne's results of operations on
a three-month delayed basis.                                                    

Due to the significance of the Company's investment, the unaudited    
financial position and results of operation of Envirodyne are summarized below. 
The financial statement information presented below for Envirodyne is based upon
its annual report for the year ended December 28, 1995 (unaudited, in millions, 
except per share amounts):                                                      

ENVIRODYNE INDUSTRIES, INC. 

                                                                [Download Table]


                                                   DECEMBER 28,
                                                       1995    
                                                   ------------
                                                               
BALANCE SHEET                                                  
Current Assets...................................        $240.9
Other............................................         189.2
Property and equipment, net......................         469.5
                                                         ------
     Total assets................................        $899.6
                                                         ======

Current liabilities..............................        $119.2
Long-term debt...................................         530.2
Deferred income taxes and other..................         133.1
Stockholders' equity.............................         117.1
                                                         ------
     Total liabilities and stockholders' equity..        $899.6
                                                         ======


                                                                [Download Table]

                                            THREE MONTHS 
                                                ENDED    
                                             DECEMBER 28,
                                                1995     
                                            -------------
                                                         
INCOME STATEMENT                                         
Revenues..................................   $162.5      
                                             =======     

Loss before income taxes..................   $ (5.5)     
                                             =======     

Net loss..................................   $ (5.6)     
                                             =======     

Net loss per share........................   $ (0.42)    
                                             =======     


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NOTE 6.  CASH FLOW INFORMATION                                                  

In connection with the sale of the Company's natural gas compression  
operations, Zapata has retained certain liabilities related to these operations.
As a result, the Company reclassified approximately $2.1 million from net assets
of discontinued operations to current liabilities of continuing operations.     

NOTE 7.  SUBSEQUENT EVENT                                                       

     On May 2, 1996, Zapata and Houlihan's Restaurant Group, Inc. ("Houlihan's")
announced that they have entered into a letter of intent relating to Zapata's   
proposed acquisition of Houlihan's for a combination of cash and stock amounting
to $8.00 per share.  In view of Malcolm I. Glazer's ownership of Zapata and     
Houlihan's, the letter of intent was negotiated by representatives of special   
committees of the directors of both Zapata and Houlihan's who are not members of
the Glazer family.  The proposed transaction is subject to the negotiation and  
execution of a definitive merger agreement and, among other things, approval of 
the transaction by the directors and stockholders of both companies, compliance 
with the Hart-Scott-Rodino Antitrust Improvements Act, registration of the      
Zapata shares issuable in the merger under the Securities Act of 1933 and       
receipt of a consent from Houlihan's primary lending bank or the refinancing of 
Houlihan's outstanding bank debt.  There can be no assurance that a transaction 
will be consummated or, if consummated, will be on the terms as proposed.       

 Zapata also announced that Malcolm Glazer has entered into a standstill
agreement with Zapata.  Under the standstill agreement, Mr. Glazer has agreed on
behalf of himself, his family and entities controlled by him not to increase his
or their ownership of voting securities in Zapata above 49.9% on either an      
outstanding or fully diluted share basis, unless, among other things, such      
increase is approved by a majority of the directors on the Zapata board who are 
not members of the Glazer family or is in response to a tender offer or other   
proposal by others to acquire more than 14.9% of Zapata's voting securities.    

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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS                                                 

   Forward-looking statements in this Form 10-Q are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 
Investors are cautioned that all forward-looking statements involve risks and   
uncertainty, including without limitation, the risk of a significant natural    
disaster, the inability of the Company to reinsure certain risks, the adequacy  
of its loss reserves, oil and gas reserve estimates, changing regulations in    
foreign countries, as well as general market conditions, competition and        
pricing.  The Company believes that this information is based on reasonable     
expectations.  However, no assurances can be given that the Company will achieve
all of its goals and expectations.                                              

BUSINESS                                                                        

    In late 1994 and early 1995, the Company began to develop a strategic plan
involving the repositioning of the Company in the food packaging, food and food 
service equipment and supply (collectively, "food services") businesses and     
exiting the energy business.  The strategic plan that was developed called for  
the divestiture of most of the Company's remaining energy operations, including 
its natural gas compression operations, its natural gas gathering, processing   
and marketing operations 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 December 1995, Zapata sold the assets of its subsidiaries engaged in
natural gas compression operations (collectively, "Energy Industries") to       
Weatherford Enterra, Inc. and its wholly owned subsidiary, Enterra Compression  
Company (collectively, "Weatherford Enterra").  In that transaction, Weatherford
Enterra purchased from the Company all of the assets of Energy Industries for   
$131 million in cash, and assumed certain liabilities of Energy Industries,     
based on the net asset value of Energy Industries on the closing date (the      
"Energy Industries Sale").  The Energy Industries Sale resulted in an after-tax 
gain of approximately $12.6 million.  Of the approximately $131 million in cash 
proceeds received from the Energy Industries Sale, the Company used             
approximately $26 million to repay certain bank debt.  Additionally,            
approximately $1.4 million was used to pay commissions and fees associated with 
the sale.                                                                       

On April 9, 1996, Zapata sold substantially all of the assets of its  
subsidiaries engaged in natural gas gathering and processing operations         
(collectively, "Cimarron") in two separate transactions with Conoco Inc.        
("Conoco") and Enogex Products Corporation ("Enogex").  Conoco purchased certain
of the Texas-based assets and Enogex purchased certain of the Oklahoma-based    
assets of Cimarron.  The aggregate cash consideration paid by Conoco and Enogex 
totaled approximately $23 million, subject to final post-closing adjustments.   
Subsequently, the Company sold Cimarron's remaining assets for an additional    
$900,000.  A portion of the proceeds from the sales were used to repay $1.0     
million of Cimarron's debt and approximately $1.8 million for commissions, fees 
and other expenses associated with the sales.  The sales resulted in an after-  
tax                                                                             

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loss of approximately $3 million. Additionally, Cimarron recognized an after-tax
loss of approximately $500,000 from operations for fiscal 1996 that had         
previously been deferred against a reserve for discontinued operations.         

     The sale of Cimarron's assets substantially completes the transformation of
Zapata away from the energy business.  The Company intends to use the remaining 
net proceeds from the Energy Industries and Cimarron dispositions for general   
corporate purposes, which may include further repayment of debt, and for future 
expansion into the food services industry.                                      

     On May 2, 1996, Zapata and Houlihan's Restaurant Group, Inc. ("Houlihan's")
announced that they have entered into a letter of intent relating to Zapata's   
proposed acquisition of Houlihan's for a combination of cash and stock amounting
to $8.00 per share. In view of Malcolm I. Glazer's ownership of Zapata and      
Houlihan's, the letter of intent was negotiated by representatives of special   
committees of the directors of both Zapata and Houlihan's who are not members of
the Glazer family. Zapata's special committee is comprised of Board members     
Ronald C. Lassiter, Robert V. Leffler, Jr. and W. George Loar. The proposed     
transaction is subject to the negotiation and execution of a definitive merger  
agreement and, among other things, approval of the transaction by the directors 
and stockholders of both companies, compliance with the Hart-Scott-Rodino       
Antitrust Improvements Act, registration of the Zapata shares issuable in the   
merger under the Securities Act of 1933 and receipt of a consent from Houlihan's
primary lending bank or the refinancing of Houlihan's outstanding bank debt.    
There can be no assurance that a transaction will be consummated or, if         
consummated, will be on the terms as proposed.                                  

 Zapata also announced that Malcolm Glazer has entered into a standstill
agreement with Zapata.  Under the standstill agreement, Mr. Glazer has agreed on
behalf of himself, his family and entities controlled by him during the term of 
the standstill agreement not to increase his or their ownership of voting       
securities in Zapata above 49.9% on either an outstanding or fully diluted share
basis, unless, among other things, such increase is approved by a majority of   
the directors on the Zapata board who are not members of the Glazer family or is
in response to a tender offer or other proposal by others to acquire more than  
14.9% of Zapata's voting securities.                                            

LIQUIDITY AND CAPITAL RESOURCES                                                 

    Reflecting the Energy Industries Sale in December 1995, the Company's cash
component totaled $88.4 million at March 31, 1996 as compared to $2.5 million at
September 30, 1995.  Additionally, Zapata's long-term debt of $18.4 million     
compared favorably to working capital of $107.2 million and stockholders' equity
of $155.6 million.                                                              

 Cash provided from operating activities totaled $4.3 million during the
first six months of fiscal 1996 as compared to a $1.1 million use of cash during
the corresponding fiscal 1995 period.  The improvement in the fiscal 1996 period
was primarily attributable to an increased contribution from the Company's      
marine protein operations.  Investing activities provided $100.7 million during 
the fiscal 1996 period as compared to a $1.0 million use of cash in the fiscal  
1995 period.  The fiscal                                                        

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1996 period included the net proceeds generated from the Energy Industries Sale 
while the fiscal 1995 period included proceeds of $12.7 million from the sale of
the Company's remaining shares of Tidewater Inc. ("Tidewater") common stock; the
Tidewater stock proceeds were required to be used to partially prepay certain   
Company indebtedness in April 1995. Financing activities consumed $19.1 million 
and $4.5 million in the 1996 and 1995 periods, respectively. The increased use  
of cash in the fiscal 1996 period included a $3.2 million prepayment of         
indebtedness owing to the Malcolm I. Glazer Trust incurred in connection with   
the Company's purchase of stock of Envirodyne Industries, Inc. ("Envirodyne"), a
$4.8 prepayment of the Company's remaining indebtedness owed to Norex America,  
Inc. and a $10.0 million repayment of a revolving credit facility for the       
Company's marine protein division. The fiscal 1995 period included payments     
totaling $3.9 million for redemption of the Company's preferred stock, an odd-  
lot common stock repurchase program and dividend payments.                      

RESULTS OF OPERATIONS                                                           

    Zapata reported a net loss of $4.0 million for the quarter ended March 31,
1996 as compared to net income of $2.9 million for the quarter ended March 31,  
1995.  The loss in the fiscal 1996 period was primarily attributable to losses  
from the Company's discontinued operations totaling $4.1 million.  Such loss was
comprised of a $3.5 million net loss associated with the sale of the Company's  
natural gas gathering and processing assets and a $610,000 net loss that        
included a $300,000 post-closing adjustment and additional expenses associated  
with the sale of the Company's compression assets in December 1995.  The $3.5   
million loss included an estimated net loss of approximately $500,000 from the  
natural gas gathering and processing operations for fiscal 1996 that had        
previously been deferred against a reserve for discontinued operations.  In the 
second quarter of fiscal 1995, Zapata's discontinued operations generated net   
income of $217,000.                                                             

 The Company's net income from continuing operations of $123,000 for the
second quarter of fiscal 1996 compared unfavorably to net income from continuing
operations of $2.7 million for the second quarter of fiscal 1995.  The fiscal   
1996 three-month period included a $1.4 million equity loss from Zapata's 31%   
interest in the net loss of Envirodyne for the three months ended December 31,  
1995, while Zapata's fiscal 1995 period results included a $4.8 million pre-tax 
gain from the sale of the Company's remaining shares of Tidewater common stock. 
Due primarily to improved operating results from the marine protein division,   
the Company's operating income of $1.4 million for the three months ended March 
31, 1996 compared favorably to an operating loss of $202,000 for the three      
months ended March 31, 1995.                                                    

   For the first six months of fiscal 1996, Zapata's net income increased to
$10.3 million from $3.7 million for the corresponding fiscal 1995 period due    
primarily to the $12.6 million after-tax gain from the sale of the Company's    
compression assets.  Revenues of $38.7 million and operating income of $3.8     
million for the 1996 period compared to the 1995 period revenues of $44.6       
million and operating income of $109,000.                                       

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MARINE PROTEIN                                                                  

 Reflecting higher prices for fish meal and fish oil, the marine protein
division's operating results improved in the second quarter of fiscal 1996 as   
compared to the second quarter of fiscal 1995.  Revenues of $14.4 million and   
operating income of $2.0 million for the three-month period ending March 31,    
1996 compared to revenues of $20.0 million and operating income of $1.1 million 
for the corresponding period in fiscal 1995.  Although sales volumes of fish oil
and fish meal were lower in the current period as compared to the prior-year    
period, the average price of fish oil increased to $486 per ton in the second   
quarter of fiscal 1996 from $284 per ton in the fiscal 1995 second quarter and  
the average price for fish meal improved to $442 per ton in the 1996 period from
$354 per ton in the 1995 period.                                                

   Similarly, year-to-date revenues of $37.8 million and operating income of
$5.0 million for fiscal 1996 compared to revenues of $39.6 million and operating
income of $1.8 million for the corresponding fiscal 1995 period.                

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.  Accordingly, 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.        

OIL AND GAS                                                                     

     In fiscal 1995, the Company sold its U.S. natural gas producing properties.
As a result, the Company's only significant remaining oil and gas activity is   
the production of natural gas through a joint venture in Bolivia in which the   
Company has a 25% interest.  Revenues of $417,000 and operating income of       
$224,000 in the second quarter of fiscal 1996 compared to revenues of $2.2      
million and an operating loss of $192,000 in the comparable fiscal 1995 quarter,
which included revenues of $565,000 and operating income of $116,000 from the   
Bolivian operations.  The Company's fiscal 1995 Bolivian operating results were 
negatively impacted by higher operating expenses.                               

Year-to-date fiscal 1996 revenues of $893,000 and operating income of 
$153,000 compared to fiscal 1995 revenues of $5.0 million and operating income  
of $218,000.  The fiscal 1995 results include Bolivian revenues of $1.5 million 
and operating income of $812,000.                                               

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PART II.  OTHER INFORMATION 

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                       

(a)  Exhibits:                                                                  

      The exhibits indicated by an asterisk (*) are incorporated by reference.

3(a)*  -- Restated Certificate of Incorporation of Zapata filed with  
            Secretary of State of Delaware on 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 November 21, 1995   
          (Exhibit 3(d) to Zapata's Annual Report on Form 10-K for the
      fiscal year ended September 30, 1995 (File No. 1-4219)).

10(a)*  -- Purchase and Sale Agreement dated March 26, 1996 by and among
           Cimarron Gas Holding Company, Conoco Inc. and Enogex Products
             Corporation (Exhibit 2.1 to Zapata's Current Report on Form 8-K
dated April 9, 1996 (File No. 1-4219)).           

10(b)*  -- Amendment and Clarification of Purchase and Sale Agreement,  
              Waiver and Closing Agreement dated April 9, 1996 (Exhibit 2.2 to
               Zapata's Current Report on Form 8-K dated April 9, 1996 (File No.
1-4219)).                                         

27     -- Financial Data Schedule.                                    

(b)  Reports on Form 8-K:                                                       

None.                                                                 

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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
                                          (Registrant)

May 14, 1996                        By: /s/ Joseph L. von Rosenberg III         
                                    ______________________________________
                               (Joseph L. von Rosenberg III,
                                       Executive Vice President, General Counsel
                          and Corporate Secretary)

May 14, 1996                        By:  /s/ Robert A. Gardiner                 
                                      ______________________________________
                      (Robert A. Gardiner,
                                Vice President and Chief Financial
          Officer)

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ANNEX C 

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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):  JUNE 19, 1996                

ZAPATA CORPORATION    
(Exact name of registrant as specified in its charter)    

     DELAWARE                     1-4219                  C-74-1339132
(State or other jurisdiction    (Commission File No.)        (I.R.S. Employer   
     of incorporation)                                     Identification No.)

1717 ST. JAMES PLACE    
SUITE 550   
HOUSTON, TEXAS 77056    
(Address of principal executive offices)    

(713) 940-6100    
(Registrant's telephone number, including area code)    

NOT APPLICABLE    
(Former name or former address, if changed since last report)   

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ITEM 5.  OTHER EVENTS                                                           

On June 19, 1996, Zapata Corporation, a Delaware corporation  
        ("Zapata"),  purchased 818,006 shares of common stock, par value $0.01
        per share ("Envirodyne Common Stock"), of Envirodyne Industries, Inc.,
   a Delaware corporation ("Envirodyne"), in a brokerage transaction
    (which settled on June 24, 1996) at a purchase price of $4.165 per
  share, including brokerage commissions.  Also, on June 19, 1996,
        Zapata contracted to acquire, at a purchase price of $4.125 per share,
       all the shares of Envirodyne Common Stock held by a holder of 900,000
        shares of Envirodyne Common Stock, subject to reductions in the number
       of shares held by such holder (estimated not to exceed 30,000 shares)
        effected prior to the closing of the transaction, which is to occur no
 later than June 30, 1996.  Upon the closing of such transaction
       (assuming that 870,000 shares of Envirodyne Common Stock are acquired
       in such transaction and based upon the most recently available filing
    by Envirodyne with the Securities and Exchange Commission), Zapata
      will own approximately 40.6% of the outstanding shares of Envirodyne
       Common Stock.  For additional information with respect to Envirodyne,
       reference is made to the audited consolidated financial statements of
      Envirodyne and subsidiaries as of December 28, 1995 and December 29,
        1994 and for the 52-week periods ended December 28, 1995, December 29,
      1994 and December 31, 1993 and to the unaudited interim consolidated
     financial statements of Envirodyne and subsidiaries as of March 28,
        1996 and for the three months ended March 28, 1996 and March 30, 1995,
        all of which are included as an exhibit to this Current Report on Form
8-K and are incorporated herein by this reference.            

ITEM 7.  FINANCIAL STATEMENTS AND EXHIBITS                                      

(c) EXHIBITS.                                                 

Exhibit 23  - Consent of independent accountants.     

           Exhibit 99  - Financial statements of Envirodyne Industries, Inc.
                          and subsidiaries, including independent accountant's
report.                   

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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

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

Date:  June 24, 1996                                                            

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EXHIBIT INDEX 

                                                                [Download Table]

Exhibit                  Description                                  
-------                  -----------                                  
                                                                      
   23         Consent of independent accountants.                     

   99         Financial statements of Envirodyne Industries, Inc. and 
              subsidiaries, including independent accountant's report.

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CONSENT OF INDEPENDENT ACCOUNTANTS

     We consent to the incorporation by reference in the Registration Statements
of Zapata Corporation of Form S-3 (File No. 33-68034) and on Form S-8's (File   
Nos. 33-19085 and 33-45251) of our reports, which include explanatory paragraphs
discussing the comprehensive financial restructuring through implementation of  
reorganization under Chapter 11 of the United States Bankruptcy Code, dated     
March 26, 1996, on our audits of the consolidated financial statements and      
financial statement schedules of Envirodyne Industries, Inc. and subsidiaries   
as of December 28, 1995 and December 29, 1994 and for the period December 30,   
1994 to December 28, 1995 and January 1 to December 29, 1994 (Post-consummation)
and January 1 to December 31, 1993 (Pre-consummation) and the consolidated      
financial statements and financial statement schedules of Viskase Holding       
Corporation and subsidiaries as of December 28, 1995 and December 29, 1994, and 
for the period December 30, 1994 to December 28, 1995 and January 1 to December 
29, 1994 (Post-consummation) and January 1 to December 31, 1993                 
(Pre-consummation), which reports are included in this Form 8-K.                

            Coopers & Lybrand L.L.P.

Chicago, Illinois                                                               
June 21, 1996                                                                   

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AUDITED FINANCIAL STATEMENTS  

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REPORT OF INDEPENDENT ACCOUNTANTS 

To the Board of Directors                                                       
Envirodyne Industries, Inc.                                                     

   We have audited the consolidated financial statements and the financial
statement schedules of Envirodyne Industries, Inc. and Subsidiaries listed in   
Item 14(a) of this Form 10-K. These financial statements and financial          
statement schedules are the responsibility of the Company's management. Our     
responsibility is to express an opinion on these financial statements and       
financial statement schedules 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 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.                                                                

As discussed in Note 1 to the consolidated financial statements, on 
December 31, 1993, the Company completed a comprehensive financial              
restructuring through the implementation of reorganization under Chapter 11 of  
the United States Bankruptcy Code and applied fresh start reporting.            

In our opinion, the financial statements referred to above present  
fairly, in all material respects, the consolidated financial position of        
Envirodyne Industries, Inc. and Subsidiaries as of December 28, 1995 and        
December 29, 1994, and the consolidated results of their operations and their   
cash flows for the period December 30, 1994 to December 28, 1995 and January 1  
to December 29, 1994 (Post-consummation) and January 1 to December 31, 1993     
(Pre-consummation), in conformity with generally accepted accounting            
principles. In addition, in our opinion the schedules 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.                                                        

Chicago, Illinois                                                               
March 26, 1996                                                                  

F-1   

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ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS 

                                                                [Download Table]

                                                  DECEMBER 28,        DECEMBER 29,
                                                      1995                1994    
                                                  ------------        ------------
                                                          (in thousands)          
                                                                                  
ASSETS                                                                            
  Current assets:                                                                 
    Cash and equivalents ........................   $ 30,325            $  7,289  
    Receivables, net ............................     89,454              86,868  
    Inventories .................................     99,474             110,483  
    Other current assets ........................     21,646              19,466  
                                                    --------            --------  
        Total current assets ....................    240,899             224,106  
  Property, plant and equipment,                                                  
    including those under capital leases ........    545,491             506,099  
    Less accumulated depreciation                                                 
      and amortization ..........................     75,987              35,761  
                                                    --------            --------  
    Property, plant and equipment, net ..........    469,504             470,338  
  Deferred financing costs ......................      8,090               9,143  
  Other assets ..................................     45,589              47,181  
  Excess reorganization value ...................    135,485             145,868  
                                                    --------            --------  
                                                    $899,567            $896,636  
                                                    ========            ========  

LIABILITIES AND STOCKHOLDERS' EQUITY                                              
  Current liabilities:                                                            
    Short-term debt including current portion                                     
      of long-term debt and obligations                                           
      under capital leases ......................   $ 12,504            $ 25,798  
    Accounts payable ............................     39,117              34,335  
    Accrued liabilities .........................     67,553              72,246  
                                                    --------            --------  
        Total current liabilities ..............     119,174             132,379  
  Long-term debt including obligations                                            
    under capital leases .......................     530,181             489,358  
  Accrued employee benefits ....................      55,626              56,217  
  Deferred and noncurrent income taxes .........      77,490              83,333  
  Commitments and contingencies                                                   
  Stockholders' equity:                                                           
    Preferred stock, $.01 par value;                                              
      none outstanding                                                            
    Common stock, $.01 par value;                                                 
      13,579,460 shares issued and                                                
      outstanding at December 28, 1995 and                                        
      13,515,000 shares at December 29, 1994 ...         136                 135  
    Paid in capital.............................     134,864             134,865  
    Accumulated (deficit) ......................     (25,131)             (3,612) 
    Cumulative foreign currency                                                   
      translation adjustments ..................       7,227               3,961  
                                                    --------            --------  
        Total stockholders' equity                   117,096             135,349  
                                                    --------            --------  
                                                    $899,567            $896,636  
                                                    ========            ========  

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

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ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS 

                                                        [Enlarge/Download Table]

                                                      52 WEEKS            52 WEEKS            52 WEEKS  
                                                    DECEMBER 30,         JANUARY 1,          JANUARY 1, 
                                                      1994 TO                TO                  TO     
                                                    DECEMBER 28,        DECEMBER 29,        DECEMBER 31,
                                                        1995                1994                1993    
                                                    ------------        ------------        ------------
                                                         (in thousands, except for number of shares     
                                                                   and per share amounts)               
                                                                                                        
NET SALES ......................................... $   650,212           $   599,029         $ 587,385 
  Patent infringement settlement income ...........                             9,457                   

COSTS AND EXPENSES                                                                                      
  Cost of sales ...................................     485,048               435,760           418,692 
  Selling, general and administrative .............     111,230               108,437            99,350 
  Amortization of intangibles and                                                                       
    excess reorganization value ...................      15,799                15,612            15,711 
                                                     ----------           -----------         --------- 
OPERATING INCOME ..................................      38,135                48,677            53,632 
  Interest income .................................         670                   307               931 
  Interest expense ................................      57,336                49,514            31,190 
  Other expense (income), net .....................       1,710                (1,668)            5,540 
  Minority interest in loss of subsidiary .........                                50               717 
                                                     ----------           -----------         --------- 
INCOME (LOSS) BEFORE INCOME TAXES,                                                                      
  REORGANIZATION ITEMS AND EXTRAORDINARY ITEMS ....     (20,241)                1,188            18,550 
  Reorganization items, net .......................                                             104,745 
                                                     ----------           -----------         --------- 
INCOME (LOSS) BEFORE INCOME TAXES                                                                       
  AND EXTRAORDINARY ITEMS .........................     (20,241)                1,188           (86,195)
  Income tax provision (benefit) ..................      (2,918)                4,800            12,000 
                                                     ----------           -----------         --------- 
(LOSS) BEFORE EXTRAORDINARY ITEMS .................     (17,323)               (3,612)          (98,195)
 Extraordinary gain (loss), net of tax ............      (4,196)                                183,784 
                                                     ----------           -----------         --------- 
NET INCOME (LOSS) .................................  $  (21,519)          $    (3,612)        $  85,589 
                                                     ==========           ===========         ========= 
WEIGHTED AVERAGE COMMON SHARES ....................  13,516,771            13,500,703               320 
                                                     ==========           ===========         ========= 
PER SHARE AMOUNTS:                                                                                      
  (LOSS) BEFORE EXTRAORDINARY ITEMS ...............  $    (1.28)          $      (.27)        $(306,859)
                                                     ==========           ===========         ========= 
NET INCOME (LOSS) .................................  $    (1.59)          $      (.27)        $ 267,466 
                                                     ==========           ===========         ========= 

 Due to the implementation of the Plan of Reorganization and Fresh Start
Reporting, the consolidated statement of operations for the fiscal years ended  
December 28, 1995 and December 29, 1994 are not comparable to the fiscal year   
ended December 31, 1993. (Refer to Note 1 of Notes to Consolidated Financial    
Statements.)                                                                    

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

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ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) 

                                                        [Enlarge/Download Table]

                                                                         CUMULATIVE                
                                                                           FOREIGN       TOTAL     
                                                                          CURRENCY    STOCKHOLDERS'
                                      COMMON   PAID IN      ACCUMULATED  TRANSLATION     EQUITY    
                                      STOCK    CAPITAL       (DEFICIT)   ADJUSTMENTS    (DEFICIT)  
                                      ------   --------     -----------  -----------    ---------  
                                                         (IN THOUSANDS)                            
                                                                                                   
Balance December 31, 1992 . . . . . . $    1   $ 12,900     $ (98,776)   $  2,330     $  (83,545)  
Net income  . . . . . . . . . . . . .                          85,589                     85,589   
Translation adjustments . . . . . . .                                      (2,044)        (2,044)  
Cancellation of preconsummation                                                                    
  Common Stock  . . . . . . . . . . .     (1)   (12,900)                                 (12,901)  
Elimination of accumulated deficit                                                                 
  and cumulative foreign currency                                                                  
  translation adjustments . . . . . .                          13,187        (286)        12,901   
                                      ------   --------     ---------    --------     ----------   
                                      $    0   $      0     $       0    $      0     $        0   
                                      ======   ========     =========    ========     ==========   

Issuance of new Common Stock  . . . . $  135   $134,865                               $  135,000   
                                      ------   --------                               ----------   
Balance December 31, 1993 . . . . . .    135    134,865                                  135,000   
Net (loss)  . . . . . . . . . . . . .                       $  (3,612)                    (3,612)  
Translation adjustments . . . . . . .                                    $  3,961          3,961   
                                      ------   --------     ---------    --------     ----------   
Balance December 29, 1994 . . . . . .    135    134,865        (3,612)      3,961        135,349   
Net (loss)  . . . . . . . . . . . . .                         (21,519)                   (21,519)  
Issuance of Common Stock  . . . . . .      1         (1)                                           
Translation adjustments . . . . . . .                                       3,266          3,266   
                                      ------   --------     ---------    --------     ----------   
Balance December 28, 1995             $  136   $134,864     $ (25,131)   $  7,227     $  117,096   
                                      ======   ========     =========    ========     ==========   

 Due to the implementation of the Plan of Reorganization and Fresh Start
Reporting, the stockholders' equity for the fiscal years ended December 28,     
1995 and December 29, 1994 are not comparable to the fiscal year ended December 
31, 1993. (Refer to Note 1 of Notes to Consolidated Financial Statements.)      

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

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ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS 

                                                        [Enlarge/Download Table]

                                                                          DECEMBER 30,       JANUARY 1,      JANUARY 1,  
                                                                            1994 TO              TO              TO      
                                                                          DECEMBER 28,      DECEMBER 29,    DECEMBER 31, 
                                                                            1995                1994            1993     
                                                                         -----------       ------------     ------------ 
                                                                                         (IN THOUSANDS)                  
                                                                                                                         
Cash flows from operating activities:                                                                                    
  (Loss) before extraordinary item  . . . . . . . . . . . . . . . .      $ (17,323)          $ (3,612)       $ (98,195)  
  Extraordinary gain (loss) . . . . . . . . . . . . . . . . . . . .         (4,196)                            183,784   
                                                                         ---------           --------        ---------   
  Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . .        (21,519)            (3,612)          85,589   
  Adjustments to reconcile net income (loss) to net cash                                                                 
    provided by operating activities:                                                                                    
    Depreciation and amortization under capital leases  . . . . . .         40,262             35,775           36,687   
    Amortization of intangibles and excess reorganization value . .         15,799             15,612           15,711   
    Amortization of deferred financing fees and discount  . . . . .          2,196              1,569            2,418   
    Increase (decrease) in deferred and noncurrent income taxes . .         (6,450)               (52)           9,547   
    Loss on debt extinguishment . . . . . . . . . . . . . . . . . .          6,778                                       
    Foreign currency transaction loss (gain)  . . . . . . . . . . .         (1,233)            (3,465)           3,380   
    Loss (gain) on sales of property, plant and equipment . . . . .             73                 (9)             650   
    Reorganization items and fresh start reporting  . . . . . . . .                                            (79,039)  
    Changes in operating assets and liabilities:                                                                         
      Accounts receivable . . . . . . . . . . . . . . . . . . . . .           (839)           (11,257)          (1,319)  
      Inventories . . . . . . . . . . . . . . . . . . . . . . . . .         12,741            (10,548)           4,163   
      Other current assets  . . . . . . . . . . . . . . . . . . . .         (1,837)            (1,607)          (2,152)  
      Accounts payable and accrued liabilities  . . . . . . . . . .         (1,670)             3,774           15,894   
      Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .         (5,334)            (2,894)             672   
                                                                         ---------           --------        ---------   
    Total adjustments . . . . . . . . . . . . . . . . . . . . . . .         60,486             26,898            6,612   
                                                                         ---------           --------        ---------   
      Net cash provided by operating activities before                                                                   
        reorganization expense  . . . . . . . . . . . . . . . . . .         38,967             23,286           92,201   
       Net cash used for reorganization items . . . . . . . . . . .                                            (14,929)  
                                                                         ---------           --------        ---------   
        Total net cash provided by operating activities . . . . . . .       38,967             23,286           77,272   

Cash flows from investing activities:                                                                                    
  Capital expenditures  . . . . . . . . . . . . . . . . . . . . . .        (34,465)           (32,566)         (40,887)  
  Proceeds from sale of property, plant and equipment . . . . . . .             86                359              124   
  Purchase of minority interest in subsidiary . . . . . . . . . . .                            (4,200)                   
                                                                         ---------           --------        ---------   
      Net cash (used in) investing activities . . . . . . . . . . .        (34,379)           (36,407)         (40,763)  
Cash flows from financing activities:                                                                                    
  Proceeds from revolving loan and long-term borrowings . . . . . .        207,922             37,668          106,003   
  Deferred financing costs  . . . . . . . . . . . . . . . . . . . .         (7,887)            (1,608)          (9,779)  
  Repayment of revolving loan, long-term borrowings and                                                                  
    capital lease obligations . . . . . . . . . . . . . . . . . . .       (181,375)           (22,617)        (138,736)  
                                                                         ---------           --------        ---------   
      Net cash provided by (used in) financing activities . . . . .         18,660             13,443          (42,512)  
Effect of currency exchange rate changes on cash  . . . . . . . . .           (212)              (776)            (316)  
                                                                         ---------           --------        ---------   
Net increase (decrease) in cash and equivalents . . . . . . . . . .         23,036               (454)          (6,319)  
Cash and equivalents at beginning of period . . . . . . . . . . . .          7,289              7,743           14,062   
                                                                         ---------           --------        ---------   
Cash and equivalents at end of period . . . . . . . . . . . . . . .      $  30,325           $  7,289        $   7,743   
                                                                         =========           ========        =========   
-------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information and noncash investing and                                                             
  financing activities:                                                                                                  
  Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . .      $  55,030           $ 43,484        $  28,001   
  Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . .      $   4,895           $  5,058        $   1,154   
  Capital lease obligations (machinery and equipment) . . . . . . .      $   2,081                                       

   Due to the implementation of the Plan of Reorganization and Fresh
Start Reporting, the consolidated statement of cash flows for the fiscal years  
ended December 28, 1995 and December 29, 1994 are not comparable to the fiscal  
year ended December 31, 1993. (Refer to Note 1 of Notes to Consolidated         
Financial Statements.)                                                          

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

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ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   CHAPTER 11 REORGANIZATION PROCEEDINGS (DOLLARS IN THOUSANDS)               

  On January 6, 1993, a group of bondholders filed an involuntary petition
for reorganization of Envirodyne Industries, Inc. under Chapter 11 of the U.S.  
Bankruptcy Code. On January 7, 1993 Viskase Corporation, Viskase Sales          
Corporation, Viskase Holding Corporation, Clear Shield National, Inc., Sandusky 
Plastics of Delaware, Inc., Sandusky Plastics, Inc. and Envirodyne Finance      
Company each filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy  
Code in the United States Bankruptcy Court for the Northern District of         
Illinois, Eastern Division (the Bankruptcy Court). On December 17, 1993, the    
Bankruptcy Court confirmed the First Amended Joint Plan of Reorganization as    
twice modified (Plan of Reorganization) with respect to Envirodyne Industries,  
Inc. (Envirodyne) and certain of its subsidiaries. The Plan of Reorganization   
was consummated and Envirodyne and certain of its subsidiaries emerged from     
Chapter 11 on December 31, 1993 (Effective Date). For accounting purposes, the  
Plan of Reorganization was deemed to be effective as of December 31, 1993.      

Pursuant to the Plan of Reorganization, Envirodyne's shares of common 
stock that were outstanding prior to the effective date were canceled. Emerald  
Acquisition Corporation, the sole stockholder of Envirodyne prior to the        
consummation of the bankruptcy, received no distribution pursuant to the Plan   
of Reorganization. The Plan of Reorganization provided for the initial issuance 
of approximately 13,500,000 new shares of Envirodyne common stock (subject to   
adjustment), warrants to purchase an additional 1,500,000 shares and            
distributions to major creditors as follows:                                    

       --      Holders of Envirodyne's former Senior Discount Notes Due 1997
           (14.5%) (Old Discount Notes) with an accreted value as of
              January 6, 1993 of $200,838 became entitled to receive a pro
             rata portion of $219,262 principal amount of 10 1/4% Senior
Notes Due 2001 (10 1/4% Notes).               

     --      Holders of Envirodyne's former $200,000 principal amount of
      14% Senior Subordinated Debentures Due 2001 (Old 14%
               Debentures), with accrued but unpaid interest through January
          6, 1993 of $42,812 became entitled to receive a pro rata
              portion of 12,142,737 shares of the Envirodyne common stock,
         par value $.01 per share, representing in the aggregate
           approximately 89.95% of the common stock initially issued
pursuant to the Plan of Reorganization.       

        --      Holders of the Envirodyne's former $91,350 principal amount of
               13 1/2% Subordinated Notes Due 1996 (Old 13 1/2% Notes), with
                accrued but unpaid interest through January 6, 1993 of $13,604
              became entitled to receive a pro rata portion of (i) 903,625
        shares of Envirodyne common stock, representing in the
             aggregate approximately 6.69% of the common stock initially
         issued pursuant to the Plan of Reorganization, and (ii)
            warrants (Warrants) to purchase 1,500,000 shares of common
       stock. The Warrants were issued pursuant to a Warrant
                Agreement dated as of December 31, 1993 between Envirodyne and
           Bankers Trust Company, as Warrant Agent. The Warrants are
                exercisable at any time until December 31, 1998 at an exercise
           price of $17.25 per share. The number of shares of common
            stock for which a Warrant is exercisable, and the exercise
           price of the Warrants, are subject to adjustment upon the
           occurrence of certain events. In addition, holders of Old
         13 1/2% Notes, other than Salomon Brothers Inc (Salomon
                 Brothers) and certain of its affiliates, who elected to grant a
                 limited release to Salomon Brothers and its affiliates pursuant
                 to the Plan of Reorganization, of all claims arising out of the
             1989 leveraged buyout acquisition of Envirodyne, the Old 13
             1/2% Notes or Envirodyne, were entitled to share ratably in
               445,928 shares of common stock, representing in the aggregate
          approximately 3.30% of the common stock initially issued
pursuant to the Plan of Reorganization.       

       --      Holders of allowed general unsecured claims of Envirodyne (as
           opposed to subsidiaries of Envirodyne) became entitled to
            receive 32.28 shares of common stock for each five hundred
           dollars amount of their prepetition claims, or a total of
               8,070 shares of common stock, representing .06% of the common
                stock initially issued pursuant to the Plan of Reorganization.
                These claims totaled approximately $125. If the allowed amount
             of general unsecured claims of Envirodyne exceeds $125, for
            example upon the resolution of disputed claims, additional
              shares of common stock will have to be issued to the holders
               of allowed general unsecured claims of Envirodyne in order to
provide equitable allocation of value among   

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    Envirodyne's unsecured creditors under the Plan of
              Reorganization. Such additional shares of common stock would
          be distributed with respect to allowed general unsecured
         claims of Envirodyne as follows: (i) approximately 2.58
             additional shares per five hundred dollars in claims in the
          event allowed general unsecured claims of Envirodyne are
              between $125 and $25,000; (ii) approximately 5.61 additional
                shares per five hundred dollars in claims in the event allowed
                general unsecured claims of Envirodyne are between $25,000 and
              $50,000; (iii) approximately 9.22 additional shares per five
        hundred dollars in claims in the event allowed general
        unsecured claims of Envirodyne are between $50,000 and
             $75,000; and (iv) approximately 13.58 additional shares per
             five hundred dollars in claims in the event allowed general
        unsecured claims of Envirodyne are between $75,000 and
              $100,000. Refer to Note 23 for discussion on certain settled
          claims and open claims which, if determined adversely to
           Envirodyne, would result in the issuance of common stock.

    --      Holders of Envirodyne subsidiary allowed trade claims were
paid in full.                                 

       --      Salomon Brothers Holding Company Inc 11.25% Pay-in-Kind Notes
              issued by Envirodyne with an accreted value as of January 6,
1993 of $5,658 were canceled.                 

    The contracts constituting the sale and leaseback transaction with
General Electric Capital Corporation were assumed by the relevant Envirodyne    
subsidiaries under the Plan of Reorganization with minor changes thereto.       

  The Chapter 11 filing was related only to the Company's domestic
operations and did not include the foreign subsidiaries and various inactive    
domestic subsidiaries.                                                          

      The Company accounted for the reorganization using the principles of
fresh start reporting in accordance with the American Institute of Certified    
Public Accountants Statement of Position 90-7, "Financial Reporting by Entities 
in Reorganization under the Bankruptcy Code." Accordingly, all assets and       
liabilities have been restated to reflect their reorganization value, which     
approximates fair value.                                                        

        The reorganization value of the Company's equity of $135,000 was based
on the consideration of many factors and various valuation methods, including   
discounted cash flows and comparable multiples of earnings valuation techniques 
believed by management and its financial advisors to be representative of the   
Company's business and industry. Factors considered by the Company included the 
following:                                                                      

      o       Forecasted operating and cash flow results which gave effect
         to the estimated impact of debt restructuring and other
operational reorganization.                   

       o       Discounted residual value at the end of the forecasted period
               based on the capitalized cash flows for the last year of that
period.                                       

o       Competition and general economic considerations.      

o       Projected sales growth.                               

o       Potential profitability.                              

o       Seasonality and working capital requirements.         

   The excess of the reorganization value over the fair value of net
assets and liabilities is reported as excess reorganization value and is being  
amortized over a fifteen-year period. The Company continues to evaluate the     
recoverability of excess reorganization value based on the operating            
performance and expected future undiscounted cash flows of the operating        
business units.                                                                 

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The reorganization and the adoption of Fresh Start Reporting resulted 
in the following adjustments to the Company's Consolidated Statement of         
Operations for the period January 1 to December 31, 1993:                       

                                                                [Download Table]

                                                                          INCOME  
                                                                        (EXPENSE) 
                                                                        --------- 
                                                                                  
Reorganization Items                                                              
--------------------                                                              
Legal, financial advisory and other fees associated with the                      
  Chapter 11 proceedings............................................... $ (14,929)
Write-off of deferred financing fees associated with the Bank                     
  Credit Agreement ....................................................    (4,071)
Write-off of existing excess investment over net assets acquired, net             
  of excess reorganization value recorded, and fair market value                  
  adjustments to assets and liabilities ...............................   (85,745)
                                                                        --------- 
                                                                        $(104,745)
                                                                        ========= 

Extraordinary Gain                                                                
------------------                                                                
Accreted value of the Old Discount Notes less unamortized deferred                
  financing ..........................................................  $ 197,379 
Principal amount of Old 14% Debentures plus accrued interest less                 
  unamortized deferred financing .....................................    237,125 
Principal amount of Old 13 1/2% Notes plus accrued interest less                  
  unamortized deferred financing .....................................    103,918 
Accreted value of 11 1/4% Pay-in-Kind Notes due to Related Party .....      5,658 
Envirodyne untendered shares .........................................      2,176 
Envirodyne general unsecured creditors allowed claims ................         90 
Principal amount of 10 1/4% Notes exchanged for Old Discount Notes....   (219,262)
Fair value of equity exchanged for Old 14% Debentures, Old                        
  13 1/2% Notes and Envirodyne unsecured claims ......................   (135,000)
                                                                        --------- 
Extraordinary gain before tax provision ..............................    192,084 
Tax provision on extraordinary gain...................................      8,300 
                                                                        --------- 
Extraordinary gain net of taxes ......................................  $ 183,784 
                                                                        ========= 

Had the Fresh Start reporting and the Plan of Reorganization been     
implemented with the related financing at the beginning of 1993, the pro forma  
Envirodyne consolidated statement of operations would have been as follows:     

(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES AND PER SHARE AMOUNTS)   

                                                        [Enlarge/Download Table]

                                                                        PRO FORMA    
                                                                       JANUARY 1 To  
                                                                    DECEMBER 31, 1993
                                                                    -----------------
                                                                       (UNAUDITED)   
                                                                                     
Net sales .........................................................    $  587,385    
  Cost of sales ...................................................       417,780    
  Selling, general and administrative..............................        99,350    
  Amortization of intangibles and excess reorganization cost.......        15,612    
                                                                       ----------    
Operating income...................................................        54,643    
  Interest income .................................................           931    
  Interest expense ................................................        51,198    
  Other expense (income), net......................................         5,540    
  Minority interest in loss of subsidiary..........................           717    
                                                                       ----------    
Income before income taxes.........................................          (447)   
  Income tax provision ............................................         6,140    
                                                                       ----------    
Net (loss) ........................................................    $   (6,587)   
                                                                       ==========    
Weighted average common shares ....................................    13,500,703    
Net (loss) per share ..............................................    $     (.49)   
                                                                       ==========    

The pro forma information reflects the changes in interest cost and   
depreciation and amortization due to the implementation of the Plan of          
Reorganization and Fresh Start Reporting.                                       

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2.   NATURE OF BUSINESS                                                         

  Envirodyne manufactures food packaging products and foodservice supplies
through three primary operating subsidiaries -- Viskase, Sandusky and Clear     
Shield. The operations of these subsidiaries are primarily in North and South   
America and Europe. Viskase is a leading producer of cellulosic casings used in 
preparing and packaging processed meat products and is a major producer of heat 
shrinkable plastic bags and specialty films for packaging and preserving fresh  
and processed meat products, poultry and cheeses. The Company is also a leading 
domestic and international manufacturer of plasticized polyvinyl chloride (PVC) 
films, primarily for use in packaging food items. Through Sandusky, the Company 
is a producer of thermoformed and injection molded plastic containers, used in  
the packaging of cultured dairy and delicatessen products, and of horticultural 
trays and inserts. Finally, through Clear Shield, the Company is a major        
domestic producer of disposable plastic cutlery, drinking straws, custom dining 
kits and related products.                                                      

INTERNATIONAL OPERATIONS                                                        

    Viskase has seven manufacturing facilities located outside the continental
United States, in Beauvais, France; Thaon, France; Lindsay, Ontario, Canada;    
Sedgefield, England (Great Britain); Swansea, Wales (Great Britain); Guarulhos, 
Brazil and Nuevo Laredo, Mexico.                                                

The aggregate of domestic exports and net sales of foreign operations 
represents approximately 56% of Viskase's total net sales.                      

International sales and operations may be subject to various risks    
including, but not limited to, possible unfavorable exchange rate fluctuations, 
political instability, governmental regulations (including import and export    
controls), restrictions on currency repatriation, embargoes, labor relations    
laws and the possibility of governmental expropriation. Viskase's foreign       
operations generally are subject to taxes on the repatriation of funds.         

  International operations in certain parts of the world may be subject to
international balance of payments difficulties which may raise the possibility  
of delay or loss in the collection of accounts receivable from sales to         
customers in those countries. Viskase believes that its allowance for doubtful  
accounts makes adequate provision for the collectibility of its receivables.    
Management believes that growth potential exists for many of Viskase's products 
outside the United States and that Viskase is well positioned to participate in 
these markets.                                                                  

   All of Sandusky's and Clear Shield's operations are located in the United
States.                                                                         

SALES AND DISTRIBUTION                                                          

 Viskase sells its products in virtually every country in the world with
principal markets in North America, Europe, Latin America and Asia Pacific. In  
the United States, Viskase has a staff of technical sales representatives       
responsible for sales to fresh meat, processed meat and poultry producers.      
Approximately 50 distributors market Viskase products to customers in Europe,   
Africa, Asia, and Latin America. Its products are marketed through its own      
subsidiaries in the United Kingdom, Germany, France, Italy, Russia, Brazil,     
Mexico and Australia.                                                           

    In the United States, Viskase sells its PVC film products primarily to the
retail grocery industry through packaging material distributors, food           
wholesalers and a direct sales force. Additionally the sales organization is    
supported by a technical service group. The United Kingdom operation sells      
directly and through distributors, primarily to the retail grocery and          
foodservice industries in Europe.                                               

    In the United States, Viskase operates casings service centers in Atlanta,
Georgia, and Bensalem, Pennsylvania, as well as service centers within the      
Chicago, Illinois, and Pauls Valley, Oklahoma, plants. In Europe, Viskase       
operates casings service centers in Milan, Italy, Pulheim, Germany, and Moscow, 
Russia. Viskase also operates a service center in Brisbane, Australia. These    
service centers provide finishing, inventory and delivery services to Viskase   
customers.                                                                      

Sandusky's and Clear Shield's sales are predominantly in the United   
States.                                                                         

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COMPETITION                                                                     

   Viskase is one of the world's leading producers of cellulosic casings and
a major producer of films. From time to time, Viskase experiences reduced       
market share or reduced profits due to price competition; however, management   
believes that such market conditions will not result in any long-term material  
loss of business.                                                               

The dairy and delicatessen containers industry is highly fragmented.  
Sandusky competes in the manufacture and sale of dairy and delicatessen         
containers with several domestic manufacturers of thermoformed and injection    
molded plastic containers. Major competitive factors in the dairy and           
delicatessen container business are price, quality and customer service. Major  
competitive factors in the specialized thermoformed container business are      
price and technical and customer service capabilities.                          

Clear Shield's primary competitors include several major corporations,
some of which are larger and better capitalized than Clear Shield and, in some  
cases, offer a wider product line than Clear Shield. Clear Shield's competitors 
periodically engage in aggressive price discounting to gain business. Clear     
Shield management believes, however, that such market conditions will not       
result in any long-term material loss of business for Clear Shield, although    
its profit margins may be affected from time to time.                           

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                 

(A)  BASIS OF PRESENTATION                                                      

 Effective in 1990 Envirodyne adopted a 52/53 week fiscal year ending on
the last Thursday of December. The 1993 financial statements include December   
31, 1993 in order to present the effect of the consummation of the Plan of      
Reorganization.                                                                 

(B)  PRINCIPLES OF CONSOLIDATION                                                

  The consolidated financial statements include the accounts of Envirodyne
Industries, Inc. and its subsidiaries (the Company).                            

   Reclassifications have been made to the prior years' financial statements
to conform to the 1995 presentation.                                            

(C)  USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS                

The preparation of financial statements in conformity with generally  
accepted accounting principles requires management to make estimates and        
assumptions that affect the reported amounts of assets and liabilities and      
disclosure of contingent assets and liabilities at the dates of the financial   
statements and the reported amounts of revenues and expenses during the         
reporting periods. Actual results could differ from those estimates.            

(D)  CASH EQUIVALENTS (DOLLARS IN THOUSANDS)                                    

 For purposes of the statement of cash flows, the Company considers cash
equivalents to consist of all highly liquid debt investments purchased with an  
initial maturity of approximately three months or less. Due to the short-term   
nature of these instruments, the carrying values approximate the fair market    
value. Cash equivalents include $24,536 and $821 of short-term investments at   
December 28, 1995 and December 29, 1994, respectively.                          

(E)  INVENTORIES                                                                

Domestic inventories are valued primarily at the lower of last-in,    
first-out (LIFO) cost or market. Remaining amounts, primarily foreign, are      
valued at the lower of first-in, first-out (FIFO) cost or market.               

(F)  PROPERTY, PLANT AND EQUIPMENT                                              

Property, plant and equipment are carried at cost less accumulated    
depreciation. Depreciation is computed on the straight-line method over the     
estimated useful lives of the assets ranging from 3 to 32 years. Upon           
retirement or other disposition, cost and related accumulated depreciation are  
removed from the accounts, and                                                  

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any gain or loss is included in results of operations. Effective December 31,   
1993 and in conjunction with the Fresh Start Reporting, property, plant and     
equipment was reported at the estimated fair value (refer to Note 1).           

(G)  DEFERRED FINANCING COSTS                                                   

  Deferred financing costs are amortized on a straight-line basis over the
expected term of the related debt agreement. Amortization of deferred financing 
costs is classified as interest expense.                                        

(H)  PATENTS                                                                    

Patents are amortized on the straight-line method over an estimated   
average useful life of ten years.                                               

   The carrying value of patents is periodically reviewed by the Company and
impairments are recognized when the expected undiscounted future operating cash 
flows derived from such patents is less than the carrying value. If impairment  
is identified, valuation techniques deemed appropriate under the particular     
circumstances will be used to determine the asset's fair value. The loss will   
be measured based on the excess of carrying value over the determined fair      
value. The review for impairment is performed at least on a quarterly basis.    

(I)  EXCESS REORGANIZATION VALUE AND EXCESS INVESTMENT OVER NET ASSETS          
ACQUIRED, NET                                                         

   Excess reorganization value is amortized on the straight-line method over
15 years. Accumulated amortization of excess reorganization value totaled $20   
million and $10 million at December 28, 1995, and December 29, 1994,            
respectively.                                                                   

Cost in excess of net assets acquired, net was amortized on a         
straight-line method over 40 years in fiscal 1993.                              

The Company continues to evaluate the recoverability of excess        
reorganization value based on operating performance and undiscounted cash flows 
of the operating business units. Impairment will be recognized when the         
expected undiscounted future operating cash flows derived from such intangible  
is less than its carrying value. If impairment is identified, valuation         
techniques deemed appropriate under the particular circumstances will be used   
to determine the intangible's fair value. The loss will be measured based on    
the excess of carrying value over the determined fair value.  The review for    
impairment is performed at least on a quarterly basis.                          

(J)  PENSIONS                                                                   

  The North American operations of Viskase and the Company's operations in
Europe have defined benefit retirement plans covering substantially all         
salaried and full time hourly employees. Pension cost is computed using the     
projected unit credit method.                                                   

 The Company's funding policy is consistent with funding requirements of
the applicable federal and foreign laws and regulations.                        

(K)  POSTRETIREMENT BENEFITS OTHER THAN PENSIONS                                

  The North American operations of Viskase have postretirement health care
and life insurance benefits. Effective January 1, 1993, postretirement benefits 
other than pensions are accounted for in accordance with the provisions of      
Statement of Financial Accounting Standards (SFAS) No. 106 "Employers'          
Accounting for Postretirement Benefits Other Than Pensions."                    

(L)  POSTEMPLOYMENT BENEFITS                                                    

Effective December 31, 1993 and in conjunction with the Fresh Start   
Reporting, the Company adopted SFAS No. 112 "Employers Accounting for           
Postemployment Benefits." The impact of adopting SFAS No. 112 was not material. 

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(M)  INCOME TAXES                                                               

Income taxes are accounted for in accordance with SFAS No. 109. Tax   
provisions and benefits are recorded at statutory rates for taxable items       
included in the consolidated statements of operations regardless of the period  
for which such items are reported for tax purposes. Deferred income taxes are   
recognized for temporary differences between financial statement and income tax 
bases of assets and liabilities for which income tax benefits will be realized  
in future years.                                                                

(N)  NET INCOME (LOSS) PER SHARE                                                

Net income (loss) per share of common stock is based upon the weighted
average number of shares of common stock outstanding during the year. No effect 
has been given to options outstanding under the Company's stock option plans    
and warrants issued pursuant to the Plan of Reorganization as their effect is   
anti-dilutive.                                                                  

(O)  REVENUE RECOGNITION                                                        

  Sales to customers are recorded at the time of shipment net of discounts
and allowances.                                                                 

(P)  FOREIGN CURRENCY CONTRACTS                                                 

   The Company maintains a hedging program to partially hedge its forecasted
foreign currency revenue cash flows. The hedging program principally addresses  
revenue cash flows within its European operations. The foreign exchange         
contracts are denominated predominantly in the major European currencies and    
have varying maturities up to eighteen months. The effect of this practice is   
to minimize the effect of foreign exchange rate movements on the Company's      
operating results.  The Company's hedging activities do not subject the Company 
to additional exchange rate risk because gains and losses on these contracts    
offset losses and gains on the transactions being hedged. The cash flows from   
forward contracts accounted for as hedges of identifiable transactions or       
events are classified consistent with the cash flows from the transactions or   
events being hedged.                                                            

(Q)  STOCK-BASED COMPENSATION                                                   

Statement of Financial Accounting Standards No. 123 "Accounting for   
Stock-Based Compensation" encourages, but does not require, companies to        
recognize compensation expense for grants of stock, stock options and other     
equity instruments to employees based on new fair value acounting rules.        
Although expense recognition for employee stock-based compensation is not       
mandatory, SFAS 123 requires companies that choose not to adopt the new fair    
value accounting to disclose pro forma net income and earnings per share under  
the new method. This new accounting principle is effective for the Company's    
fiscal year ending December 26, 1996. The Company believes that adoption is not 
expected to have a material impact on its financial condition as the Company    
will not adopt the fair value accounting, but will instead comply with the      
disclosure requirements.                                                        

4.   RECEIVABLES (DOLLARS IN THOUSANDS)                                         

   Receivables consisted primarily of trade accounts receivable and were net
of allowances for doubtful accounts of $3,224 and $2,136 at December 28, 1995,  
and at December 29, 1994, respectively.                                         

Envirodyne has a broad base of customers, with no single customer     
accounting for more than 5% of sales.                                           

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5.   INVENTORIES (DOLLARS IN THOUSANDS)                                         

Inventories consisted of:                                             

                                                        [Enlarge/Download Table]

                                                                              DECEMBER 28,  DECEMBER 29,
                                                                                  1995          1994    
                                                                              ------------  ------------
                                                                                                        
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $  17,150     $  20,358 
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      32,800        37,613 
Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      49,524        52,512 
                                                                                ---------     --------- 
                                                                                $  99,474     $ 110,483 
                                                                                =========     ========= 

Approximately 54% and 55% of the Company's inventories at December 28,
1995, and December 29, 1994, respectively, were valued at LIFO. These LIFO      
values exceeded current manufacturing cost by approximately $4,000 and $7,000   
at December 28, 1995, and December 29, 1994, respectively. Inventories were net 
of reserves for obsolete and slow moving inventory of $3,818 and $5,353 at      
December 28, 1995, and December 29, 1994, respectively.                         

   Raw materials used by Viskase include cellulose (from wood pulp), fibrous
paper, petroleum based resins, plasticizers and various other chemicals.        
Viskase generally purchases its raw materials from a single or small number of  
suppliers with whom it maintains good relations. Certain primary and            
alternative sources of supply are located outside the United States. Viskase    
believes, but there can be no assurance, that adequate alternative sources of   
supply currently exist for all of Viskase's raw materials or raw material       
substitutes that Viskase could modify its processes to utilize.                 

The principal raw materials used by Sandusky and Clear Shield are     
thermoplastic resins, which are readily available from several domestic sources.

6.   PROPERTY, PLANT AND EQUIPMENT (DOLLARS IN THOUSANDS)                       

                                                        [Enlarge/Download Table]

                                                                              DECEMBER 28,  DECEMBER 29,
                                                                                  1995          1994    
                                                                              ------------  ------------
                                                                                                        
Property, plant and equipment:                                                                          
  Land and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . .   $   16,369   $   15,930 
  Buildings and improvements  . . . . . . . . . . . . . . . . . . . . . . . .       81,767       76,202 
  Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . .      292,176      256,621 
  Construction in progress  . . . . . . . . . . . . . . . . . . . . . . . . .       15,938       20,178 
Capital leases:                                                                                         
  Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . .      139,241      137,168 
                                                                                ----------   ---------- 
                                                                                $  545,491   $  506,099 
                                                                                ==========   ========== 

   Maintenance and repairs charged to costs and expenses for 1995, 1994, and
1993 aggregated $33,227, $33,045 and $32,636, respectively. Depreciation is     
computed on the straight-line method over the estimated useful lives of the     
assets ranging from 3 to 32 years.                                              

7.   OTHER ASSETS (DOLLARS IN THOUSANDS)                                        

Other assets were comprised of:                                       

                                                        [Enlarge/Download Table]

                                                                              DECEMBER 28,   DECEMBER 29,
                                                                                  1995          1994     
                                                                              ------------  ------------ 
                                                                                                         
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $   50,000    $   50,000 
  Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . . .       10,000         5,000 
                                                                                ----------    ---------- 
    Patents, net  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       40,000        45,000 
Other  . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        5,589         2,181 
                                                                                ----------    ---------- 
                                                                                $   45,589    $   47,181 
                                                                                ==========    ========== 

Patents are amortized on the straight-line method over an estimated   
average useful life of ten years.                                               

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8.   ACCRUED LIABILITIES (DOLLARS IN THOUSANDS)                                 

Accrued liabilities were comprised of:                                

                                                        [Enlarge/Download Table]

                                                                         DECEMBER 28,  DECEMBER 29,
                                                                            1995          1994     
                                                                         ------------  ------------
                                                                                                   
Compensation and employee benefits . . . . . . . . . . . . . . . . . . .    $31,997       $33,521  
Taxes, other than on income  . . . . . . . . . . . . . . . . . . . . . .      6,535         6,454  
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . .      2,535         3,630  
Accrued volume and sales discounts . . . . . . . . . . . . . . . . . . .     13,218        11,958  
Accrued reorganization fees and expenses . . . . . . . . . . . . . . . .      2,027         3,167  
Other  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     11,241        13,516  
                                                                            -------       -------  
                                                                            $67,553       $72,246  
                                                                            =======       =======  

9.   DEBT OBLIGATIONS (DOLLARS IN THOUSANDS)                                    

On June 20, 1995, Envirodyne completed the sale of $160,000 aggregate 
principal amount of senior secured notes (Senior Secured Notes) to certain      
institutional investors in a private placement. The senior secured notes were   
issued pursuant to an indenture dated June 20, 1995 (Indenture) and consist of  
(i) $151,500 of 12% Senior Secured Notes due 2000 and (ii) $8,500 of Floating   
Rate Senior Secured Notes due 2000 (collectively, the Senior Secured Notes).    
Envirodyne used the net proceeds of the offering primarily to (i) repay the     
Company's $86,125 domestic term loan, (ii) repay the $68,316 of obligations     
under the Company's domestic and foreign revolving loans and (iii) pay          
transaction fees and expenses. Concurrently with the June 20, 1995 placement,   
Envirodyne entered into a new $20,000 domestic revolving credit facility        
(Revolving Credit Facility) and a new $28,000 letter of credit facility (Letter 
of Credit Facility). The Senior Secured Notes and the obligations under the     
Revolving Credit Facility and the Letter of Credit Facility are guaranteed by   
Envirodyne's significant domestic subsidiaries and secured by a collateral pool 
(Collateral Pool) comprised of: (i) all domestic accounts receivable (including 
intercompany receivables) and inventory; (ii) all patents, trademarks and other 
intellectual property (subject to non-exclusive licensing agreements); (iii)    
substantially all domestic fixed assets (other than assets subject to a lease   
agreement with General Electric Capital Corporation); and (iv) a senior pledge  
of 100% of the capital stock of Envirodyne's significant domestic subsidiaries  
and 65% of the capital stock of Viskase S.A. Such guarantees and security are   
shared by the holders of the Senior Secured Notes and the holders of the        
obligations under the Revolving Credit Facility on a pari passu basis pursuant  
to an intercreditor agreement. Pursuant to such intercreditor agreement, the    
security interest of the holders of the obligations under the Letter of Credit  
Facility has priority over all other liens on the Collateral Pool.              

 The Company finances its working capital needs through a combination of
cash generated through operations and borrowings under the Revolving Credit     
Facility. The availability of funds under the Revolving Credit Facility is      
subject to the Company's compliance with certain covenants (which are           
substantially similar to those included in the Indenture), borrowing base       
limitations measured by accounts receivable and inventory of the Company and    
reserves which may be established at the discretion of the lenders. Currently,  
there are no drawings under the Revolving Credit Facility. The available        
borrowing capacity under the Revolving Credit Facility was $20 million at       
December 28, 1995.                                                              

 The Company recognized an extraordinary loss of $6,778 representing the
write-off of deferred financing fees related to the June 20, 1995 debt          
refinancing. The extraordinary loss, net of applicable income taxes of $2,582,  
was included in the Company's Statement of Operations for the quarter ended     
June 29, 1995.                                                                  

  The $151,500 tranche of Senior Secured Notes bears interest at a rate of
12% per annum and the $8,500 tranche bears interest at a rate equal to the six  
month London Interbank Offered Rate (LIBOR) plus 575 basis points. The current  
interest rate on the floating rate tranche is approximately 11.4%. The interest 
rate on the floating rate tranche is reset semi-annually on June 15 and         
December 15. Interest on the Senior Secured Notes is payable each June 15 and   
December 15.                                                                    

   On June 15, 1999, $80,000 of the aggregate principal amount of the Senior
Secured Notes is subject to a mandatory redemption. The remaining principal     
amount outstanding will mature on June 15, 2000.                                

 In the event the Company has Excess Cash Flow (as defined) in excess of
$5,000 in any fiscal year, beginning with fiscal 1995, Envirodyne will be       
required to make an offer to purchase Senior Secured Notes                      

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together with any borrowed money obligations outstanding under the Revolving    
Credit Facility, on a pro rata basis, in an amount equal to the Excess Cash     
Flow at a purchase price of 100% plus any accrued interest to the date of       
purchase.  There was no Excess Cash Flow for fiscal 1995.                       

   The Senior Secured Notes are redeemable, in whole or from time to time in
part, at Envirodyne's option, at the greater of (i) the outstanding principal   
amount or (ii) the present value of the expected future cash flows from the     
Senior Secured Notes discounted at a rate equal to the Treasury Note yield      
corresponding closest to the remaining average life of the Senior Secured Notes 
at the time of prepayment plus 100 basis points; plus accrued interest thereon  
to the date of purchase.                                                        

    Upon the occurrence of a Change of Control (which includes the acquisition
by any person of more than 50% of Envirodyne's Common Stock), each holder of    
the Senior Secured Notes has the right to require the Company to repurchase     
such holder's Senior Secured Notes at a price equal to the greater of (i) the   
outstanding principal amount or (ii) the present value of the expected cash     
flows from the Senior Secured Notes discounted at a rate equal to the Treasury  
Note yield corresponding closest to the remaining average life of the Senior    
Secured Notes at the time of prepayment plus 100 basis points; plus accrued     
interest thereon to the date of purchase.                                       

The Indenture contains covenants with respect to Envirodyne and its   
subsidiaries limiting (subject to a number of important qualifications), among  
other things, (i) the ability to pay dividends or redeem or repurchase common   
stock, (ii) the incurrence of indebtedness, (iii) the creation of liens, (iv)   
certain affiliate transactions and (v) the ability to consolidate with or merge 
into another entity and to dispose of assets.                                   

    Borrowings under the Revolving Credit Facility bear interest at a rate per
annum equal to the three month London Interbank Offered Rate (LIBOR) on the     
first day of each calendar quarter plus 300 basis points. The Revolving Credit  
Facility expires on June 20, 1998.                                              

   Envirodyne has entered into interest rate agreements that cap $50 million
of interest rate exposure at an average LIBOR rate of 6.50% until January 1997. 
These interest rate cap agreements were entered into under terms of the senior  
bank financing that was repaid on June 20, 1995. Interest expense includes $613 
of amortization of the interest rate cap premium during fiscal 1995. Envirodyne 
has not received any payments under the interest rate protection agreements.    

The Letter of Credit Facility expires on June 20, 1998. Fees on the   
outstanding amount of letters of credit are 2.0% per annum, with an issuance    
fee of 0.5% on the face amount of the letter of credit. There is a commitment   
fee of 0.5% per annum on the unused portion of the Letter of Credit Facility.   

 Had the refinancing taken place at the beginning of 1995, the pro forma
Envirodyne consolidated statement of operations would have been:                

(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES AND PER SHARE AMOUNTS) 

                                                        [Enlarge/Download Table]

                                                                         PRO FORMA     
                                                                      DECEMBER 30, 1994
                                                                             TO        
                                                                      DECEMBER 28, 1995
                                                                      -----------------
                                                                                       
Net sales ...........................................................     $  650,212   
  Cost of sales .....................................................        485,048   
  Selling, general and administrative................................        111,230   
  Amortization of intangibles and                                                      
    excess reorganization cost ......................................         15,799   
                                                                          ----------   
Operating income.....................................................         38,135   
  Interest income....................................................            670   
  Interest expense...................................................         60,213   
  Other expense (income), net........................................          1,710   
                                                                          ----------   
(Loss) before income taxes ..........................................        (23,118)  
Income tax (benefit) ................................................         (4,040)  
                                                                          ----------   
Net (loss) ..........................................................     $  (19,078)  
                                                                          ==========   
Weighted average common shares.......................................     13,516,771   
Net (loss) per share.................................................     $    (1.41)  
                                                                          ==========   

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The pro forma information reflects the change in interest expense and 
related tax effect due to the issuance of $160 million principal amount of      
Senior Secured Notes and the refinancing of the Company's bank debt.            

   The $219,262 principal amount of 10 1/4% Notes were issued pursuant to an
Indenture dated as of December 31, 1993 (10 1/4% Note Indenture) between        
Envirodyne and Bankers Trust Company, as Trustee. The 10 1/4% Notes are the     
unsecured senior obligations of Envirodyne, bear interest at the rate of        
10 1/4% per annum, payable on each June 1 and December 1, and mature on         
December 1, 2001. The 10 1/4% Notes are redeemable, in whole or from time to    
time in part, at the option of Envirodyne, at the percentages of principal      
amount specified below plus accrued and unpaid interest to the redemption date, 
if the 10 1/4% Notes are redeemed during the twelve-month period commencing on  
January 1 of the following years:                                               

                                                                [Download Table]

YEAR                                                   PERCENTAGE
----                                                   ----------
                                                                 
1996  . . . . . . . . . . . . . . . . . . . . . . . .      104%  
1997  . . . . . . . . . . . . . . . . . . . . . . . .      103%  
1998  . . . . . . . . . . . . . . . . . . . . . . . .      102%  
1999  . . . . . . . . . . . . . . . . . . . . . . . .      101%  
2000 and thereafter . . . . . . . . . . . . . . . . .      100%  

  The 10 1/4% Note Indenture contains covenants with respect to Envirodyne
and its subsidiaries limiting (subject to a number of important                 
qualifications), among other things, (i) the ability to pay dividends on or     
redeem or repurchase capital stock, (ii) the incurrence of indebtedness, (iii)  
certain affiliate transactions and (iv) the ability of the Company to           
consolidate with or merge with or into another entity or to dispose of          
substantially all its assets.                                                   

Outstanding short-term and long-term debt consisted of:               

                                                        [Enlarge/Download Table]

                                                                      DECEMBER 28,  DECEMBER 29,
                                                                          1995          1994    
                                                                      ------------  ------------
                                                                                                
Short-term debt, current maturity of long-term debt and capital                                 
  lease obligations:                                                                            
  Current maturity of Bank Term Loan ................................                $   11,100 
  Current maturity of Viskase Capital Lease Obligation ..............  $   6,012          5,450 
  Current maturity of Viskase Limited Term Loan (4.7%) ..............      2,033          1,882 
  Other..............................................................      4,459          7,366 
                                                                       ---------     ---------- 
             Total short-term debt ..................................  $  12,504     $   25,798 
                                                                       =========     ========== 

Long-term debt:                                                                                 
  Bank Credit Agreement:                                                                        
    Term Loan due 1999 ..............................................                $   80,575 
    Revolving Loan due 1999..........................................                    32,524 
  12% Senior Secured Notes due 2000..................................  $ 160,000                
  10.25% Senior Notes due 2001.......................................    219,262        219,262 
  Viskase Capital Lease Obligation...................................    141,182        147,194 
  Viskase Limited Term Loan (4.7%) ..................................      7,115          8,466 
  Other..............................................................      2,622          1,337 
                                                                       ---------     ---------- 
             Total long-term debt....................................  $ 530,181     $  489,358 
                                                                       =========     ========== 

    The fair value of the Company's debt obligation (excluding capital lease
obligations) is estimated based upon the quoted market prices for the same or   
similar issues or on the current rates offered to the Company for the debt of   
the same remaining maturities. At December 28, 1995, the carrying amount and    
estimated fair value of debt obligations (excluding capital lease obligations)  
were $393,432 and $318,053, respectively.                                       

    The average interest rate on short-term borrowing during 1995 was 10.1%.

    On December 28, 1990, Viskase and GECC entered into a sale and leaseback
transaction. The sale and leaseback of assets included the production and       
finishing equipment at Viskase's four domestic casing production and finishing  
facilities. The facilities are located in Chicago, Illinois; Loudon, Tennessee; 
Osceola, Arkansas and Kentland, Indiana.  Viskase, as the Lessee under the      
relevant agreements, will continue to operate all of the facilities. Sales      
proceeds on the sale-leaseback transaction were $171.5 million; proceeds were   
used to repay approximately $154 million of bank debt and a $15 million         
convertible note outstanding at the time. The lease has been accounted for as a 
capital lease.                                                                  

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    The principal terms of the sale and leaseback transaction include: (a) a
15 year basic lease term (plus selected renewals at Viskase's option); (b)      
annual rent payments in advance beginning in February 1991; and (c) a fixed     
price purchase option at the end of the basic 15 year term and fair market      
purchase options at the end of the basic term and each renewal term. Further,   
the Lease Documents contain covenants requiring maintenance by the Company of   
certain financial ratios and restricting the Company's ability to pay           
dividends, make payments to affiliates, make investments and incur              
indebtedness.                                                                   

Annual rental payments under the Lease will be approximately $19.2  
million through 1997, $21.4 million in 1998 and $23.5 million through the end   
of the basic 15-year term. Viskase is required to provide credit support        
consisting of a standby letter of credit in an amount up to one year's rent     
through at least 1997.  This credit support can be reduced up to $4 million     
currently if the Company achieves and maintains certain financial ratios. As of 
December 28, 1995, the Company had met the required financial ratios and the    
letter of credit has been reduced by $4 million. The letter can be further      
reduced in 1997 or eliminated after 1998 if the Company achieves and maintains  
certain financial ratios.  Envirodyne and its other principal subsidiaries      
guaranteed the obligations of Viskase under the Lease.                          

 The 1996 GECC lease payment of $19,227 was paid on February 28, 1996.
Principal payments under the capital lease obligations for the years ended 1996 
through 2000 range from approximately $6 million to $14 million.                

  The following is a schedule of minimum future lease payments under the
capital lease obligations together with the present value of the net minimum    
lease payments as of December 28, 1995:                                         

                                                                [Download Table]

YEAR ENDING DECEMBER                                                              
--------------------                                                              
                                                                                  
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,714 
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   19,658 
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   21,636 
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   23,766 
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   23,766 
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  118,028 
                                                                         -------- 
Net minimum lease payments . . . . . . . . . . . . . . . . . . . . . . .  226,568 
Less: Amount representing interest . . . . . . . . . . . . . . . . . . .  (77,315)
                                                                         -------- 
                                                                         $149,253 
                                                                         ======== 

 Aggregate maturities of remaining long-term debt for each of the next
five fiscal years are:                                                          

                                                                [Download Table]

                                                                          TOTAL 
                                                                         -------
                                                                                
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,019
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   9,418
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12,313
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  95,477
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  95,669

10.   OPERATING LEASES (DOLLARS IN THOUSANDS)                                   

   The Company has operating lease agreements for machinery, equipment and
facilities. The majority of the facilities leases require the Company to pay    
maintenance, insurance and real estate taxes.                                   

   Future minimum lease payments for operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of December 28,    
1995, are:                                                                      

                                                                [Download Table]
                                                                               
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,033
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2,291
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1,708
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    588
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    375
Total thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . .       
                                                                         ------
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . $7,995
                                                                         ======

    Total rent expense during 1995, 1994 and 1993 amounted to $6,749, $5,982
and $5,401, respectively.                                                       

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11.  RETIREMENT PLANS                                                           

The Company and its subsidiaries have defined contribution and defined
benefit plans varying by country and subsidiary.                                

   At December 28, 1995, the North American operations of Viskase maintained
several non-contributory defined benefit retirement plans. The Viskase plans    
cover substantially all salaried and full-time hourly employees, and benefits   
are based on final average compensation and years of credited service. The      
Company's policy is to fund the minimum actuarially computed annual             
contribution required under the Employee Retirement Income Security Act of 1974 
(ERISA).                                                                        

    As of the Viskase acquisition date, the former owner assumed the liability
for the accumulated benefit obligation under its plans. The effect of expected  
future compensation increases on benefits accrued is recorded as a liability on 
the Company's consolidated balance sheet.                                       

PENSIONS -- NORTH AMERICA (DOLLARS IN THOUSANDS):                               

Net pension cost for the Viskase North American plans consisted of:   

                                                        [Enlarge/Download Table]

                                                     DECEMBER 30,   JANUARY 1,    JANUARY 1, 
                                                       1994 TO         TO            TO      
                                                     DECEMBER 28,  DECEMBER 29,  DECEMBER 31,
                                                         1995          1994          1993    
                                                     ------------  ------------  ------------
                                                                                             
Service cost -- benefits earned during the year.....  $   3,238      $ 3,662       $ 3,186   
Interest cost on projected benefit obligation.......      4,794        4,249         4,000   
Actual (gain) loss on plan assets...................     (7,012)         874        (2,306)  
Net amortization and deferral.......................      4,086       (3,696)          (74)  
                                                      ---------      -------       -------   
Net pension cost ...................................  $   5,106      $ 5,089       $ 4,806   
                                                      =========      =======       =======   

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The amounts included in the consolidated balance sheet for the North  
American plans of Viskase were:                                                 

                                                        [Enlarge/Download Table]

                                                                     DECEMBER 28,  DECEMBER 29,
                                                                        1995           1994    
                                                                    ------------   ------------
                                                                                               
Actuarial present value of benefit obligation:                                                 
  Vested benefits ................................................. $   45,208      $  39,165  
  Nonvested benefits ..............................................      4,435          4,316  
                                                                    ----------      ---------  
Accumulated benefit obligation.....................................     49,643         43,481  
Effect of projected future compensation increases..................     16,566         16,651  
                                                                    ----------      ---------  
Projected benefit obligation.......................................     66,209         60,132  
Plan assets at fair value, primarily listed stocks and investment                              
  grade corporate bonds ...........................................     43,190         33,678  
                                                                    ----------      ---------  
Amount underfunded ................................................     23,019         26,454  
Unrecognized gain (loss)...........................................      7,578          3,778  
Unrecognized prior service costs...................................         63             71  
                                                                    ----------      ---------  
Accrued liability included in consolidated balance sheet........... $   30,660      $  30,303  
                                                                    ==========      =========  
Assumed discount rate..............................................        7.5%           8.0% 
Assumed long-term compensation factor..............................        4.5%           5.0% 
Assumed long-term return on plan assets............................        8.5%           8.5% 

SAVINGS PLANS (DOLLARS IN THOUSANDS):                                           

    The Company also has defined contribution savings and similar plans, which
vary by subsidiary, and, accordingly, are available to substantially all        
full-time U.S. employees not covered by collective bargaining agreements. The   
Company's aggregate contributions to these plans are based on eligible employee 
contributions and certain other factors.  The Company expense for these plans   
was $2,134, $2,109 and $2,026 in 1995, 1994, and 1993, respectively.            

INTERNATIONAL PLANS (DOLLARS IN THOUSANDS):                                     

  The Company maintains various pension and statutory separation pay plans
for its European employees. The expense for these plans in 1995, 1994 and 1993  
was $1,383, $1,043 and $864, respectively. As of their most recent valuation    
dates, in plans where vested benefits exceeded plan assets, the actuarially     
computed value of vested benefits exceeded those plans' assets by approximately 
$2,856; conversely, plan assets exceeded the vested benefits in certain other   
plans by approximately $2,346.                                                  

OTHER POSTRETIREMENT BENEFITS (DOLLARS IN THOUSANDS):                           

The Company provides postretirement health care and life insurance    
benefits to Viskase's North American employees.  The Company does not fund      
postretirement health care and life benefits in advance, and has the right to   
modify these plans in the future.                                               

   Effective January 1, 1993, the company adopted the provisions of SFAS No.
106 "Employers' Accounting for Postretirement Benefits Other Than Pensions."    
SFAS No. 106 requires that the expected cost of these benefits must be charged  
to expense during the years that the employee renders service. In connection    
with the 1989 acquisition of the Company, an accrual of $15,000 had been        
recorded for the estimated postretirement benefits liability at the acquisition 
date. On January 1, 1993, an additional liability and transition obligation was 
recorded on a prospective basis for $6,500. The transaction obligation was to   
be amortized over 20 years. Subsequently, Fresh Start Reporting resulted in the 
write-off of the transition obligation and statement of the                     

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liability for postretirement health care and life insurance benefits at fair    
value. Net periodic postretirement benefit cost for 1995 and 1994 includes the  
following components:                                                           

                                                        [Enlarge/Download Table]

                                                        MEDICAL             LIFE                TOTAL       
                                                   ----------------   -----------------   ------------------
                                                     1995    1994      1995      1994      1995       1994  
                                                   -------  -------   -------   -------   -------    -------
                                                                                                            
Components of net periodic postretirement                                                                   
  benefit cost:                                                                                             
Service cost -- benefits earned during                                                                      
    the current year.............................. $   413  $   511   $  162    $  176   $   575    $   687 
  Interest cost -- on accumulated post-                                                                     
    retirement benefit obligation.................   1,182    1,208      472       442     1,654      1,650 
  Amortization of unrecognized transition                                                                   
    benefit ......................................     (73)              (17)                (90)           
                                                   -------  -------   ------    ------   -------    ------- 
  Net periodic benefit cost ...................... $ 1,522  $ 1,719   $  617    $  618   $ 2,139    $ 2,337 
                                                   =======  =======   ======    ======   =======    ======= 
Actuarial present value of benefit obligations:                                                             
  Retirees ....................................... $ 6,937  $ 6,836   $2,745    $2,184   $ 9,682    $ 9,020 
  Fully eligible active participants .............   2,309    2,238    2,409     2,435     4,718      4,673 
  Other active participants ......................   7,411    7,660    1,624     1,612     9,035      9,272 
                                                   -------  -------   ------    ------   -------    ------- 
         Total ...................................  16,657   16,734    6,778     6,231    23,435     22,965 
  Unrecognized gains..............................   1,616      979      622       581     2,238      1,560 
  Unrecognized prior service costs ...............    (109)                                 (109)           
                                                   -------  -------   ------    ------   -------    ------- 
Accumulated postretirement benefit obligation .... $18,164  $17,713   $7,400    $6,812   $25,564    $24,525 
                                                   =======  =======   ======    ======   =======    ======= 
Assumed discount rate.............................             7.50%                                        
Assumed medical trend rate .......................            11.00% in 1995 decreasing to 6.50% in 2004    
Assumed long-term compensation factor.............             4.50%                                        

  The postretirement benefit obligation was determined by application of
the terms of the various plans, together with relevant actuarial assumptions.   
The effect of a 1% annual increase in these assumed cost trend rates would      
increase the accumulated postretirement benefit obligation at December 28, 1995 
and December 29, 1994 by $178 and $198, respectively, and the service and       
interest cost components for 1995 and 1994 by a total of $16 and $22,           
respectively.                                                                   

EMPLOYEE RELATIONS                                                              

 The Company generally maintains productive and amicable relationships
with its 4,900 employees worldwide. One of Viskase's domestic plants, located   
in Loudon, Tennessee, is unionized, and all of its Canadian and European plants 
have unions. Employees at the Company's European plants are unionized with      
negotiations occurring at both local and national levels. Contracts have        
recently been reached with certain of the European unions. Based on past        
experience and current conditions, the Company does not expect a protracted     
work stoppage to occur; however, national events outside of the Company's       
control may give rise to such risk. From time to time union organization        
efforts have occurred at other individual plant locations.                      

Unions represent a total of approximately 1,500 of Viskase's 4,000  
employees. None of Clear Shield's approximate 514 employees are represented by  
unions. Certain of the hourly production personnel at Sandusky's Ohio           
thermoforming facility are members of a union. As of December 28, 1995,         
approximately 1,675 of the Company's employees are covered by collective        
bargaining agreements that will expire within one year.                         

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12.   INCOME TAXES (DOLLARS IN THOUSANDS)                                       

The provision (benefit) for income taxes consisted of:              

                                                        [Enlarge/Download Table]

                                                      DECEMBER 30,   JANUARY 1,    JANUARY 1, 
                                                        1994 TO          TO             TO    
                                                      DECEMBER 28,  DECEMBER 29,  DECEMBER 31,
                                                          1995          1994          1993    
                                                      ------------  ------------  ------------
                                                                                              
Current:                                                                                      
  Federal . . . . . . . . . . . . . . . . . . . . . .                 $     200               
  Foreign . . . . . . . . . . . . . . . . . . . . . .    $   950          4,652      $  2,453 
  State and local . . . . . . . . . . . . . . . . . .                                         
                                                         -------      ---------      -------- 
                                                         $   950          4,852         2,453 
                                                         -------      ---------      -------- 
Deferred:                                                                                     
  Federal . . . . . . . . . . . . . . . . . . . . . .     (7,219)          (194)       17,188 
  Foreign . . . . . . . . . . . . . . . . . . . . . .      2,098            128        (1,434)
  State and local . . . . . . . . . . . . . . . . . .     (1,329)            14         2,093 
                                                         -------      ---------      -------- 
                                                          (6,450)           (52)       17,847 
                                                         -------      ---------      -------- 
                                                         $(5,500)     $   4,800      $ 20,300 
                                                         =======      =========      ======== 

 The income tax benefit for the 1995 period was allocated between loss
before extraordinary loss for $2,918 and to the extraordinary loss for $2,582.  

 The income tax expense for the 1993 period was allocated between loss
before extraordinary gain for $12,000 and to the extraordinary gain for $8,300. 

    A reconciliation from the statutory federal tax rate to the consolidated
effective tax rate follows:                                                     

                                                        [Enlarge/Download Table]

                                                                DECEMBER 30,   JANUARY 1,    JANUARY 1, 
                                                                  1994 TO          TO            TO     
                                                                DECEMBER 28,  DECEMBER 29,  DECEMBER 31,
                                                                    1995          1994          1993    
                                                                ------------  ------------  ------------
                                                                                                        
Statutory federal tax rate  . . . . . . . . . . . . . . . . . .    (35.0)%       35.0%         35.0%    
Increase (decrease) in tax rate due to:                                                                 
  State and local taxes net of related federal tax benefit  . .     (3.2)          .8           1.3     
  Net effect of taxes relating to foreign operations                  .8        140.3           1.5     
  Intangibles amortization  . . . . . . . . . . . . . . . . . .      9.4        214.1           2.3     
  Non-taxable debt discharge income, fresh start accounting                                             
    and other bankruptcy related expenses . . . . . . . . . . .                               (22.9)    
  Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .      7.6         13.8           2.0     
                                                                   -----        -----         -----     
Consolidated effective tax rate . . . . . . . . . . . . . . . .    (20.4)%      404.0%         19.2%    
                                                                   =====        =====         ======    

    Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities for 1995 are as follows:         

                                                        [Enlarge/Download Table]

                                                TEMPORARY DIFFERENCE               TAX EFFECTED       
                                           ---------------------------    ----------------------------
                                            DEFERRED TAX    DEFERRED TAX    DEFERRED TAX  DEFERRED TAX
                                               ASSETS       LIABILITIES        ASSETS      LIABILITIES
                                           -------------    -----------      ---------     -----------
                                                                                                      
Depreciation basis differences . . . . . .                    $296,263                      $113,094  
Inventory basis differences  . . . . . . .                      28,097                        10,976  
Intangible basis differences . . . . . . .                      37,603                        14,665  
Lease transaction. . . . . . . . . . . . .   $147,194                         $57,406                 
Pension and healthcare . . . . . . . . . .     56,545                          22,067                 
Employee benefits accruals . . . . . . . .     13,544                           5,282                 
Valuation allowances . . . . . . . . . . .      3,209                           1,252                 
Other accruals and reserves. . . . . . . .      6,673                           2,602                 
Foreign exchange and other . . . . . . . .        648           70,720            216         27,580  
                                             --------         --------        -------       --------  
                                             $227,813         $432,683        $88,825       $166,315  
                                             ========         ========        =======       ========  

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12.   INCOME TAXES (DOLLARS IN THOUSANDS)--(CONTINUED)                          

   At December 28, 1995, the Company had $11,136 of undistributed earnings
of foreign subsidiaries considered permanently invested for which deferred      
taxes have not been provided.                                                   

  At December 28, 1995, the Company had federal income tax net operating
loss carryforwards of approximately $28 million. Such losses will expire in the 
year 2009, if not previously utilized. In addition the Company has alternative  
minimum tax credit carryforwards of $3.5 million. Alternative minimum tax       
credits have an indefinite carryforward period. Significant limitations on the  
utilization of the net operating loss carryforwards and the alternative minimum 
tax credit carryforwards exist under federal income tax rules.                  

     Domestic earnings or (losses) after extraordinary gain or loss and before
income taxes were approximately $(30,138), $(7,705) and $107,622 in 1995, 1994  
and 1993, respectively. Foreign earnings or (losses) before income taxes were   
approximately $3,118, $8,893 and $(1,733) in 1995, 1994 and 1993, respectively. 

     The Company joins in filing a U.S. consolidated federal income tax return
including all of its domestic subsidiaries.                                     

13.   COMMITMENTS                                                               

   As of December 28, 1995, the Company had capital expediture commitments
outstanding of approximately $3.7 million.                                      

14.   CONTINGENCIES (DOLLARS IN THOUSANDS)                                      

 A class action lawsuit by former employees of subsidiary corporations
comprising most of the Company's former steel and mining division (SMD) was     
pending as of the commencement of the bankruptcy case in which the plaintiffs   
were seeking substantial damages. In March 1996, Envirodyne completed a         
settlement of the lawsuit under which Envirodyne was released and discharged    
from all claims in exchange for 900,000 shares of Envirodyne common stock       
without any admission or finding of liability or wrongdoing.                    

   Litigation has been initiated with respect to events arising out of the
bankruptcy cases and the 1989 acquisition of Envirodyne by Emerald with respect 
to which, although Envirodyne is not presently a party to such litigation,      
certain defendants have asserted indemnity rights against Envirodyne. In ARTRA  
Group Incorporated v. Salomon Brothers Holding Company Inc, Salomon Brothers    
Inc, D.P. Kelly & Associates, L.P., Donald P. Kelly, Charles K. Bobrinskoy,     
James L. Massey, William Rifkind and Michael Zimmerman, Case No. 93 A 1616,     
United States Bankruptcy Court for the Northern District of Illinois, Eastern   
Division (Bankruptcy Court), ARTRA Group Incorporated (ARTRA) alleges breach of 
fiduciary duty and tortious inference in connection with the negotiation and    
consummation of the Plan of Reorganization. In ARTRA Group Incorporated v.      
Salomon Brothers Holding Company Inc, Salomon Brothers Inc, D.P. Kelly &        
Associates, L.P., Donald P. Kelly, Charles K. Bobrinskoy and Michael Zimmerman, 
Case No. 93 L 2198, Circuit Court of the Eighteenth Judicial Circuit, County of 
DuPage, State of Illinois, ARTRA alleges breach of fiduciary duty, fraudulent   
and negligent misrepresentation and breach of contract in connection with the   
1989 acquisition of Envirodyne by Emerald. The plaintiff seeks damages in the   
total amount of $136.2 million plus interest and punitive damages of $408.6     
million. D.P. Kelly & Associates, L.P. and Messrs. Kelly, Bobrinskoy, Massey,   
Rifkind and Zimmerman have asserted common law and contractual rights of        
indemnity against Envirodyne for attorneys' fees, costs and any ultimate        
liability relating to the claims set forth in the complaints. Upon the          
undertaking of D.P. Kelly & Associates, L.P. to repay such funds in the event   
it is ultimately determined that there is no right to indemnity, Envirodyne is  
advancing funds to D.P. Kelly & Associates, L.P. and Mr. Kelly for the payment  
of legal fees in the case pending before the Bankruptcy Court. Although the     
Company is not a party to either case, the Company believes that the            
plaintiff's claims raise similar factual issues to those raised in the          
bankruptcy cases which, if adjudicated in a manner similar to that in the       
bankruptcy cases, would render it difficult for the plaintiff to establish      
liability. Accordingly, the Company believes that the indemnification claims    
would not have a material adverse effect upon the business or financial         
position of the Company, even if the claimants were ultimately successful in    
establishing their right to indemnification.                                    

Certain of Envirodyne's stockholders prior to the acquisition of    
Envirodyne by Emerald failed to exchange their certificates representing old    
Envirodyne common stock for the $40 per share cash merger consideration         

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14.   CONTINGENCIES (DOLLARS IN THOUSANDS)--(CONTINUED)                         

specified by the applicable acquisition agreement. In the Envirodyne bankruptcy 
case, Envirodyne sought to equitably subordinate the claims of the holders of   
untendered shares, so that such holders would not receive a distribution under  
the Plan of Reorganization. The Bankruptcy Court granted Envirodyne's motion    
for summary judgment and equitably subordinated the claims of the holders of    
untendered shares to the claims of other general unsecured creditors. Certain   
of the affected holders appealed and both the U.S. District Court and the U.S.  
Seventh Circuit Court of Appeals affirmed the Bankruptcy Court decision. The    
time period for further appeal has not passed. Envirodyne believes that, even   
in the event of further appeal, if any, and reversal of the prior decisions,    
the maximum number of shares of common stock that it would be required to issue 
to such claimants is approximately 106,000.                                     

Clear Shield National, Inc. and some of its employees have received 
subpoenas from the Antitrust Division of the United States Department of        
Justice relating to a grand jury investigation of the disposable plastic        
cutlery industry.  The U.S. Department of Justice has advised a former officer  
and an existing employee that they are targets of the investigation. Both       
individuals were invited to appear and testify before the grand jury but both   
declined. Clear Shield National is cooperating fully with the investigation.    

  In February 1996 Clear Shield National and three other plastic cutlery
manufacturers were named as defendants in the following three civil complaints: 
Eisenberg Brothers, Inc., on behalf of itself and all others similarly          
situated, v. Amcel Corp., Clear Shield National, Inc., Dispoz-O Plastics Corp.  
and Benchmark Holdings, Inc. t/a Winkler Products, Civil Action No. 96-728,     
United States District Court for the Eastern District of Pennsylvania; St.      
Cloud Restaurant Supply Company v. Amcel Corp., Clear Shield National, Inc.,    
Dispoz-O Plastics Corp. and Benchmark Holdings, Inc. t/a Winkler Products, Case 
No. 96C 0777, United States District Court for the Northern District of         
Illinois, Eastern Division; and Servall Products, Inc., on behalf of itself and 
all others similarly situated, v. Amcel Corporation, Clear Shield National,     
Inc., Dispoz-O Plastics Corporation and Benchmark Holdings, Inc. t/a Winkler    
Products, Civil Action No.  96-1116, United States District Court for the       
Eastern District of Pennsylvania. Each of the complaints alleges, among other   
things, that from October 1990 through April 1992 the defendants unlawfully     
conspired to fix the prices at which plastic cutlery would be sold. The Company 
has informed the plaintiffs that such claims as they relate to Clear Shield     
were discharged by the order of the Bankruptcy Court and Plan of Reorganization 
and that the plaintiffs are permanently enjoined from pursuing legal action to  
collect discharged claims.                                                      

 On February 27, 1996, the plaintiff in the St. Cloud case voluntarily
dismissed the action without prejudice and refiled its action in the U.S.       
District Court for the Eastern District of Pennsylvania but did not name Clear  
Shield National as a defendant. On March 14, 1996, Eisenberg Brothers Inc.      
filed a motion in Clear Shield National's Bankruptcy proceeding in the U.S.     
Bankruptcy Court for the Northern District of Illinois, Eastern Division.       
Eisenberg Brothers Inc.'s motion contends that the Bankruptcy Court's order did 
not discharge the plaintiff's claim.                                            

      The Company and its subsidiaries are involved in various legal proceedings
arising out of its business and other environmental matters, none of which is   
expected to have a material adverse effect upon its results of operations, cash 
flows or financial position.                                                    

15.   CAPITAL STOCK, PAID IN CAPITAL, AND WARRANTS                              

Authorized shares of preferred stock ($.01 par value per share) and 
common stock ($.01 par value per share) for the reorganized Envirodyne are      
25,000,000 shares and 50,000,000 shares, respectively. 13,579,460 shares of     
common stock were issued and outstanding as of December 28, 1995. In accordance 
with the Plan of Reorganization, an additional 64,460 shares of common stock    
and 15,000 shares of common stock were issued to the general unsecured          
creditors of Envirodyne during 1995 and 1994, respectively. (Refer to Note 1.)  

   Prior to the December 31, 1993 reorganization, the authorized shares of
preferred stock and common stock were 1,000 shares and 320 shares,              
respectively.                                                                   

Envirodyne issued 1,500,000 warrants pursuant to the Plan of        
Reorganization, exercisable at any time until December 31, 1998. Each warrant   
was initially exercisable for one share of common stock at an initial exercise  
price of $17.25 per share. The exercise price and the number of shares of       
common stock for which a warrant is                                             

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15.   CAPITAL STOCK, PAID IN CAPITAL, AND WARRANTS--(CONTINUED)                 

exercisable were adjusted as a result of the issuance of certain shares of      
Envirodyne after the consummation of the Plan of Reorganization, including the  
issuance of shares in settlement of the SMD lawsuit discussed in Note 14. Under 
terms of the warrant agreement, the exercise price has been adjusted from       
$17.25 to $16.08 per share and the number of common shares for which each       
warrant is exercisable has been adjusted from 1.000 share to 1.073 shares.      

16.   STOCK OPTIONS                                                             

    At December 28, 1995, the Company had outstanding options under the 1993
Stock Option Plan. Options were issued to certain employees to purchase shares  
at not less than the fair market value of the shares on the grant date. The     
plan options generally vest in three equal annual amounts beginning one year    
from the grant date and expire ten years from the grant date, subject to the    
acceleration of exercisability upon the occurrence of certain events. Such an   
acceleration event occurred in both November 1994 and August 1995.              

   During 1995, each non-employee director of the Company received options
to purchase 2,000 shares of stock at not less than the fair market value of the 
shares on the date of grant. The non-employee director options are fully        
exercisable upon issuance. Pursuant to the 1993 Stock Option Plan, on the date  
of each subsequent annual meeting of stockholders, non-employee directors will  
automatically be granted non-qualified options to purchase 1,000 shares of      
Common Stock at an option exercise price equal to the fair market value of a    
share of Common Stock on the date of grant.                                     

    Stock option activity for the years ended December 28, 1995 and December
29, 1994 were:                                                                  

                                                        [Enlarge/Download Table]

                                                                    NUMBER OF                
                                                                      OPTION     OPTION PRICE
                                                                      SHARES      PER SHARE  
                                                                    ----------  -------------
                                                                                             
Outstanding, December 31, 1993                                                               
  Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . .    402,020        $5.06    
  Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .                            
  Terminated  . . . . . . . . . . . . . . . . . . . . . . . . . .    (13,100)        5.06    
                                                                   ---------                 
Outstanding, December 29, 1994  . . . . . . . . . . . . . . . . .    388,920         5.06    
  Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . .     97,200         5.06    
  Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .                            
  Terminated  . . . . . . . . . . . . . . . . . . . . . . . . . .    (61,890)        5.06    
                                                                  ----------                 
Outstanding, December 28, 1995  . . . . . . . . . . . . . . . . .    424,230         5.06    
                                                                  ==========                 

17.   FAIR VALUE OF FINANCIAL INSTRUMENTS (DOLLARS IN THOUSANDS)                

    The following table presents the carrying value and estimated fair value
as of December 28, 1995 of the Company's financial instruments. (Refer to Notes 
3 and 9.)                                                                       

                                                        [Enlarge/Download Table]

                                                                  CARRYING   ESTIMATED  
                                                                    VALUE    FAIR VALUE 
                                                                  --------  ------------
                                                                                        
Assets:                                                                                 
  Cash and equivalents  . . . . . . . . . . . . . . . . . . . . . $ 30,325   $ 30,325   
  Foreign currency contracts  . . . . . . . . . . . . . . . . . .    3,397      3,377   
  Interest rate agreements  . . . . . . . . . . . . . . . . . . .      561          3   

Liabilities:                                                                            
  Long-term debt (excluding capital leases) . . . . . . . . . . .  393,432    318,053   

18.   PATENT LITIGATION SETTLEMENT (DOLLARS IN THOUSANDS)                       

In 1989 certain competitors of Viskase filed a declaratory action   
challenging the validity and enforceability of a Viskase patent relating to     
casings used in the manufacture of food products. In May 1994, the trial court  
upheld the validity and enforceability of the Viskase patent and found          
infringement of the patent. Before the trial                                    

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on damages was conducted, Viskase entered into agreements to settle the         
claims and grant licenses to the competitors. Under the terms of these          
agreements Viskase received $9,457 for past infringement and advance royalties  
and established royalty rates for future patent use.                            

19.   RESEARCH AND DEVELOPMENT COSTS (DOLLARS IN THOUSANDS)                     

Research and development costs are expensed as incurred and totaled 
$11,034, $16,852 and $15,216, for 1995, 1994, and 1993, respectively.           

20.   RELATED PARTY TRANSACTIONS (DOLLARS IN THOUSANDS)                         

During fiscal 1995, 1994 and 1993, the Company paid DPK $770 for    
management services. In fiscal 1995, 1994 and 1993, the Company made payments   
of approximately $156, $560 and $354, respectively, to an affiliate of DPK for  
the use of a jet aircraft on an as-needed basis.                                

 During fiscal 1995, 1994, and 1993, the Company purchased product and
services from affiliates of DPK in the amounts of approximately $1,537, $1,367  
and $941, respectively. During fiscal 1995, 1994, and 1993, the Company sublet  
office space from DPK for which it paid approximately $151, $151 and $150,      
respectively, in rent. During fiscal 1995, the Company reimbursed a             
non-affiliated medical plan in the aggregate amount of $79,344 for medical      
claims of Messrs.  Kelly, Gustafson and Corcoran.                               

During fiscal 1995 and 1994, the Company advanced funds to and made 
payments on behalf of DPK and Donald P. Kelly in the amounts of approximately   
$52 and $118, respectively, for legal fees related to the litigation involving  
ARTRA Group Incorporated (refer to Note 14).                                    

21.   BUSINESS SEGMENT INFORMATION AND GEOGRAPHIC AREA INFORMATION (DOLLARS IN  
THOUSANDS)                                                          

  Envirodyne primarily manufactures and sells polymeric food casings and
plastic packaging films and containers (food packaging products) and disposable 
foodservice supplies. The Company's operations are primarily in North/South     
America and Europe. Intercompany sales and charges (including royalties) have   
been reflected as appropriate in the following information. Other income for    
1995, 1994, and 1993 includes net foreign exchange transaction gains (losses)   
of approximately $(61), $2,707, and $(4,631), respectively.                     

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BUSINESS SEGMENT INFORMATION                                                    

                                                        [Enlarge/Download Table]

                                                      DECEMBER 30,    JANUARY 1,    JANUARY 1, 
                                                        1994 TO           TO            TO     
                                                      DECEMBER 28,   DECEMBER 29,  DECEMBER 31,
                                                         1995           1994           1993    
                                                      -----------    ----------    ----------- 
                                                                                               
Net sales:                                                                                     
  Food packaging products . . . . . . . . . . . . .    $   574,266   $   530,179   $   522,363 
  Disposable foodservice supplies . . . . . . . . .         76,138        68,996        66,383 
  Other and eliminations  . . . . . . . . . . . . .           (192)         (146)       (1,361)
                                                       -----------   -----------   ----------- 
                                                       $   650,212   $   599,029   $   587,385 
                                                       ===========   ===========   =========== 
Earnings before income taxes:                                                                  
Operating income:                                                                              
  Food packaging products . . . . . . . . . . . . .    $    39,183   $    48,145   $    53,432 
  Disposable foodservice supplies . . . . . . . . .          4,959         6,514         5,223 
  Unallocated expenses, net -- primarily corporate          (6,007)       (5,982)       (5,023)
                                                       -----------   -----------   ----------- 
                                                            38,135        48,677        53,632 

Interest expense, net . . . . . . . . . . . . . . .         56,666        49,207        30,259 
Other expense (income), net . . . . . . . . . . . .          1,710        (1,668)        5,540 
Minority interest in loss of subsidiary . . . . . .                           50           717 
                                                       -----------      --------   ----------- 
                                                       $   (20,241)     $  1,188   $    18,550 
                                                       ===========      ========   =========== 
Identifiable assets:                                                                           
  Food packaging products . . . . . . . . . . . . .    $   796,655   $   814,731   $   790,125 
  Disposable foodservice supplies . . . . . . . . .         69,812        71,530        64,879 
  Corporate and other, primarily cash equivalents .         33,100        10,375        12,676 
                                                       -----------   -----------   ----------- 
                                                       $   899,567   $   896,636   $   867,680 
                                                       ===========   ===========   =========== 
Depreciation and amortization under capital lease and                                          
  amortization of intangibles expense:                                                         
  Food packaging products . . . . . . . . . . . . .    $    51,404   $    47,207   $    46,715 
  Disposable foodservice supplies . . . . . . . . .          4,581         4,125         5,624 
  Corporate and other . . . . . . . . . . . . . . .             76            55            59 
                                                       -----------   -----------   ----------- 
                                                       $    56,061   $    51,387   $    52,398 
                                                       ===========   ===========   =========== 
Capital expenditures:                                                                          
  Food packaging products . . . . . . . . . . . . .    $    30,744   $    28,534   $    37,673 
  Disposable foodservice supplies . . . . . . . . .          3,687         4,012         3,100 
  Corporate and other . . . . . . . . . . . . . . .             34            20           114 
                                                       -----------   -----------   ----------- 
                                                       $    34,465   $    32,566   $    40,887 
                                                       ===========   ===========   =========== 

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GEOGRAPHIC AREA INFORMATION                                                     

                                                        [Enlarge/Download Table]

                                                     DECEMBER 30,    JANUARY 1,    JANUARY 1, 
                                                       1994 TO          TO            TO      
                                                     DECEMBER 28,   DECEMBER 29,  DECEMBER 31,
                                                        1995           1994          1993     
                                                    ------------   ------------  ------------ 
                                                                                              
Net sales:                                                                                    
  North/South American operations . . . . . . . . .  $   440,539   $   423,049   $   426,644  
  European operations . . . . . . . . . . . . . . .      213,618       184,395       164,717  
  Other and eliminations  . . . . . . . . . . . . .       (3,945)       (8,415)       (3,976) 
                                                     -----------   -----------   -----------  
                                                     $   650,212   $   599,029   $   587,385  
                                                     ===========   ===========   ===========  
Operating profit:                                                                             
  North/South American operations . . . . . . . . .  $    23,028   $    28,124   $    37,495  
  European operations . . . . . . . . . . . . . . .       15,373        20,553        16,137  
  Other and eliminations  . . . . . . . . . . . . .         (266)                             
                                                     -----------   -----------   -----------  
                                                     $    38,135   $    48,677   $    53,632  
                                                     ===========   ===========   ===========  

Identifiable assets:                                                                          
  North/South American operations . . . . . . . . .  $   677,377   $   667,358   $   669,240  
  European operations . . . . . . . . . . . . . . .      219,802       229,278       198,440  
  Other and eliminations  . . . . . . . . . . . . .        2,388                              
                                                     -----------   -----------   -----------  
                                                     $   899,567   $   896,636   $   867,680  
                                                     ===========   ===========   ===========  

    The total assets and net assets of foreign businesses were approximately
$282,383 and $107,023 at December 28, 1995.                                     

22.   QUARTERLY DATA (UNAUDITED)                                                

Quarterly financial information for 1995 and 1994 is as follows (in 
thousands, except for per share amounts):                                       

                                                        [Enlarge/Download Table]

                                        FIRST      SECOND     THIRD      FOURTH            
FISCAL 1995                            QUARTER    QUARTER    QUARTER     QUARTER    ANNUAL 
-----------                            -------    -------    -------     -------    ------ 
                                                                                           
Net Sales . . . . . . . . . . . . . . $155,824   $165,184   $166,688   $162,516   $650,212 
Operating Income  . . . . . . . . . .    8,689     10,089      8,653     10,704     38,135 
Net income (loss) . . . . . . . . . .   (3,895)    (7,513)    (4,475)    (5,636)   (21,519)
Net income (loss) per share . . . . .    (0.29)     (0.56)     (0.33)     (0.42)     (1.59)

  The second quarter net (loss) includes an extraordinary loss of $(4.2)
million on debt extinguishment.                                                 

   Net income (loss) per share amounts are computed independently for each
of the quarters presented using weighted average shares outstanding during each 
quarter. The sum of the quarterly per share amounts in 1995 do not equal the    
total for the year because of rounding and 1995 stock issuances, as shown on    
the Consolidated Statement of Stockholders' Equity.                             

                                                        [Enlarge/Download Table]

                                        FIRST      SECOND    THIRD      FOURTH            
FISCAL 1994                            QUARTER    QUARTER   QUARTER     QUARTER    ANNUAL 
-----------                            -------    -------   -------     -------    ------ 
                                                                                          
Net Sales . . . . . . . . . . . . . . $142,593   $150,788  $151,883   $153,765   $599,029 
Operating Income  . . . . . . . . . .    9,710     18,739     9,755     10,473     48,677 
Net income (loss) . . . . . . . . . .   (2,507)     3,448    (3,261)    (1,292)    (3,612)
Net income (loss) per share . . . . .    (0.19)      0.26     (0.24)     (0.10)     (0.27)

   The 1994 second quarter operating income benefitted from a $9.5 million
settlement of a patent infringement suit.                                       

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22.   QUARTERLY DATA (UNAUDITED)--(CONTINUED)                                   

   Net income (loss) per share amounts are computed independently for each
of the quarters presented using weighted average shares outstanding during each 
quarter.                                                                        

23.   SUBSEQUENT EVENTS (DOLLARS IN THOUSANDS)                                  

     On February 23, 1996, the United States Bankruptcy Court for the Northern
District of Illinois, Eastern District entered an order approving a settlement  
agreement resolving all claims of the former union employees of Wisconsin Steel 
Company which shut down in March 1980. Under terms of the approved settlement   
of Frank Lumpkin, et al. v. Envirodyne Industries, Inc. (Lumpkin) and without   
any admission or finding of liability or wrongdoing, Envirodyne was released    
and discharged from all claims in exchange for 900,000 shares of common stock.  
The distribution is in accordance with the terms of Envirodyne's Plan of        
Reorganization under which common stock was distributed to Envirodyne's general 
unsecured creditors in satisfaction of their allowed claims (Refer to Note 1).  

The Company issued additional shares of common stock for the Lumpkin
settlement and to the holders of general unsecured claims of Envirodyne (as     
opposed to the subsidiaries of Envirodyne) under terms of the Plan of           
Reorganization.  The total number of shares outstanding after issuance of       
common stock for the Lumpkin settlement and for additional distribution to      
holders of general unsecured claims of Envirodyne is 14,479,721.                

    Under terms of the Plan of Reorganization, Envirodyne issued warrants to
purchase 10% of the fully diluted common stock. The issuance of common stock    
pursuant to the Lumpkin settlement, together with other issuances of common     
stock since the consummation of the Plan of Reorganization, caused an           
adjustment to the exercise price of the warrants and the number of shares of    
common stock for which a warrant is exercisable. The exercise price was         
adjusted from $17.25 to $16.08 per share and the number of common shares for    
which each warrant is exercisable was adjusted from 1.000 share to 1.073        
shares.                                                                         

On March 15, 1996 the United States Court of Appeals for the Seventh
Circuit affirmed the decisions of the U.S.  District Court and the Bankruptcy   
Court to equitably subordinate the claims of holders of untendered shares to    
claims of the other general unsecured creditors (refer to Note 14). The time    
period for further appeal has not passed. Envirodyne believes that even in the  
event of further appeal, if any, and reversal of the prior decisions, the       
maximum number of shares of common stock that it would be required to issue to  
such claimants is approximately 106,000.                                        

24.   SUBSIDIARY GUARANTORS                                                     

     Envirodyne's payment obligations under the Senior Secured Notes are fully
and unconditionally guaranteed on a joint and several basis (collectively,      
Subsidiary Guarantees) by Viskase Corporation, Viskase Holding Corporation,     
Viskase Sales Corporation, Clear Shield National, Inc., Sandusky Plastics, Inc. 
and Sandusky Plastics of Delaware, Inc., each a direct or indirect wholly-owned 
subsidiary of Envirodyne and each a "Guarantor." These subsidiaries represent   
substantially all of the operations of Envirodyne conducted in the United       
States. The remaining subsidiaries of Envirodyne generally are foreign          
subsidiaries or otherwise relate to foreign operations.                         

    The obligations of each Guarantor under its Subsidiary Guarantee are the
senior obligation of such Guarantor, and are collateralized, subject to certain 
permitted liens, by substantially all of the domestic assets of the Guarantor   
and, in the case of Viskase Holding Corporation, by a pledge of 65% of the      
capital stock of Viskase S.A. The Subsidiary Guarantees and security are shared 
with the lenders under the Revolving Credit Agreement on a pari passu basis and 
are subject to the priority interest of the holders of obligations under the    
Letter of Credit Facility, each pursuant to an intercreditor agreement.         

The following consolidating condensed financial data illustrate the 
composition of the combined Guarantors. No single Guarantor has any significant 
legal restrictions on the ability of investors or creditors to obtain access to 
its assets in the event of default on the Subsidiary Guarantee other than its   
subordination to senior indebtedness described above. Separate financial        
statements of the Guarantors are not presented because management has           
determined that these would not be material to investors. Based on the book     
value and the market value of the pledged securities of Viskase Corporation,    
Viskase Sales Corporation, Clear Shield National, Inc., Sandusky                

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24.   SUBSIDIARY GUARANTORS--(CONTINUED)                                        

Plastics, Inc. and Sandusky Plastics of Delaware, Inc., these Subsidiary        
Guarantors do not constitute a substantial portion of the collateral and,       
therefore, the separate financial statements of these subsidiaries have not been
provided. Separate audited financial statements of Viskase Holding Corporation  
are being filed within.                                                         

Investments in subsidiaries are accounted for by the parent and     
Subsidiary Guarantors on the equity method for purposes of the supplemental     
consolidating presentation. Earnings of subsidiaries are therefore reflected in 
the parent's and Subsidiary Guarantors' investment accounts and earnings. The   
principal elimination entries eliminate investments in subsidiaries and         
intercompany balances and transactions.                                         

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ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEETS

                                                        [Enlarge/Download Table]

                                                                                DECEMBER 28, 1995                              
                                                    ---------------------------------------------------------------------------
                                                                  GUARANTOR      NONGUARANTOR                      CONSOLIDATED
                                                    PARENT       SUBSIDIARIES    SUBSIDIARIES   ELIMINATIONS(1)       TOTAL    
                                                    ------       ------------    ------------   ---------------   -------------
                                                                               (IN THOUSANDS)                                  
                                                                                                                               
ASSETS                                                                                                                         
  Current assets:                                                                                                              
    Cash and equivalents  . . . . . . . . . . . . . $    18,013   $       486    $    11,826                        $  30,325  
    Receivables and advances, net . . . . . . . . .      52,462        70,458         57,082    $   (90,548)           89,454  
    Inventories . . . . . . . . . . . . . . . . . .                    63,355         38,233         (2,114)           99,474  
    Other current assets  . . . . . . . . . . . . .         176        12,364          9,106                           21,646  
                                                    -----------   -----------    -----------    -----------         ---------  
      Total current assets  . . . . . . . . . . . .      70,651       146,663        116,247        (92,662)          240,899  
Property, plant and equipment including                                                                                        
  those under capital lease . . . . . . . . . . . .         261       394,813        150,417                          545,491  
  Less accumulated depreciation                                                                                                
    and amortization  . . . . . . . . . . . . . . .         150        55,620         20,217                           75,987  
                                                    -----------   -----------    -----------    -----------         ---------  
  Property, plant and equipment, net  . . . . . . .         111       339,193        130,200                          469,504  
Deferred financing costs  . . . . . . . . . . . . .       7,048                        1,042                            8,090  
Other assets  . . . . . . . . . . . . . . . . . . .                    43,720          1,869                           45,589  
Investment in subsidiaries  . . . . . . . . . . . .      77,766       133,634                      (211,400)                   
Excess reorganization value . . . . . . . . . . . .                    94,968         40,517                          135,485  
                                                    -----------   -----------    -----------    -----------         ---------  
                                                    $   155,576   $   758,178    $   289,875    $  (304,062)        $ 899,567  
                                                    ===========   ===========    ===========    ===========         =========  

LIABILITIES & STOCKHOLDERS' EQUITY                                                                                             
  Current liabilities:                                                                                                         
    Short-term debt including current                                                                                          
      portion of long-term debt and                                                                                            
      obligation under capital lease  . . . . . . .               $     6,407    $     6,097                        $  12,504  
    Accounts payable and advances . . . . . . . . . $        80        78,848         50,737    $   (90,548)           39,117  
    Accrued liabilities . . . . . . . . . . . . . .       8,126        37,488         21,939                           67,553  
                                                    -----------   -----------    -----------    -----------         ---------  
      Total current liabilities . . . . . . . . . .       8,206       122,743         78,773        (90,548)          119,174  
Long-term debt including obligation                                                                                            
  under capital lease . . . . . . . . . . . . . . .     379,262       143,198          7,721                          530,181  
Accrued employee benefits . . . . . . . . . . . . .                    51,345          4,281                           55,626  
Deferred and noncurrent income taxes  . . . . . . .      34,088        17,507         25,895                           77,490  
Intercompany loans  . . . . . . . . . . . . . . . .    (383,076)      340,000         43,083             (7)                   
Commitments and contingencies                                                                                                  
Stockholders' equity:                                                                                                          
  Preferred stock, $.01 par value;                                                                                             
    none outstanding                                                                                                           
  Common stock, $.01 par value;                                                                                                
    13,579,460 shares issued and                                                                                               
    outstanding . . . . . . . . . . . . . . . . . .         136             3         32,738        (32,741)              136  
  Paid in capital . . . . . . . . . . . . . . . . .     134,864       103,955         87,871       (191,826)          134,864  
  Accumulated earnings (deficit)  . . . . . . . . .     (25,131)      (27,752)         2,334         25,418           (25,131) 
  Cumulative foreign currency                                                                                                  
    translation adjustments . . . . . . . . . . . .       7,227         7,179          7,179        (14,358)            7,227  
                                                    -----------   -----------    -----------    -----------         ---------  
      Total stockholders' equity  . . . . . . . . .     117,096        83,385        130,122       (213,507)          117,096  
                                                    -----------   -----------    -----------    -----------         ---------  
                                                    $   155,576   $   758,178    $   289,875    $  (304,062)        $ 899,567  
                                                    ===========   ===========    ===========    ===========         =========  

---------------------                                                           
(1)  Elimination of intercompany receivables, payables and investment accounts. 

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ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEETS

                                                        [Enlarge/Download Table]

                                                                                  DECEMBER 29, 1994                            
                                                    ---------------------------------------------------------------------------
                                                                   GUARANTOR    NONGUARANTOR                     CONSOLIDATED  
                                                      PARENT     SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS(1)      TOTAL      
                                                    -----------  ------------   ------------   ---------------   ------------- 
                                                                                   (IN THOUSANDS)                              
                                                                                                                               
ASSETS                                                                                                                         
    Current assets:                                                                                                            
    Cash and equivalents  . . . . . . . . . . . . . $       555   $     1,853   $     4,881                       $  7,289     
    Receivables and advances, net . . . . . . . . .      33,508        63,949        49,378      $   (59,967)       86,868     
    Inventories . . . . . . . . . . . . . . . . . .                    68,719        43,725           (1,961)      110,483     
    Other current assets  . . . . . . . . . . . . .         181        12,999         6,286                         19,466     
                                                    -----------   -----------   -----------      -----------      --------     
      Total current assets  . . . . . . . . . . . .      34,244       147,520       104,270          (61,928)      224,106     
Property, plant and equipment including                                                                                        
  those under capital lease . . . . . . . . . . . .         189       367,880       138,030                        506,099     
  Less accumulated depreciation                                                                                                
    and amortization  . . . . . . . . . . . . . . .          55        26,739         8,967                         35,761     
                                                    -----------   -----------   -----------      -----------      --------     
  Property, plant and equipment, net  . . . . . . .         134       341,141       129,063                        470,338     
Deferred financing costs  . . . . . . . . . . . . .       8,062                       1,081                          9,143     
Other assets  . . . . . . . . . . . . . . . . . . .                    45,757         1,424                         47,181     
Investment in subsidiaries  . . . . . . . . . . . .      91,576       116,360                       (207,936)                  
Excess reorganization value . . . . . . . . . . . .                   102,230        43,638                        145,868     
                                                    -----------   -----------   -----------      -----------      --------     
                                                    $   134,016   $   753,008   $   279,476      $  (269,864)     $896,636     
                                                    ===========   ===========   ===========      ===========      ========     

LIABILITIES & STOCKHOLDERS' EQUITY                                                                                             
  Current liabilities:                                                                                                         
    Short-term debt including current                                                                                          
      portion of long-term debt and                                                                                            
      obligation under capital lease  . . . . . . . $    11,100   $     7,720   $     6,978                       $ 25,798     
    Accounts payable and advances . . . . . . . . .         726        53,193        40,383      $   (59,967)       34,335     
    Accrued liabilities . . . . . . . . . . . . . .      10,254        36,634        25,358                         72,246     
                                                    -----------   -----------   -----------      -----------      --------     
      Total current liabilities . . . . . . . . . .      22,080        97,547        72,719          (59,967)      132,379     
Long-term debt including obligation                                                                                            
  under capital lease . . . . . . . . . . . . . . .     327,437       147,898        14,023                        489,358     
Accrued employee benefits . . . . . . . . . . . . .                    52,248         3,969                         56,217     
Deferred and noncurrent income taxes  . . . . . . .      29,006        31,927        22,400                         83,333     
Intercompany loans  . . . . . . . . . . . . . . . .    (379,856)      340,000        39,856                                    
Commitments and contingencies                                                                                                  
Stockholders' equity:                                                                                                          
  Preferred stock, $.01 par value;                                                                                             
    none outstanding                                                                                                           
  Common stock, $.01 par value;                                                                                                
    13,515,000 shares issued and                                                                                               
    outstanding . . . . . . . . . . . . . . . . . .         135             4        32,608          (32,612)          135     
  Paid in capital . . . . . . . . . . . . . . . . .     134,865        87,805        87,440         (175,245)      134,865     
  Accumulated earnings (deficit)  . . . . . . . . .      (3,612)       (8,333)        2,549            5,784        (3,612)    
  Cumulative foreign currency                                                                                                  
    translation adjustments . . . . . . . . . . . .       3,961         3,912         3,912           (7,824)        3,961     
                                                    -----------   -----------   -----------      -----------      --------     
      Total stockholders' equity  . . . . . . . . .     135,349        83,388       126,509         (209,897)      135,349     
                                                    -----------   -----------   -----------      -----------      --------     
                                                    $   134,016   $   753,008   $   279,476      $  (269,864)     $896,636     
                                                    ===========   ===========   ===========      ===========      ========     

---------------------                                                           
(1)  Elimination of intercompany receivables, payables and investment accounts. 

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ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENTS OF OPERATIONS

                                                        [Enlarge/Download Table]

                                                                      FOR THE YEAR ENDED DECEMBER 28, 1995                       
                                                    -----------------------------------------------------------------------------
                                                                  GUARANTOR         NONGUARANTOR                    CONSOLIDATED 
                                                     PARENT      SUBSIDIARIES       SUBSIDIARIES      ELIMINATIONS      TOTAL    
                                                    -------      ------------       ------------      ------------   ------------
                                                                                   (IN THOUSANDS)                                

                                                                                                                                 
NET SALES . . . . . . . . . . . . . . . . . . . . .                 $ 417,756      $   267,212       $   (34,756)    $ 650,212   
COSTS AND EXPENSES                                                                                                               
  Cost of sales . . . . . . . . . . . . . . . . . .                   312,419          207,232           (34,603)      485,048   
  Selling, general and administrative . . . . . . . $     6,004        65,318           39,908                         111,230   
  Amortization of intangibles and                                                                                                
    excess reorganization value . . . . . . . . . .                    12,466            3,333                          15,799   
                                                    -----------     ---------      -----------       -----------     ---------   
OPERATING INCOME (LOSS) . . . . . . . . . . . . . .      (6,004)       27,553           16,739              (153)       38,135   
  Interest income . . . . . . . . . . . . . . . . .         203            12              455                             670   
  Interest expense  . . . . . . . . . . . . . . . .      40,081        13,902            3,353                          57,336   
  Intercompany interest expense (income)  . . . . .     (38,218)       34,007            4,211                                   
  Management fees (income)  . . . . . . . . . . . .      (8,086)        6,377            1,709                                   
  Other expense (income), net . . . . . . . . . . .      (2,400)           52            4,058                           1,710   
  Equity Loss (income) in subsidiary  . . . . . . .      19,571           216                            (19,787)                
                                                    -----------     ---------      -----------       -----------     ---------   
INCOME (LOSS) BEFORE INCOME TAXES                                                                                                
  AND EXTRAORDINARY ITEM  . . . . . . . . . . . . .     (16,749)      (26,989)           3,863            19,634       (20,241)  
  Income tax provision (benefit)  . . . . . . . . .       1,264        (7,570)           3,388                          (2,918)  
                                                    -----------     ---------      -----------       -----------     ---------   
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM . . . . . .     (18,013)      (19,419)             475            19,634       (17,323)  
  Extraordinary loss, net of tax  . . . . . . . . .       3,506                            690                           4,196   
                                                    -----------     ---------      -----------       -----------     ---------   
NET (LOSS)  . . . . . . . . . . . . . . . . . . . . $   (21,519)    $ (19,419)     $      (215)      $    19,634     $ (21,519)  
                                                    ===========     =========      ===========       ===========     =========   

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ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATING CASH FLOWS

                                                        [Enlarge/Download Table]
                                                                                                                                  
                                                                       FOR THE YEAR ENDED DECEMBER 28, 1995                       
                                                       ---------------------------------------------------------------------------
                                                                  GUARANTOR         NONGUARANTOR                     CONSOLIDATED 
                                                    PARENT       SUBSIDIARIES       SUBSIDIARIES    ELIMINATIONS         TOTAL    
                                                    ------       ------------       ------------    ------------       ---------- 
                                                                                   (IN THOUSANDS)                                 
                                                                                                                                  
Net cash provided by (used in)                                                                                                    
  operating activities  . . . . . . . . . . . . . $ (13,276)      $   32,242        $    20,001                        $ 38,967   
Cash flows from investing activities:                                                                                             
  Capital expenditures  . . . . . . . . . . . . .       (34)         (27,842)            (6,589)                        (34,465)  
  Proceeds from sale of property, plant and                                                                                       
    equipment . . . . . . . . . . . . . . . . . .                         39                 47                              86   
                                                  ---------       ----------        -----------     -----------        --------   
      Net cash (used in) investing activities . .       (34)         (27,803)            (6,542)                        (34,379)  

Cash flows from financing activities:                                                                                             
  Proceeds from revolving loan and                                                                                                
    long term borrowings  . . . . . . . . . . . .   164,000            1,706             42,216                         207,922   
  Deferred financing costs  . . . . . . . . . . .    (6,721)                             (1,166)                         (7,887)  
  Repayment of revolving loan, long-term                                                                                          
    borrowings and capital lease obligations  . .  (123,275)          (7,512)           (50,588)                       (181,375)  
  Increase (decrease) in Envirodyne loan  . . . .    (3,236)                              3,236                                   
                                                  ---------       ----------        -----------     -----------        --------   
      Net cash provided by (used in) financing                                                                                    
       activities . . . . . . . . . . . . . . . .    30,768           (5,806)            (6,302)                         18,660   
Effect of currency exchange rate changes                                                                                          
  on cash . . . . . . . . . . . . . . . . . . . .                                          (212)                           (212)  
                                                  ---------       ----------        -----------     -----------        --------   
Net increase (decrease) in cash                                                                                                   
  and equivalents . . . . . . . . . . . . . . . .    17,458           (1,367)             6,945                          23,036   
Cash and equivalents at beginning of period . . .       555            1,853              4,881                           7,289   
                                                  ---------       ----------        -----------     -----------        --------   
Cash and equivalents at end of period . . . . . . $  18,013       $      486        $    11,826                        $ 30,325   
                                                  =========       ==========        ===========     ===========        ========   

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ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENTS OF OPERATIONS

                                                        [Enlarge/Download Table]

                                                                     FOR THE YEAR ENDED DECEMBER 29, 1994                     
                                             ---------------------------------------------------------------------------------
                                                               GUARANTOR        NONGUARANTOR                      CONSOLIDATED
                                              PARENT         SUBSIDIARIES       SUBSIDIARIES     ELIMINATIONS         TOTAL   
                                             --------        ------------       ------------     ------------     ------------
                                                                           (IN THOUSANDS)                                     
                                                                                                                              
NET SALES . . . . . . . . . . . . . . . . .                 $  406,988          $  220,787       $   (28,746)     $  599,029  
  Patent infringement settlement income . .                      9,457                                                 9,457  
COSTS AND EXPENSES                                                                                                            
  Cost of sales . . . . . . . . . . . . . .                    295,356             168,891           (28,487)        435,760  
  Selling, general and administrative . . . $    6,015          71,092              31,330                           108,437  
  Amortization of intangibles and                                                                                             
    excess reorganization value . . . . . .                     12,266               3,346                            15,612  
                                            ----------      ----------          ----------       -----------      ----------  
OPERATING INCOME (LOSS) . . . . . . . . . .     (6,015)         37,731              17,220              (259)         48,677  
  Interest income . . . . . . . . . . . . .         13              46                 248                               307  
  Interest expense  . . . . . . . . . . . .     31,937          14,124               3,453                            49,514  
  Intercompany interest expense (income)  .    (35,077)         31,170               3,907                                    
  Management fees (income)  . . . . . . . .     (7,400)          6,544                 856                                    
  Other expense (income), net . . . . . . .     (3,448)              7               1,923              (150)         (1,668) 
  Equity loss (income) in subsidiary  . . .      8,392          (2,549)                               (5,843)                 
  Minority interest in loss of subsidiary .                                                               50              50  
                                            ----------      ----------           ---------       -----------      ----------  
INCOME (LOSS) BEFORE INCOME TAXES . . . . .       (406)        (11,519)              7,329             5,784           1,188  
  Income tax provision  . . . . . . . . . .      3,206          (3,186)              4,780                             4,800  
                                            ----------      ----------          ----------       -----------      ----------  
NET INCOME (LOSS) . . . . . . . . . . . . . $   (3,612)     $   (8,333)         $    2,549       $     5,784      $   (3,612) 
                                            ==========      ==========          ==========       ===========      ==========  

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ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATING CASH FLOWS

                                                        [Enlarge/Download Table]

                                                                       FOR THE YEAR ENDED DECEMBER 29, 1994                  
                                            ---------------------------------------------------------------------------------
                                                              GUARANTOR        NONGUARANTOR                      CONSOLIDATED
                                              PARENT        SUBSIDIARIES       SUBSIDIARIES      ELIMINATIONS       TOTAL    
                                            -----------     ------------       ------------      ------------    ------------
                                                                              (IN THOUSANDS)                                 
                                                                                                                             
Net cash provided by (used in) operating                                                                                     
   activities . . . . . . . . . . . . . . . $   (1,414)     $   13,575        $   11,125                         $   23,286  
Cash flows from investing activities:                                                                                        
  Capital expenditures  . . . . . . . . . .        (20)        (21,666)          (10,880)                           (32,566) 
  Proceeds from sales of property,                                                                                           
    plant and equipment . . . . . . . . . .                        239               120                                359  
Purchase of minority interest in                                                                                             
  subsidiary  . . . . . . . . . . . . . . .                     (4,200)                                              (4,200) 
                                            ----------      ----------        ----------         -----------     ----------  
      Net cash (used in) investing                                                                                           
        activities  . . . . . . . . . . . .        (20)        (25,627)          (10,760)                           (36,407) 
Cash flows from financing activities:                                                                                        
  Proceeds from revolving loan and                                                                                           
    long term borrowings  . . . . . . . . .     27,600                            10,068                             37,668  
  Deferred financing costs  . . . . . . . .     (1,608)                                                              (1,608) 
  Repayment of revolving loan, long-term                                                                                     
    borrowings and capital lease                                                                                             
    obligations . . . . . . . . . . . . . .     (8,325)         (5,180)           (9,112)                           (22,617) 

  Increase (decrease) in Envirodyne loan  .    (16,608)         17,163              (555)                                    
                                            ----------      ----------        ------ ---         -----------     ----------  
      Net cash provided by (used in)                                                                                         
        financing activities  . . . . . . .      1,059          11,983               401                             13,443  
Effect of currency exchange rate changes                                                                                     
    on cash . . . . . . . . . . . . . . . .                                         (776)                              (776) 
                                             ---------      ----------        ----------         -----------     ----------  
Net (decrease) in cash and equivalents  . .       (375)            (69)              (10)                              (454) 
Cash and equivalents at beginning                                                                                            
    of period . . . . . . . . . . . . . . .        930           1,922             4,891                              7,743  
                                            ----------      ----------        ----------         -----------     ----------  
Cash and equivalents at end of period . . . $      555      $    1,853        $    4,881                         $    7,289  
                                            ==========      ==========        ==========         ===========     ==========  

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ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENTS OF OPERATIONS

                                                        [Enlarge/Download Table]


                                                                       FOR THE YEAR ENDED DECEMBER 31, 1993                     
                                                    --------------------------------------------------------------------------  

                                                                   GUARANTOR        NONGUARANTOR                    CONSOLIDATED
                                                     PARENT      SUBSIDIARIES       SUBSIDIARIES      ELIMINATIONS     TOTAL    
                                                    -------      ------------       ------------      ------------  ------------
                                                                                (IN THOUSANDS)                                  
                                                                                                                                
NET SALES . . . . . . . . . . . . . . . . . . . . .               $   408,872      $   195,291        $   (16,778)    $587,385  
COSTS AND EXPENSES                                                                                                              
  Cost of sales . . . . . . . . . . . . . . . . . .                   283,743          151,694            (16,745)     418,692  
  Selling, general and administrative . . . . . . . $     5,021        65,992           28,337                          99,350  
  Amortization of intangibles and                                                                                               
    excess reorganization value . . . . . . . . . .                    13,170            2,541                          15,711  
                                                    -----------   -----------      -----------        -----------     --------  
OPERATING INCOME (LOSS) . . . . . . . . . . . . . .      (5,021)       45,967           12,719                (33)      53,632  
  Interest income . . . . . . . . . . . . . . . . .           1            20              910                             931  
  Interest expense  . . . . . . . . . . . . . . . .      10,388        14,589            6,213                          31,190  
  Intercompany interest expense (income)  . . . . .     (21,970)       61,416          (39,446)                                 
  Management fees (income)  . . . . . . . . . . . .      (7,600)        6,748              852                                  
  Other expense (income), net . . . . . . . . . . .       3,432           (86)           2,194                           5,540  
  Minority interest in subsidiary . . . . . . . . .                       717                                              717  
                                                    -----------   -----------      -----------        -----------     --------  
INCOME (LOSS) BEFORE INCOME TAXES,                                                                                              
  REORGANIZATION ITEMS AND EXTRAORDINARY ITEM . . .      10,730       (35,963)          43,816                (33)      18,550  
  Reorganization items, net . . . . . . . . . . . .      92,745        12,000                                          104,745  
INCOME (LOSS) BEFORE INCOME TAXES                                                                                               
  AND EXTRAORDINARY ITEM  . . . . . . . . . . . . .     (82,015)      (47,963)          43,816                (33)     (86,195) 
  Income tax provision (benefit)  . . . . . . . . .      (1,430)       (4,442)          17,872                          12,000  
                                                    -----------   -----------      -----------        ------------   ---------  
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM . . . . . .     (80,585)      (43,521)          25,944                (33)     (98,195) 
  Extraordinary gain, net of tax  . . . . . . . . .     183,784                                                        183,784  
                                                    -----------   -----------      -----------        ------------   ---------  
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . $   103,199   $   (43,521)     $    25,944        $       (33)   $  85,589  
                                                    ===========   ===========      ===========        ===========    =========  

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ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATING CASH FLOWS

                                                        [Enlarge/Download Table]

                                                                   FOR THE YEAR ENDED DECEMBER 31, 1993                  
                                                  -----------------------------------------------------------------------
                                                              GUARANTOR        NONGUARANTOR                  CONSOLIDATED
                                                   PARENT    SUBSIDIARIES      SUBSIDIARIES    ELIMINATIONS     TOTAL    
                                                  --------   ------------      ------------    ------------  ------------
                                                                             (IN THOUSANDS)                              
                                                                                                                         
Net cash provided by operating activities                                                                                
  before reorganization expense . . . . . . . .  $  24,623     $   33,840      $  33,738                       $  92,201 
Net cash used for reorganization items  . . . .     (2,929)       (12,000)                                       (14,929)
                                                 ---------     ----------      ---------       ----------      --------- 
Net cash provided by operating activities . . .     21,694         21,840         33,738                          77,272 
Cash flows from investing activities:                                                                                    
  Capital expenditures  . . . . . . . . . .           (114)       (27,289)       (13,484)                        (40,887)
  Proceeds from sale of property, plant and                                                                              
    equipment . . . . . . . . . . . . . . . . .                         4            120                             124 
                                                 ---------     ----------      ---------       ----------      --------- 
      Net cash (used in) investing activities .       (114)       (27,285)       (13,364)                        (40,763)
Cash flows from financing activities:                                                                                    
  Proceeds from revolving loan and                                                                                       
    long term borrowings  . . . . . . . . . . .    100,000                         6,003                         106,003 
  Deferred financing costs  . . . . . . . . . .     (8,659)                       (1,120)                         (9,779)
  Repayment of revolving loan, long-term                                                                                 
    borrowings and capital lease obligations  .   (103,100)        (4,698)       (30,938)                       (138,736)
  Increase (decrease) in Envirodyne loan  . . .     (8,891)        10,519         (1,628)                                
                                                 ---------     ----------      ---------       ----------      --------- 
      Net cash provided by (used in) financing                                                                           
        activities  . . . . . . . . . . . . . .    (20,650)         5,821        (27,683)                        (42,512)
Effect of currency exchange rate changes                                                                                 
        on cash . . . . . . . . . . . . . . . .                                     (316)                           (316)
                                                 ---------     ----------      ---------       ----------      --------- 
Net increase (decrease) in cash and equivalents        930            376         (7,625)                         (6,319)
Cash and equivalents at beginning of period . .                     1,546         12,516                          14,062 
                                                 ---------     ----------      ---------       ----------      --------- 
Cash and equivalents at end of period . . . . .  $     930     $    1,922      $   4,891                       $   7,743 
                                                 =========     ==========      =========       ==========      ========= 

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Financial statement schedules required by Regulation S-X                        

VISKASE HOLDING CORPORATION AND SUBSIDIARIES

Consolidated Financial Statements:                                              

                                                        [Enlarge/Download Table]
                                                                                                               
Report of independent accountants  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-39

Consolidated balance sheets, December 28, 1995 and December 29, 1994 . . . . . . . . . . . . . . . . . . . F-40

Consolidated Statements of operations, for December 30, 1994 to December 28, 1995                              
    (Post-consummation); January 1 to December 29, 1994 (Post-consummation); and                               
    January 1 to December 31, 1993 (Pre-consummation);   . . . . . . . . . . . . . . . . . . . . . . . . . F-41

Consolidated statements of stockholders' equity (deficit), for December 30, 1994                               
    to December 28, 1995 (Post-consummation); January 1 to December 29, 1994                                   
    (Post-consummation); and January 1 to December 31, 1993 (Pre-consummation); .  . . . . . . . . . . . . F-42

Consolidated statements of cash flows, for December 30, 1994 to December 28, 1995                              
    (Post-consummation); January 1 to December 29, 1994 (Post-consummation);                                   
    and January 1 to December 31, 1993 (Pre-consummation);   . . . . . . . . . . . . . . . . . . . . . . . F-43

Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-44

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REPORT OF INDEPENDENT ACCOUNTANTS 

To the Board of Directors                                                       
Viskase Holding Corporation                                                     

   We have audited the consolidated financial statements and the financial
statement schedules of Viskase Holding Corporation and Subsidiaries. These      
financial statements and financial statement schedules are the responsibility   
of the Company's management. Our responsibility is to express an opinion on     
these financial statements and financial statement schedules 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 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.                                                                

As discussed in Note 1 to the consolidated financial statements, on 
December 31, 1993, Envirodyne Industries, Inc.  and its domestic subsidiaries   
completed a comprehensive financial restructuring through the implementation of 
reorganization under Chapter 11 of the United States Bankruptcy Code and        
applied fresh start reporting.                                                  

In our opinion, the financial statements referred to above present  
fairly, in all material respects, the consolidated financial position of        
Viskase Holding Corporation and Subsidiaries as of December 28, 1995 and        
December 29, 1994, and the consolidated results of their operations and their   
cash flows for the period December 30, 1994 to December 28, 1995 and January 1  
to December 29, 1994 (Post-consummation) and January 1 to December 31, 1993     
(Pre-consummation), in conformity with generally accepted accounting            
principles. In addition, in our opinion the schedules 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.                                                        

Chicago, Illinois                                                               
March 26, 1996                                                                  

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VISKASE HOLDING CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS 

                                                        [Enlarge/Download Table]

                                                 DECEMBER 28,              DECEMBER 29, 
                                                     1995                     1994      
                                               ----------------          ---------------
                                                            (IN THOUSANDS)              
                                                                                        
ASSETS                                                                                  
  Current assets:                                                                       
    Cash and equivalents  . . . . . . . . . .      $ 11,826                 $  6,201    
    Receivables, net  . . . . . . . . . . . .        53,022                   46,834    
    Receivables, affiliates   . . . . . . . .        51,829                   48,138    
    Inventories   . . . . . . . . . . . . . .        38,233                   43,725    
    Other current assets  . . . . . . . . . .         9,106                    6,515    
                                                   --------                 --------    
        Total current assets  . . . . . . . .       164,016                  151,413    
  Property, plant and equipment   . . . . . .       150,417                  138,030    
    Less accumulated depreciation   . . . . .        20,217                    8,967    
                                                   --------                 --------    
    Property, plant and equipment, net  . . .       130,200                  129,063    
  Deferred financing costs  . . . . . . . . .         1,042                    1,081    
  Other assets  . . . . . . . . . . . . . . .         1,869                    1,424    
  Excess reorganization value   . . . . . . .        40,517                   43,638    
                                                   --------                 --------    
                                                   $337,644                 $326,619    
                                                   ========                 ========    

LIABILITIES AND STOCKHOLDERS' EQUITY                                                    
  Current liabilities:                                                                  
    Short-term debt including current                                                   
      portion of long-term debt   . . . . . .      $  6,097                 $  6,978    
    Accounts payable  . . . . . . . . . . . .        13,720                   15,479    
    Accounts payable and advances, affiliates        54,152                   43,233    
    Accrued liabilities   . . . . . . . . . .        21,942                   25,358    
                                                   --------                 --------    
        Total current liabilities   . . . . .        95,911                   91,048    
  Long-term debt    . . . . . . . . . . . . .         7,721                   14,023    
  Accrued employee benefits   . . . . . . . .         4,281                    3,969    
  Deferred and noncurrent income taxes  . . .        25,895                   22,400    
  Intercompany loans  . . . . . . . . . . . .        81,094                   77,866    
  Commitments and contingencies                                                         
  Stockholders' equity:                                                                 
    Common stock, $1.00 par value,                                                      
      1,000 shares authorized;                                                          
      100 shares issued and outstanding                                                 
    Paid in capital   . . . . . . . . . . . .       103,463                  103,463    
    Retained earnings   . . . . . . . . . . .        12,100                    9,938    
    Cumulative foreign currency                                                         
      translation adjustments   . . . . . . .         7,179                    3,912    
                                                   --------                 --------    
        Total stockholders' equity  . . . . .       122,742                  117,313    
                                                   --------                 --------    
                                                   $337,644                 $326,619    
                                                   ========                 ========    

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

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VISKASE HOLDING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS 

                                                        [Enlarge/Download Table]

                                                  52 WEEKS             52 WEEKS          52 WEEKS   
                                                DECEMBER 30,          JANUARY 1,         JANUARY 1, 
                                                  1994 TO                 TO                TO      
                                                DECEMBER 28,         DECEMBER 29,       DECEMBER 31,
                                                    1995                 1994              1993     
                                                ------------         ------------      ------------ 
                                                      (IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES    
                                                                AND PER SHARE AMOUNTS)              
                                                                                                    
NET SALES . . . . . . . . . . . . . . . . . . . $  267,212            $ 220,787           $ 195,291 
  Patent infringement settlement income . . . .                           9,457                     

COSTS AND EXPENSES                                                                                  
  Cost of sales . . . . . . . . . . . . . . . .    207,232              168,891             151,694 
  Selling, general and administrative . . . . .     36,288               27,654              25,171 
  Amortization of intangibles and                                                                   
    excess reorganization value . . . . . . . .      3,333                3,346               2,541 
                                                ----------            ---------           --------- 

OPERATING INCOME  . . . . . . . . . . . . . . .     20,359               30,353              15,885 
  Interest income . . . . . . . . . . . . . . .        455                  248                 910 
  Interest expense  . . . . . . . . . . . . . .      3,353                3,453               6,213 
  Intercompany interest expense . . . . . . . .      4,199                3,861               6,084 
  Management fees . . . . . . . . . . . . . . .      1,709                  856                 852 
  Other expense (income), net . . . . . . . . .      3,754                2,518               1,723 
  Minority interest in loss of subsidiary . . .                              50                 717 
                                                ----------            ---------           --------- 

INCOME BEFORE INCOME TAXES AND                                                                      
  EXTRAORDINARY ITEM  . . . . . . . . . . . . .      7,799               19,963               2,640 
  Income tax provision  . . . . . . . . . . . .      4,947               10,025               2,645 
                                                ----------            ---------           --------- 

INCOME (LOSS) BEFORE EXTRAORDINARY ITEM . . . .      2,852                9,938                  (5)
  Extraordinary loss, net of tax  . . . . . . .        690                                          
                                                ----------            ---------           --------- 

NET INCOME (LOSS) . . . . . . . . . . . . . . . $    2,162            $   9,938           $      (5)
                                                ==========            =========           ========= 

WEIGHTED AVERAGE COMMON SHARES  . . . . . . . .        100                  100                 100 
                                                ==========            =========           ========= 

PER SHARE AMOUNTS:                                                                                  

NET INCOME (LOSS) . . . . . . . . . . . . . . . $   21,620            $  99,380           $     (50)
                                                ==========            =========           ========= 

 Due to the implementation of the Plan of Reorganization and Fresh Start
Reporting, the consolidated statement of operations for the fiscal years ended  
December 28, 1995 and December 29, 1994 are not comparable to the fiscal year   
ended December 31, 1993. (Refer to Note 1 of Notes to Consolidated Financial    
Statements.)                                                                    

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

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VISKASE HOLDING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY 

                                                        [Enlarge/Download Table]

                                                                                                     CUMULATIVE                  
                                                                                                      FOREIGN                    
                                                                                                      CURRENCY          TOTAL    
                                                   COMMON          PAID IN         RETAINED         TRANSLATION     STOCKHOLDER'S
                                                   STOCK           CAPITAL         EARNINGS         ADJUSTMENTS         EQUITY   
                                                   -----           -------         --------         -----------     -------------
                                                                                 (IN THOUSANDS)                                  
                                                                                                                                 
Balance December 31, 1992 . . . . . . . . . . .                    $ 20,119        $ 79,458          $ (2,356)     $  97,221     
Net (loss)  . . . . . . . . . . . . . . . . . .                                          (5)                              (5)    
Capital contributions . . . . . . . . . . . . .                       4,295                                            4,295     
Fresh start revaluation adjustments . . . . . .                      58,272                                           58,272     
Translation adjustments . . . . . . . . . . . .                                                        (2,044)        (2,044)    
Elimination of Viskase Holding Corporation                                                                                       
  accumulated earnings  . . . . . . . . . . . .                                     (79,453)            4,400        (75,053)    
=============================================================================================================================    
Balance December 31, 1993 . . . . . . . . . . .                    $ 82,686        $      0          $      0      $  82,686     
Net income  . . . . . . . . . . . . . . . . . .                                       9,938                            9,938     
Capital contributions . . . . . . . . . . . . .                      16,056                                           16,056     
Fresh start revaluation adjustments . . . . . .                       4,721                                            4,721     
Translation adjustments . . . . . . . . . . . .                                                         3,912          3,912     
                                                                   --------        --------          --------      ---------     
Balance December 29, 1994 . . . . . . . . . . .                    $103,463        $  9,938          $  3,912      $ 117,313     
Net income  . . . . . . . . . . . . . . . . . .                                       2,162                            2,162     
Translation adjustments . . . . . . . . . . . .                                                         3,267          3,267     
                                                                   --------        --------          --------      ---------     
Balance December 28, 1995 . . . . . . . . . . .                    $103,463        $ 12,100          $  7,179      $ 122,742     
                                                                   ========        ========          ========      =========     

 Due to the implementation of the Plan of Reorganization and Fresh Start
Reporting, the stockholders' equity for the fiscal years ended December 28,     
1995 and December 29, 1994 are not comparable to the fiscal year ended December 
31, 1993. (Refer to Note 1 of Notes to Consolidated Financial Statements.)      

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

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VISKASE HOLDING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS 

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                                                                         DECEMBER 30,       JANUARY 1         JANUARY 1   
                                                                           1994 TO              TO               TO       
                                                                         DECEMBER 28,       DECEMBER 29,      DECEMBER 31,
                                                                             1995               1994             1993     
                                                                         ------------       ------------      ------------
                                                                                           (IN THOUSANDS)                 
                                                                                                                          
Cash flows from operating activities:                                                                                     
  Income (loss) before extraordinary item .........................       $  2,852         $  9,938           $     (5)   
  Extraordinary loss ..............................................            690                                        
                                                                          --------         --------           --------    
  Net income (loss)                                                          2,162            9,938                 (5)   
  Adjustments to reconcile net income (loss) to net cash                                                                  
    provided by operating activities:                                                                                     
    Depreciation ..................................................         11,202            9,018             11,024    
    Amortization of intangibles and excess reorganization value....          3,333            3,346              2,541    
    Amortization of deferred financing fees and discount ..........            208              210                935    
    Increase (decrease) in deferred and noncurrent income taxes ...          2,098              128             (1,436)   
    Loss on debt extinguishment ...................................          1,030                                        
    Foreign currency transaction loss (gain) ......................            159                                 (68)   
    Loss (gain) on sales of property, plant and equipment .........             30               32                424    
    Changes in operating assets and liabilities:                                                                          
      Accounts receivable .........................................         (4,441)          (9,076)            (3,055)   
      Accounts receivable, affiliates .............................         (5,183)         (18,214)             9,373    
      Inventories .................................................          7,224           (8,895)            (1,467)   
      Other current assets ........................................         (2,144)          (1,462)              (461)   
      Accounts payable and accrued liabilities ....................         (6,926)           8,314              3,219    
      Accounts payable, affiliates ................................         10,719           21,739             13,359    
      Other .......................................................           (790)             288               (908)   
                                                                          --------         --------           --------    
    Total adjustments .............................................         16,519            5,428             33,480    
                                                                          --------         --------           --------    
      Net cash provided by operating activities ...................         18,681           15,366             33,475    
Cash flows from investing activities:                                                                                     
  Capital expenditures ............................................         (6,589)         (10,880)           (13,484)   
  Proceeds from sale of property, plant and equipment .............             47              120                120    
  Purchase of minority interest in subsidiary .....................                          (4,200)                      
                                                                          --------         --------           --------    
      Net cash (used in) investing activities .....................         (6,542)         (14,960)           (13,364)   
Cash flows from financing activities:                                                                                     
  Proceeds from revolving loan and long-term borrowings ...........         42,216           10,068              6,003    
  Deferred financing costs ........................................         (1,166)                             (1,120)   
  Repayment of revolving loan and long-term borrowings ............        (50,588)          (9,112)           (30,938)   
  Increase (decrease) in Envirodyne loan and advances .............          3,236             (555)            (1,628)   
                                                                          --------         --------           --------    
      Net cash provided by (used in) financing activities .........         (6,302)             401            (27,683)   
Effect of currency exchange rate changes on cash ..................           (212)            (776)              (316)   
                                                                          --------         --------           --------    
Net increase (decrease) in cash and equivalents ...................          5,625               31             (7,888)   
Cash and equivalents at beginning of period .......................          6,201            6,170             14,058    
                                                                          --------         --------           --------    
Cash and equivalents at end of period .............................       $ 11,826         $  6,201           $  6,170    
                                                                          ========         ========           ========    
--------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:                                                                                       
  Interest paid ...................................................       $  1,919         $  1,808           $  4,403    
  Income taxes paid................................................       $  4,255         $  3,548           $  1,063    


 Due to the implementation of the Plan of Reorganization and Fresh Start
Reporting, the consolidated statement of cash flows for the fiscal years ended  
December 28, 1995 and December 29, 1994 are not comparable to the fiscal year   
ended December 31, 1993. (Refer to Note 1 of Notes to Consolidated Financial    
Statements.)                                                                    

Supplemental schedule of noncash investing and financing activities:            

Fiscal 1993                                                                 
      Viskase Holding Corporation's capital increased by $4.3 million due to the
forgiveness of an Envirodyne loan.  Viskase Holding Corporation contributed     
capital consisting of $160 thousand of equipment to Viskase Brasil Embalagens   
Ltda.                                                                           

Fiscal 1994                                                                 
   Viskase S.A. and its subsidiary Viskase Canada Inc.'s capital increased
by $16 million due to the forgiveness of an Envirodyne loan.  Viskase           
Corporation transferred equipment totaling $1.5 million, $174 thousand and $2.1 
million to Viskase S.A., Viskase de Mexico S.A. de C.V., and Viskase Brasil     
Embalagens Ltda, respectively.                                                  

Fiscal 1995                                                                 
Viskase Corporation transferred equipment totaling $497 thousand to 
Viskase S.A.  Viskase Holding Corporation contributed capital consisting of $250
thousand of equipment to Viskase de Mexico S.A. de C.V.                         

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

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VISKASE HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    GENERAL                                                                   

Viskase Holding Corporation is a wholly owned subsidiary of Viskase 
Corporation. Viskase Corporation, in turn, is a wholly owned subsidiary of      
Envirodyne Industries, Inc. Viskase Holding Corporation serves as the direct or 
indirect parent company for the majority of Viskase Corporation's non-domestic  
operations. These subsidiaries are as follows:                                  

                                                                [Download Table]

NAME OF SUBSIDIARY              PARENT OF SUBSIDIARY         COUNTRY OF BUSINESS
------------------              --------------------         -------------------
                                                                                
Viskase Brasil Embalagens Ltda. Viskase Holding Corporation  Brazil             
Viskase Australia Limited       Viskase Holding Corporation  Australia          
Viskase de Mexico S.A. de C.V.  Viskase Holding Corporation  Mexico             
Viskase S.A.                    Viskase Holding Corporation  France             
Viskase Gmbh                    Viskase S.A.                 Germany            
Viskase SPA                     Viskase S.A.                 Italy              
Viskase Canada Inc.             Viskase S.A.                 Canada             
Viskase ZAO                     Viskase S.A.                 Russia             
Viskase Holdings Limited        Viskase S.A.                 United Kingdom     
Filmco International Limited    Viskase Holdings Limited     United Kingdom     
Viskase Limited                 Viskase Holdings Limited     United Kingdom     
Viskase (UK) Limited            Viskase Limited              United Kingdom     
Envirodyne S.A.R.L.             Viskase (UK) Limited         France             

Viskase Holding Corporation conducts its operations through its     
subsidiaries and, for the most part, has no assets or liabilities other than its
investments, accounts receivable and payable with affiliates, and intercompany  
loan and advances.                                                              

    On January 6, 1993, a group of bondholders filed an involuntary petition
for reorganization of Envirodyne Industries, Inc. under Chapter 11 of the U.S.  
Bankruptcy Code. On January 7, 1993, several of the subsidiaries of Envirodyne  
Industries, Inc., including Viskase Holding Corporation, each filed voluntary   
petitions under Chapter 11 of the U.S.  Bankruptcy Code in the United States    
Bankruptcy Court for the Northern District of Illinois, Eastern Division (the   
Bankruptcy Court). None of the subsidiaries of Viskase Holding Corporation      
entered into Chapter 11. On December 17, 1993, the Bankruptcy Court confirmed   
the First Amended Joint Plan of Reorganization as twice modified (Plan of       
Reorganization) with respect to Envirodyne Industries, Inc. (Envirodyne) and    
certain of its subsidiaries, including Viskase Holding Corporation. The Plan of 
Reorganization was consummated and Envirodyne and certain of its subsidiaries   
emerged from Chapter 11 on December 31, 1993 (Effective Date). For accounting   
purposes, the Plan of Reorganization was deemed to be effective as of December  
31, 1993.                                                                       

The Chapter 11 filing was related only to the Company's domestic    
operations and did not include the foreign subsidiaries and various inactive    
domestic subsidiaries.                                                          

      The Company accounted for the reorganization using the principles of fresh
start reporting in accordance with the American Institute of Certified Public   
Accountants Statement of Position 90-7, "Financial Reporting by Entities in     
Reorganization under the Bankruptcy Code." Accordingly, all assets and          
liabilities have been restated to reflect their reorganization value, which     
approximates fair value.                                                        

     The reorganization value of the Company's equity of $135,000 was based on
the consideration of many factors and various valuation methods, including      
discounted cash flows and comparable multiples of earnings valuation techniques 
believed by management and its financial advisors to be representative of the   
Company's business and industry. Factors considered by the Company included the 
following:                                                                      

     o Forecasted operating and cash flow results which gave effect to the
estimated impact of debt restructuring and other operational
reorganization.                                             

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        o Discounted residual value at the end of the forecasted period based on
the capitalized cash flows for the last year of that period.

o Competition and general economic considerations.              

o Projected sales growth.                                       

o Potential profitability.                                      

o Seasonality and working capital requirements.                 

    The excess of the reorganization value over the fair value of net assets
and liabilities is reported as excess reorganization value and is being         
amortized over a fifteen-year period. The Company continues to evaluate the     
recoverability of excess reorganization value based on the operating performance
and expected future undiscounted cash flows of the operating business units.    

    The reorganization and the adoption of Fresh Start Reporting resulted in
no material adjustments to the Company's Consolidated Statement of Operations   
for the period January 1 to December 31, 1993.                                  

2.    NATURE OF BUSINESS                                                        

 Viskase Holding Corporation's subsidiaries manufacture food packaging
products. The operations of these subsidiaries are primarily in Europe and      
South and North America. Through its subsidiaries, the Company is a leading     
producer of cellulosic casings used in preparing and packaging processed meat   
products and is a major producer of heat shrinkable plastic bags and specialty  
films for packaging and preserving fresh and processed meat products, poultry   
and cheeses.  The Company is also a leading international manufacturer of       
plasticized polyvinyl chloride (PVC) films, primarily for use in packaging food 
items.                                                                          

INTERNATIONAL OPERATIONS                                                        

Viskase Holding Corporation's subsidiaries have seven manufacturing 
facilities located outside the continental United States, in Beauvais, France;  
Thaon, France; Lindsay, Ontario, Canada; Sedgefield, England (Great Britain);   
Swansea, Wales (Great Britain); Guarulhos, Brazil and Nuevo Laredo, Mexico.     

International sales and operations may be subject to various risks  
including, but not limited to, possible unfavorable exchange rate fluctuations, 
political instability, governmental regulations (including import and export    
controls), restrictions on currency repatriation, embargoes, labor relations    
laws and the possibility of governmental expropriation. Viskase Holding         
Corporation's foreign operations generally are subject to taxes on the          
repatriation of funds.                                                          

    International operations in certain parts of the world may be subject to
international balance of payments difficulties which may raise the possibility  
of delay or loss in the collection of accounts receivable from sales to         
customers in those countries. Viskase Holding Corporation believes that its     
subsidiaries' allowance for doubtful accounts makes adequate provision for the  
collectibility of its receivables. Management believes that growth potential    
exists for many of Viskase's products outside the United States and that Viskase
is well positioned to participate in these markets.                             

SALES AND DISTRIBUTION                                                          

Viskase Holding Corporation's subsidiaries' principal markets are in
Europe, Latin America, North America and Asia Pacific.                          

 The United Kingdom operation sells its PVC films directly and through
distributors, primarily to the retail grocery and foodservice industries in     
Europe.                                                                         

 In Europe, Viskase Holding Corporation's subsidiaries operate casings
service centers in Milan, Italy, Pulheim, Germany, and Moscow, Russia. The      
Company also operates a service center in Brisbane, Australia. These service    
centers provide finishing, inventory and delivery services to customers. The    
subsidiaries also use outside distributors to market their products to customers
in Europe, Africa, Asia and Latin America.                                      

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COMPETITION                                                                     

    From time to time, Viskase Holding Corporation's subsidiaries experience
reduced market share or reduced profits due to price competition; however,      
management believes that such market conditions will not result in any long-term
material loss of business.                                                      

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                

(A)   BASIS OF PRESENTATION                                                     

     Effective in 1990 Envirodyne Industries, Inc. adopted a 52/53 week fiscal
year ending on the last Thursday of December.  Viskase Holding Corporation's    
1993 financial statements include December 31, 1993 in order to present the     
effect of the consummation of the Plan of Reorganization.                       

(B)   PRINCIPLES OF CONSOLIDATION                                               

 The consolidated financial statements reflect the accounts of Viskase
Holding Corporation and its subsidiaries. All significant intercompany          
transactions and balances between and among Viskase Holding Corporation and its 
subsidiaries have been eliminated in the consolidation.                         

     Reclassifications have been made to the prior years' financial statements
to conform to the 1995 presentation.                                            

(C)   USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS               

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and        
assumptions that affect the reported amounts of assets and liabilities and      
disclosure of contingent assets and liabilities at the dates of the financial   
statements and the reported amounts of revenues and expenses during the         
reporting periods. Actual results could differ from those estimates.            

(D)   CASH EQUIVALENTS (DOLLARS IN THOUSANDS)                                   

   For purposes of the statement of cash flows, the Company considers cash
equivalents to consist of all highly liquid debt investments purchased with an  
initial maturity of approximately three months or less. Due to the short-term   
nature of these instruments, the carrying values approximate the fair market    
value. Cash equivalents include $8,074 and $821 of short-term investments at    
December 28, 1995 and December 29, 1994, respectively.                          

(E)   INVENTORIES                                                               

Inventories, primarily foreign, are valued at the lower of first-in,
first-out (FIFO) cost or market.                                                

(F)   PROPERTY, PLANT AND EQUIPMENT                                             

Property, plant and equipment are carried at cost less accumulated  
depreciation. Depreciation is computed on the straight-line method over the     
estimated useful lives of the assets ranging from 3 to 32 years. Upon retirement
or other disposition, cost and related accumulated depreciation are removed from
the accounts, and any gain or loss is included in results of operations.        
Effective December 31, 1993 and in conjunction with the Fresh Start Reporting,  
property, plant and equipment was reported at the estimated fair value.         

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(G)   DEFERRED FINANCING COSTS                                                  

    Deferred financing costs are amortized on a straight-line basis over the
expected term of the related debt agreement.  Amortization of deferred financing
costs is classified as interest expense.                                        

(H)   EXCESS REORGANIZATION VALUE AND EXCESS INVESTMENT OVER NET ASSETS         
ACQUIRED, NET                                                       

     Excess reorganization value is amortized on the straight-line method over
15 years.                                                                       

Cost in excess of net assets acquired, net was amortized on a       
straight-line method over 40 years in fiscal 1993.                              

The Company continues to evaluate the recoverability of excess      
reorganization value based on operating performance and undiscounted cash flows 
of the operating business units. Impairment will be recognized when the expected
undiscounted future operating cash flows derived from such intangible is less   
than its carrying value. If impairment is identified, valuation techniques      
deemed appropriate under the particular circumstances will be used to determine 
the intangible's fair value. The loss will be measured based on the excess of   
carrying value over the determined fair value. The review for impairment is     
performed at least on a quarterly basis.                                        

(I)   PENSIONS                                                                  

    The Company's operations in Europe have defined benefit retirement plans
covering substantially all salaried and full time hourly employees. Pension cost
is computed using the projected unit credit method.                             

   The Company's funding policy is consistent with funding requirements of
the applicable foreign laws and regulations.                                    

(J)   POSTEMPLOYMENT BENEFITS                                                   

Effective December 31, 1993 and in conjunction with the Fresh Start 
Reporting, the Company adopted SFAS No. 112 "Employers Accounting for           
Postemployment Benefits." The impact of adopting SFAS No. 112 was not material. 

(K)   INCOME TAXES                                                              

Income taxes are accounted for in accordance with SFAS No. 109. Tax 
provisions and benefits are recorded at statutory rates for taxable items       
included in the consolidated statements of operations regardless of the period  
for which such items are reported for tax purposes. Deferred income taxes are   
recognized for temporary differences between financial statement and income tax 
bases of assets and liabilities for which income tax benefits will be realized  
in future years.                                                                

(L)   NET INCOME (LOSS) PER SHARE                                               

  Net income (loss) per share of common stock is based upon the weighted
average number of shares of common stock outstanding during the year.           

(M)   REVENUE RECOGNITION                                                       

    Sales to customers are recorded at the time of shipment net of discounts
and allowances.                                                                 

(N)   FOREIGN CURRENCY CONTRACTS                                                

     The Company maintains a hedging program to partially hedge its forecasted
foreign currency revenue cash flows. The hedging program principally addresses  
revenue cash flows within its European operations. The foreign exchange         
contracts are denominated predominantly in the major European currencies and    
have varying maturities up to eighteen months. The effect of this practice is to
minimize the effect of foreign exchange rate movements on the Company's         
operating results.  The Company's hedging activities do not subject the Company 
to additional exchange rate risk because gains and losses on these contracts    
offset losses and gains on the                                                  

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transactions being hedged. The cash flows from forward contracts accounted for  
as hedges of identifiable transactions or events are classified consistent with 
the cash flows from the transactions or events being hedged.                    

(O)   STOCK-BASED COMPENSATION                                                  

Statement of Financial Accounting Standards No. 123 "Accounting for 
Stock-Based Compensation" encourages, but does not require, companies to        
recognize compensation expense for grants of stock, stock options and other     
equity instruments to employees based on new fair value accounting rules.       
Although expense recognition for employee stock-based compensation is not       
mandatory, SFAS 123 requires companies that choose not to adopt the new fair    
value accounting to disclose pro forma net income and earnings per share under  
the new method. This new accounting principle is effective for the Company's    
fiscal year ending December 26, 1996. The Company believes that adoption is not 
expected to have a material impact on its financial condition as the Company    
will not adopt the fair value accounting, but will instead comply with the      
disclosure requirements.                                                        

4.    RECEIVABLES (DOLLARS IN THOUSANDS)                                        

     Receivables consisted primarily of trade accounts receivable and were net
of allowances for doubtful accounts of $2,256 and $1,364 at December 28, 1995,  
and at December 29, 1994, respectively.                                         

5.    INVENTORIES (DOLLARS IN THOUSANDS)                                        

Inventories consisted of:                                           

                                                        [Enlarge/Download Table]

                                                                        DECEMBER 28,  DECEMBER 29,
                                                                            1995          1994    
                                                                        ------------  ------------
                                                                                                  
Raw materials..........................................................    $ 5,299       $ 5,778  
Work in process........................................................     13,342        13,975  
Finished products .....................................................     19,592        23,972  
                                                                           -------       -------  
                                                                           $38,233       $43,725  
                                                                           =======       =======  

      Inventories were net of reserves for obsolete and slow moving inventory of
$1,331 and $1,686 at December 28, 1995 and December 29, 1994, respectively.     

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6.    PROPERTY, PLANT AND EQUIPMENT (DOLLARS IN THOUSANDS)                      

                                                        [Enlarge/Download Table]

                                                                          DECEMBER 28,   DECEMBER 29,
                                                                              1995           1994    
                                                                          ------------   ------------
                                                                                                     
Property, plant and equipment:                                                                       
  Land and improvements .................................................   $  5,319    $  4,982     
  Buildings and improvements.............................................     30,236      28,588     
  Machinery and equipment................................................    114,212     103,293     
  Construction in progress ..............................................        283       1,167     
Capital Leases:                                                                                      
  Machinery and equipment ...............................................        367                 
                                                                            --------    --------     
                                                                            $150,417    $138,030     
                                                                            ========    ========     

     Maintenance and repairs charged to costs and expenses for 1995, 1994, and
1993 aggregated $10,288, $10,748 and $9,782, respectively. Depreciation is      
computed on the straight-line method over the estimated useful lives of the     
assets ranging from 3 to 32 years.                                              

7.    ACCRUED LIABILITIES (DOLLARS IN THOUSANDS)                                

Accrued liabilities were comprised of:                              

                                                        [Enlarge/Download Table]

                                                                          DECEMBER 28,  DECEMBER 29,
                                                                              1995          1994    
                                                                          ------------  ------------
                                                                                                    
Compensation and employee benefits ......................................   $ 9,446      $10,408    
Taxes, other than on income .............................................     1,585        2,006    
Accrued volume and sales discounts ......................................     5,320        5,445    
Other ...................................................................     5,591        7,499    
                                                                            -------      -------    
                                                                            $21,942      $25,358    
                                                                            =======      =======    

8.    DEBT OBLIGATIONS (DOLLARS IN THOUSANDS)                                   

     As described in Note 1, Chapter 11 Reorganization Proceedings, Envirodyne
and certain of its domestic Subsidiaries (including Viskase Holding Corporation)
emerged from Chapter 11 on December 31, 1993.                                   

 On June 20, 1995, Envirodyne completed the sale of $160,000 aggregate
principal amount of senior secured notes to certain institutional investors in a
private placement. The senior secured notes were issued pursuant to an indenture
dated June 20, 1995 (Indenture) and consist of (i) $151,500 of 12% Senior       
Secured Notes due 2000 and (ii) $8,500 of Floating Rate Senior Secured Notes due
2000 (collectively, the Senior Secured Notes). Envirodyne used the net proceeds 
of the offering primarily to (i) repay the Company's $86,125 domestic term loan,
(ii) repay the $68,316 of obligations under the Company's domestic and foreign  
revolving loans and (iii) pay transaction fees and expenses. Concurrently with  
the June 20, 1995 placement, Envirodyne entered into a new $20,000 domestic     
revolving credit facility (Revolving Credit Facility) and a new $28,000 letter  
of credit facility (Letter of Credit Facility). The Senior Secured Notes and the
obligations under the Revolving Credit Facility and the Letter of Credit        
Facility are guaranteed by Envirodyne's significant domestic subsidiaries and   
secured by a collateral pool (Collateral Pool) comprised of: (i) all domestic   
accounts receivable (including intercompany receivables) and inventory; (ii) all
patents, trademarks and other intellectual property (subject to non-exclusive   
licensing agreements); (iii) substantially all domestic fixed assets (other than
assets subject to a lease agreement with General Electric Capital Corporation); 
and (iv) a senior pledge of 100% of the capital stock of Envirodyne's           
significant domestic subsidiaries and 65% of the capital stock of Viskase S.A.  
Such guarantees and security are shared by the holders of the Senior Secured    
Notes and the holders of the obligations under the Revolving Credit Facility on 
a pari passu basis pursuant to an intercreditor agreement. Pursuant to such     
intercreditor agreement, the security interest of the holders of the obligations
under the Letter of Credit Facility has priority over all other liens on the    
Collateral Pool.                                                                

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8.    DEBT OBLIGATIONS (DOLLARS IN THOUSANDS)--(CONTINUED)                      

   The Company finances its working capital needs through a combination of
cash generated through operations and borrowings local unsecured credit         
facilities and intercompany loans.                                              

   The Company recognized an extraordinary loss of $1,030 representing the
write-off of deferred financing fees related to the June 20, 1995 debt          
refinancing. The extraordinary loss, net of applicable income taxes of $340, was
included in the Company's Statement of Operations for the quarter ended June 29,
1995.                                                                           

      The Viskase Limited term facility is with a foreign financial institution.
The term facility, which is collateralized by substantially all of the assets of
Viskase Limited, bears a variable interest rate and is payable in 16 equal      
semiannual installments that began in December 1992.                            

Outstanding short-term and long-term debt consisted of:             

                                                        [Enlarge/Download Table]

                                                                          DECEMBER 28,  DECEMBER 29,
                                                                              1995          1994    
                                                                          ------------  ------------
                                                                                                    
Short-term debt and current maturity of long-term debt:                                             
  Current maturity of Viskase Limited Term Loan (4.7%) ..................   $2,033         $ 1,882  
  Other .................................................................    4,064           5,096  
                                                                            ------         -------  
  Total short-term debt .................................................   $6,097         $ 6,978  
                                                                            ======         =======  

Long-term debt:                                                                                     
  Bank Credit Agreement:                                                                            
    Multicurrency Loan due 1999 (8.9%)  .................................                    4,924  
  Viskase Limited Term Loan (4.7%) ......................................    7,115           8,466  
  Other .................................................................      606             633  
                                                                            ------         -------  
  Total long-term debt ..................................................   $7,721         $14,023  
                                                                            ======         =======  

   The fair value of the Company's debt obligation is estimated based upon
the quoted market prices for the same or similar issues or on the current rates 
offered to the Company for the debt of the same remaining maturities. At        
December 29, 1994, the fair value of debt obligations approximated their        
carrying value.                                                                 

      Aggregate maturities of remaining long-term debt for each of the next five
fiscal years are:                                                               

                                                        [Enlarge/Download Table]

                                                                                  TOTAL 
                                                                                 -------
                                                                                        
1996 ........................................................................... $2,612 
1997 ...........................................................................  2,383 
1998 ...........................................................................  2,233 
1999 ...........................................................................  2,033 
2000 ...........................................................................  1,016 

9.    OPERATING LEASES (DOLLARS IN THOUSANDS)                                   

   The Company has operating lease agreements for machinery, equipment and
facilities. The majority of the facilities leases require the Company to pay    
maintenance, insurance and real estate taxes.                                   

   Future minimum lease payments for operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of December 28,    
1995, are:                                                                      

                                                                [Download Table]
                                                                                    
1996 ........................................................................ $1,357
1997 ........................................................................  1,092
1998 ........................................................................    886
1999 ........................................................................    450
2000 ........................................................................    372
Total thereafter ............................................................       
                                                                              ------
Total minimum lease payments ................................................ $4,157
                                                                              ======

    Total rent expense during 1995, 1994 and 1993 amounted to $3,750, $2,350
and $2,140, respectively.                                                       

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10.   RETIREMENT PLANS (DOLLARS IN THOUSANDS)                                   

    The Company maintains various pension and statutory separation pay plans
for its European employees. The expense for these plans in 1995, 1994 and 1993  
was $1,383, $1,043 and $864, respectively. As of their most recent valuation    
dates, in plans where vested benefits exceeded plan assets, the actuarially     
computed value of vested benefits exceeded those plans' assets by approximately 
$2,856; conversely, plan assets exceeded the vested benefits in certain other   
plans by approximately $2,346.                                                  

The Company's postretirement benefits are not material.             

11.   CONTINGENCIES (DOLLARS IN THOUSANDS)                                      

      The Company and its subsidiaries are involved in various legal proceedings
arising out of its business and other environmental matters, none of which is   
expected to have a material adverse effect upon its results of operations, cash 
flows or financial position.                                                    

12.   INCOME TAXES (DOLLARS IN THOUSANDS)                                       

The provision (benefit) for income taxes consisted of:              

                                                        [Enlarge/Download Table]

                                                         DECEMBER 30,   JANUARY 1,    JANUARY 1, 
                                                           1994 TO          TO            TO     
                                                         DECEMBER 29,  DECEMBER 29,  DECEMBER 31,
                                                             1995          1994          1993    
                                                         ------------  ------------  ------------
                                                                                                 
Current:                                                                                         
  Federal ..............................................  $ 1,316       $ 4,479         $1,368   
  Foreign ..............................................      950         4,652          2,453   
  State and local ......................................      243           766            258   
                                                          -------       -------         ------   
                                                            2,509         9,897          4,079   
                                                          -------       -------         ------   
Deferred:                                                                                        
  Federal ..............................................    2,098           128         (1,434)  
  Foreign ..............................................                                         
                                                          -------       -------         ------   
  State and local ......................................    2,908           128         (1,434)  
                                                          -------       -------         ------   
                                                          $ 4,607       $10,025         $2,645   
                                                          =======       =======         ======   

    A reconciliation from the statutory federal tax rate to the consolidated
effective tax rate follows:                                                     

                                                        [Enlarge/Download Table]

                                                             DECEMBER 30,   JANUARY 1,    JANUARY 1, 
                                                               1994 TO          TO            TO     
                                                             DECEMBER 28,  DECEMBER 29,  DECEMBER 31,
                                                                 1995          1994          1993    
                                                             ------------  ------------  ------------
                                                                                                     
Statutory federal tax rate .................................     35.0%         35.0%          35.0%  
Increase (decrease) in tax rate due to:                                                              
  State and local taxes net of related federal tax benefit..      2.3           2.5            6.4   
  Net effect of taxes relating to foreign operations........     30.4          11.1           61.6   
  Other ....................................................       .4           1.6           (2.8)  
                                                                 ----          ----         ------   
Consolidated effective tax rate ............................     68.1%         50.2%         100.2%  
                                                                 ====          ====         ======   

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12.   INCOME TAXES (DOLLARS IN THOUSANDS)--(CONTINUED)                          

    Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities for 1995 are as follows:         

                                                        [Enlarge/Download Table]

                                                   TEMPORARY DIFFERENCE              TAX EFFECTED          
                                               ------------------------------  ------------   -------------
                                                DEFERRED TAX     DEFERRED TAX  DEFERRED TAX    DEFERRED TAX
                                                   ASSETS         LIABILITIES     ASSETS        LIABILITIES
                                               -------------     ------------  ------------   -------------
                                                                                                           
Depreciation basis differences ...............                    $72,219                       $25,717    
Pension and healthcare........................                        600                           220    
Other accruals, reserves, and other...........     $ 648              399        $ 216              174    
                                                   -----          -------        -----          -------    
                                                   $ 648          $73,218        $ 216          $26,111    
                                                   =====          =======        =====          =======    

      At December 28, 1995, the Company had $11,136 of undistributed earnings of
foreign subsidiaries considered permanently invested for which deferred taxes   
have not been provided.                                                         

     Domestic earnings or (losses) after extraordinary gain or loss and before
income taxes were approximately $3,937, $12,634 and $4,373 in 1995, 1994 and    
1993, respectively. Foreign earnings or (losses) before income taxes were       
approximately $2,832, $7,329 and $(1,733) in 1995, 1994 and 1993, respectively. 

13.   RESEARCH AND DEVELOPMENT COSTS (DOLLARS IN THOUSANDS)                     

Research and development costs are expensed as incurred and totaled 
$1,106, $1,562 and $1,180, for 1995, 1994, and 1993, respectively.              

14.   RELATED PARTY TRANSACTIONS (DOLLARS IN THOUSANDS)                         

INTERCOMPANY LOANS AND ADVANCES:                                                

                                                        [Enlarge/Download Table]

                                                                 DECEMBER 28,  DECEMBER 29,
                                                                    1995           1994    
                                                                 -----------   ----------- 
                                                                                           
Viskase S.A. 12% promissory note due to Envirodyne .............   $25,142                 
Viskase S.A. promissory note due to Envirodyne .................    17,440       $35,249   
Accrued interest on Viskase S.A. promissory note ...............        83         1,688   
Viskase United Kingdom Limited promissory note                                             
  due to Envirodyne, including accrued interest ................       419         2,919   
Advances:                                                                                  
  Envirodyne to Viskase S.A. ...................................                           
  Viskase Corporation to Viskase Holding Corporation ...........    38,010        38,010   
                                                                   -------       -------   
                                                                   $81,094       $77,866   
                                                                   =======       =======   

The Viskase S.A. 12% promissory note due to Envirodyne is payable on
demand. Interest is payable semiannually on June 30 and December 31.            

   The Viskase S.A. promissory note due to Envirodyne is payable on demand
and bears interest at a rate of 10.00%. Interest is payable semiannually on June
30 and December 31.                                                             

  The $2.5 million Viskase United Kingdom Limited promissory note due to
Envirodyne is payable on demand and bears interest at a rate of 8.00%. The      
promissory note was repaid in 1995.                                             

     The Viskase Corporation advance to Viskase Holding Corporation is payable
on demand.                                                                      

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14.   RELATED PARTY TRANSACTIONS (DOLLARS IN THOUSANDS)--(CONTINUED)            

LICENSE AGREEMENTS                                                              

     Viskase Holding Corporation has been granted the right to license Viskase
Corporation's patents and technology pursuant to a license agreement between    
Viskase Corporation and Viskase Holding Corporation.                            

INTERCOMPANY TRANSACTIONS                                                       

In 1995, 1994 and 1993, the Company paid $1,022, $756 and $752,     
respectively, to Viskase Corporation for management services. During 1995, 1994 
and 1993, the Company accrued $687, $100 and $100, respectively, payable to     
Envirodyne for management services.                                             

During 1995, 1994 and 1993, the Company purchased semi-finished and 
finished inventory from Viskase Sales Corporation in the amount of $26,953,     
$23,114 and $15,439, respectively. In addition, during 1995, 1994 and 1993, the 
Company had sales of inventory to Viskase Sales Corporation in the amount of    
$7,329, $5,632 and $1,338, respectively.                                        

15.   FAIR VALUE OF FINANCIAL INSTRUMENTS                                       

    The following table presents the carrying value and estimated fair value
as of December 28, 1995 of the Company's financial instruments. (Refer to Notes 
3 and 8.)                                                                       

                                                                [Download Table]

                                                 CARRYING       ESTIMATED 
                                                  VALUE        FAIR  VALUE
                                                 --------      -----------
                                                                          
Assets:                                                                   
   Cash and equivalents. . . . . . . . . . .      $11,826         $11,826 
   Foreign currency contracts. . . . . . . .        3,397           3,377 
Liabilities:                                                              
   Long-term debt. . . . . . . . . . . . . .        7,721           7,721 

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                                                                     SCHEDULE II

ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES  

VALUATION AND QUALIFYING ACCOUNTS   

(IN THOUSANDS)  

                                                        [Enlarge/Download Table]

                                             BALANCE AT  PROVISION                                       BALANCE 
                                             BEGINNING   CHARGED TO                                      AT END  
DESCRIPTION                                  OF PERIOD    EXPENSE     WRITE-OFFS  RECOVERIES  OTHER(1)  OF PERIOD
-----------                                  ----------  -----------  ----------  ----------  --------  ---------

                                                                                                                 
1995  for the year ended                                                                                         
  December 28                                                                                                    
  Allowance for doubtful accounts............   $2,136     $1,403       $  (472)    $  6        $151      $3,224 

1994  for the year ended                                                                                         
  December 29                                                                                                    
  Allowance for doubtful accounts............    2,872        939        (1,824)      21         128       2,136 

1993  for the year ended                                                                                         
  December 31                                                                                                    
  Allowance for doubtful accounts............    2,175      1,166          (334)      70        (205)      2,872 

1995  for the year ended                                                                                         
  December 28                                                                                                    
  Reserve for obsolete and                                                                                       
  slow moving inventory......................    5,353      1,264        (2,868)                  69       3,818 

1994  for the year ended                                                                                         
  December 29                                                                                                    
  Reserve for obsolete and                                                                                       
  slow moving inventory......................    5,425      2,936        (3,123)                 115       5,353 

1993  for the year ended                                                                                         
  December 31                                                                                                    
  Reserve for obsolete and                                                                                       
  slow moving inventory......................    3,178      4,973        (2,660)                 (66)      5,425 

--------------------                                                            
(1)   Foreign currency translation.                                             

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UNAUDITED INTERIM FINANCIAL STATEMENTS

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ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS 

                                                        [Enlarge/Download Table]

                                                   March 28,               December 28, 
                                                     1996                      1995     
                                               ----------------          ---------------
                                                             (in thousands)             
                                                                                        
ASSETS                                                                                  
  Current assets:                                                                       
    Cash and equivalents                            $ 23,002                   $ 30,325 
    Receivables, net                                  86,348                     89,454 
    Inventories                                      105,239                     99,474 
    Other current assets                              32,073                     21,646 
                                                    --------                   -------- 
        Total current assets                         246,662                    240,899 

  Property, plant and equipment,                                                        
    including those under capital leases             549,638                    545,491 
    Less accumulated depreciation                                                       
      and amortization                                86,604                     75,987 
                                                    --------                   -------- 
    Property, plant and equipment, net               463,034                    469,504 

  Deferred financing costs                             7,448                      8,090 
  Other assets                                        44,327                     45,589 
  Excess reorganization value                        132,889                    135,485 
                                                    --------                   -------- 
                                                    $894,360                   $899,567 
                                                    ========                   ======== 

LIABILITIES AND STOCKHOLDERS' EQUITY                                                    
  Current liabilities:                                                                  
    Short-term debt including current portion                                           
      of long-term debt and obligations                                                 
      under capital leases                          $ 12,014                   $ 12,504 
    Accounts payable                                  41,429                     39,117 
    Accrued liabilities                               78,851                     67,553 
                                                    --------                   -------- 
        Total current liabilities                    132,294                    119,174 

  Long-term debt including obligations                                                  
    under capital leases                             523,113                    530,181 

  Accrued employee benefits                           55,944                     55,626 
  Deferred and noncurrent income taxes                73,156                     77,490 

  Commitments and contingencies                                                         

  Stockholders' equity:                                                                 
    Preferred stock, $.01 par value;                                                    
      none outstanding                                                                  
    Common stock, $.01 par value;                                                       
      14,479,721 shares issued and                                                      
      outstanding at March 28, 1996 and                                                 
      13,579,460 shares at December 28, 1995             145                        136 
    Paid in capital                                  134,855                    134,864 
    Accumulated (deficit)                            (31,058)                   (25,131)
    Cumulative foreign currency                                                         
      translation adjustments                          5,911                      7,227 
                                                    --------                   -------- 
        Total stockholders' equity                   109,853                    117,096 
                                                    --------                   -------- 
                                                    $894,360                   $899,567 
                                                    ========                   ======== 

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

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ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS 

                                                                [Download Table]

                                             Three Months  Ended       
                                     ----------------------------------
                                         March 28,          March 30,  
                                           1996               1995     
                                     ---------------     --------------
                                      (in thousands, except for number 
                                      of shares and per share amounts) 
                                                                       
NET SALES                               $159,736             $155,824  

COSTS AND EXPENSES                                                     
  Cost of sales                          119,709              114,955  
  Selling, general                                                     
    and administrative                    26,642               28,270  
  Amortization of intangibles                                          
    and excess reorganization value        4,091                3,910  
                                        --------            ---------  
OPERATING INCOME                           9,294                8,689  

  Interest income                            391                   64  
  Interest expense                        14,876               13,434  
  Other expense (income), net              3,036                 (591) 
                                        --------            ---------  

(LOSS) BEFORE INCOME TAXES                (8,227)              (4,090) 

  Income tax provision (benefit)          (2,300)                (195) 
                                        --------            ---------  
NET (LOSS)                              $ (5,927)           $  (3,895) 
                                        ========            =========  

WEIGHTED AVERAGE                                                       
  COMMON SHARES                       13,737,748           13,515,000  

PER SHARE AMOUNTS:                                                     

NET (LOSS)                                 $(.43)            $  (.29)  
                                           =====             =======   

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

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ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS 

                                                        [Enlarge/Download Table]

                                                                      Three Months Ended       
                                                             ----------------------------------
                                                                March 28,           March 30,  
                                                                  1996                1995     
                                                             -------------       --------------
                                                                       (in thousands)          
                                                                                               
Cash flows from operating activities:                                                          
  Net (loss)                                                    $ (5,927)            $ (3,895) 
  Adjustments to reconcile net (loss)                                                          
    to net cash provided by operating activities:                                              
      Depreciation and amortization under capital lease           10,974                9,986  
      Amortization of intangibles and excess                                                   
        reorganization value                                       4,091                3,910  
      Amortization of deferred financing fees and discount           579                  549  
      Increase (decrease) in deferred and                                                      
          noncurrent income taxes                                 (3,866)                (907) 
      Foreign currency transaction loss (gain)                        47               (1,586) 
      (Gain) on sales of property, plant and equipment                (2)                      

      Changes in operating assets and liabilities:                                             
          Accounts receivable                                      2,307                 (438) 
          Inventories                                             (6,212)             (12,192) 
          Other current assets                                   (10,558)             (10,615) 
          Accounts payable and accrued liabilities                14,243                  254  
          Other                                                      191                  398  
                                                                --------             --------  
      Total adjustments                                           11,794              (10,641) 
                                                                --------             --------  

          Net cash provided by operating activities                5,867              (14,536) 

Cash flows from investing activities:                                                          
  Capital expenditures                                            (6,543)              (7,631) 
  Proceeds from sale of property, plant and equipment                 49                       
                                                                --------              -------  
          Net cash (used in) investing activities                 (6,494)              (7,631) 

Cash flows from financing activities:                                                          
  Proceeds from revolving loan and long-term borrowings                                42,249  
  Deferred financing costs                                                               (464) 
  Repayment of revolving loan, long-term borrowings                                            
    and capital lease obligation                                  (7,202)             (19,973) 
                                                                --------             --------  
          Net cash provided by financing activities               (7,202)              21,812  

Effect of currency exchange rate changes on cash                     506                  275  
                                                                --------             --------  
Net (decrease) in cash and equivalents                            (7,323)                 (80) 
Cash and equivalents at beginning of period                       30,325                7,289  
                                                                --------             --------  
Cash and equivalents at end of period                           $ 23,002             $  7,209  
                                                                ========             ========  

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

Supplemental cash flow information:                                                            
  Interest paid                                                  $13,379              $16,330  
  Income taxes paid                                              $   453              $ 1,405  

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

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ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. INVENTORIES (dollars in thousands)                                           

Inventories consisted of:                                                       

                                                                [Download Table]

                    March 28,     December 28, 
                      1996            1995     
                   -----------  ---------------
                                               
Raw materials       $ 17,605        $ 17,150   
Work in process       32,695          32,800   
Finished products     54,939          49,524   
                    --------         -------   

                    $105,239        $ 99,474   
                    ========        ========   

Approximately 56% of the inventories at March 28, 1996 were valued at Last-In,  
First-Out (LIFO). These LIFO values exceeded current manufacturing cost by      
approximately $5 million at March 28, 1996.                                     

2. DEBT OBLIGATIONS (dollars in thousands)                                      

On June 20, 1995, Envirodyne Industries, Inc. (Envirodyne or the Company)       
completed the sale of $160,000 aggregate principal amount of senior secured     
notes pursuant to an indenture dated June 20, 1995 (Indenture) consisting of    
(i) $151,500 of 12% Senior Secured Notes due 2000 and (ii) $8,500 of Floating   
Rate Senior Secured Notes due 2000 (collectively, the Senior Secured Notes).    
Envirodyne used the net proceeds of the offering primarily to refinance senior  
bank debt and pay transaction fees and expenses. Concurrently with the June 20, 
1995 financing, Envirodyne entered into a $20,000 domestic revolving credit     
facility (Revolving Credit Facility) and a $28,000 letter of credit facility    
(Letter of Credit Facility). The Senior Secured Notes and the obligations under 
the Revolving Credit Facility and the Letter of Credit Facility are guaranteed  
by Envirodyne's significant domestic subsidiaries and secured by a collateral   
pool (Collateral Pool) comprised of: (i) all domestic accounts receivable       
(including intercompany receivables) and inventory; (ii) all patents,           
trademarks and other intellectual property (subject to non-exclusive licensing  
agreements); (iii) substantially all domestic fixed assets (other than assets   
subject to a lease agreement with General Electric Capital Corporation); and    
(iv) a senior pledge of 100% of the capital stock of Envirodyne's significant   
domestic subsidiaries and 65% of the capital stock of Viskase S.A. Such         
guarantees and security are shared by the holders of the Senior Secured Notes   
and the holders of the obligations under the Revolving Credit Facility on a     
pari passu basis pursuant to an intercreditor agreement. Pursuant to such       
intercreditor agreement, the security interest of the holders of the            
obligations under the Letter of Credit Facility has priority over all other     
liens on the Collateral Pool.                                                   

The Company finances its working capital needs through a combination of cash    
generated through operations and borrowings under the Revolving Credit          
Facility. The availability of funds under the Revolving Credit Facility is      
subject to the Company's compliance with certain covenants (which are           
substantially similar to those included in the Indenture), borrowing base       
limitations measured by accounts receivable and inventory of the Company and    
reserves which may be established at the discretion of the lenders. Currently,  
there are no drawings under the Revolving Credit Facility. The available        
borrowing capacity under the Revolving Credit Facility was $20 million at March 
28, 1996.                                                                       

The Company recognized an extraordinary loss of $6,778 representing the         
write-off of deferred financing fees related to the June 20, 1995 debt          
refinancing. The extraordinary loss, net of applicable                          

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income taxes of $2,582, was included in the Company's Statement of Operations   
for the quarter ended June 29, 1995.                                            

The $151,500 tranche of Senior Secured Notes bears interest at a rate of 12%    
per annum and the $8,500 tranche bears interest at a rate equal to the six      
month London Interbank Offered Rate (LIBOR) plus 575 basis points. The interest 
rate on the floating rate tranche is approximately 11.4%. The interest rate on  
the floating rate tranche is reset semi-annually on June 15 and December 15.    
Interest on the Senior Secured Notes is payable each June 15 and December 15.   

On June 15, 1999, $80,000 of Senior Secured Notes is subject to a mandatory     
redemption. The remaining principal amount outstanding will mature on June 15,  
2000.                                                                           

In the event the Company has Excess Cash Flow (as defined) in excess of $5,000  
in any fiscal year, Envirodyne is required to make an offer to purchase Senior  
Secured Notes together with any borrowed money obligations outstanding under    
the Revolving Credit Facility, on a pro rata basis, in an amount equal to the   
Excess Cash Flow at a purchase price of 100% plus any accrued interest to the   
date of purchase. There was no Excess Cash Flow for fiscal 1995.                

The Senior Secured Notes are redeemable, in whole or from time to time in part, 
at Envirodyne's option, at the greater of (i) the outstanding principal amount  
or (ii) the present value of the expected future cash flows from the Senior     
Secured Notes discounted at a rate equal to the Treasury Note yield             
corresponding closest to the remaining average life of the Senior Secured Notes 
at the time of prepayment plus 100 basis points; plus accrued interest thereon  
to the date of purchase.                                                        

Upon the occurrence of a Change of Control (which includes the acquisition by   
any person of more than 50% of Envirodyne's Common Stock), each holder of the   
Senior Secured Notes has the right to require the Company to repurchase such    
holder's Senior Secured Notes at a price equal to the greater of (i) the        
outstanding principal amount or (ii) the present value of the expected cash     
flows from the Senior Secured Notes discounted at a rate equal to the Treasury  
Note yield corresponding closest to the remaining average life of the Senior    
Secured Notes at the time of prepayment plus 100 basis points; plus accrued     
interest thereon to the date of purchase.                                       

The Indenture contains covenants with respect to Envirodyne and its             
subsidiaries limiting (subject to a number of important qualifications), among  
other things, (i) the ability to pay dividends or redeem or repurchase common   
stock, (ii) the incurrence of indebtedness, (iii) the creation of liens, (iv)   
certain affiliate transactions and (v) the ability to consolidate with or merge 
into another entity and to dispose of assets.                                   

Borrowings under the Revolving Credit Facility bear interest at a rate per      
annum equal to the three month London Interbank Offered Rate (LIBOR) on the     
first day of each calendar quarter plus 300 basis points. The Revolving Credit  
Facility expires on June 20, 1998.                                              

Envirodyne has entered into interest rate agreements that cap $50 million of    
interest rate exposure at an average LIBOR rate of 6.50% until January 1997.    
These interest rate cap agreements were entered into under terms of the senior  
bank financing that was repaid on June 20, 1995. Interest expense includes $153 
of amortization of the interest rate cap premium during the three-month period  
ended March 28, 1996. Envirodyne has not received any payments under the        
interest rate protection agreements.                                            

The Letter of Credit Facility expires on June 20, 1998. Fees on the outstanding 
amount of letters of credit are 2.0% per annum, with an issuance fee of 0.5% on 
the face amount of the letter of credit. There is a commitment fee of 0.5% per  
annum on the unused portion of the Letter of Credit Facility.                   

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Had the refinancing taken place at the beginning of 1995, the pro forma         
Envirodyne consolidated statement of operations would have been:                

               (in thousands, except for number of shares and per share amounts)

                                                                [Download Table]

                                                  Pro Forma Three Months
                                                  Ended March 30, 1995  
                                                ------------------------
                                                                        
Net sales                                               $155,824        
  Cost of sales                                          114,955        
  Selling, general and administrative                     28,270        
  Amortization of intangibles and                                       
    excess reorganization cost                             3,910        
                                                        --------        
Operating income                                           8,689        
  Interest income                                             64        
  Interest expense                                        14,981        
  Other expense (income), net                               (591)       
                                                        --------        
(Loss) before income taxes                                (5,637)       
  Income tax (benefit)                                      (798)       
                                                        --------        
Net (loss)                                              $ (4,839)       
                                                        ========        

Weighted average common shares                        13,515,000        
Net (loss) per share                                       $(.36)       
                                                           =====        

The pro forma information reflects the change in interest expense and related   
tax effect due to the issuance of $160 million principal amount of Senior       
Secured Notes and the refinancing of the Company's bank debt.                   

The $219,262 principal amount of 10-1/4% Notes were issued pursuant to an       
Indenture dated as of December 31, 1993 (10-1/4% Note Indenture) between        
Envirodyne and Bankers Trust Company, as Trustee. The 10-1/4% Notes are the     
unsecured senior obligations of Envirodyne, bear interest at the rate of        
10-1/4% per annum, payable on each June 1 and December 1, and mature on         
December 1, 2001. The 10-1/4% Notes are redeemable, in whole or from time to    
time in part, at the option of Envirodyne, at the percentages of principal      
amount specified below plus accrued and unpaid interest to the redemption date, 
if the 10-1/4% Notes are redeemed during the twelve-month period commencing on  
January 1 of the following years:                                               

                                                                [Download Table]

Year                              Percentage
----                              ----------
                                            
1996                                 104%   
1997                                 103%   
1998                                 102%   
1999                                 101%   
2000 and thereafter                  100%   

The 10-1/4% Note Indenture contains covenants with respect to Envirodyne and    
its subsidiaries limiting (subject to a number of important qualifications),    
among other things, (i) the ability to pay dividends on or redeem or repurchase 
capital stock, (ii) the incurrence of indebtedness, (iii) certain affiliate     
transactions and (iv) the ability of the Company to consolidate with or merge   
with or into                                                                    

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another entity or to dispose of substantially all its assets.                   

Outstanding short-term and long-term debt consisted of:                         

                                                                [Download Table]

                                                         March 28,  December 28,
                                                           1996         1995    
                                                        ----------  ------------
                                                                                
Short-term debt, current maturity of long-term                                  
  debt, and capital lease obligation:                                           

  Current maturity of Viskase Capital Lease Obligation    $ 6,633       $ 6,012 
  Current maturity of Viskase Limited Term Loan (4.7%)      1,977         2,033 
  Other                                                     3,404         4,459 
                                                         --------     --------- 

             Total short-term debt                        $12,014       $12,504 
                                                          =======       ======= 

Long-term debt:                                                                 

  12% Senior Secured Notes due 2000                      $160,000      $160,000 
  10.25% Senior Notes due 2001                            219,262       219,262 
  Viskase Capital Lease Obligation                        134,549       141,182 
  Viskase Limited Term Loan (4.7%)                          6,917         7,115 
  Other                                                     2,385         2,622 
                                                         --------     --------- 

             Total long-term debt                        $523,113      $530,181 
                                                         ========      ======== 

The fair value of the Company's debt obligation (excluding capital lease        
obligation) is estimated based upon the quoted market prices for the same or    
similar issues or upon the current rates offered to the Company for the debt of 
the same remaining maturities. At March 28, 1996 the carrying amount and        
estimated fair value of debt obligations (excluding capital lease obligation)   
were $391,974 and $348,818, respectively.                                       

On December 28, 1990, Viskase and GECC entered into a sale and leaseback        
transaction. The sale and leaseback of assets included the production and       
finishing equipment at Viskase's four domestic casing production and finishing  
facilities.  The facilities are located in Chicago, Illinois; Loudon,           
Tennessee; Osceola, Arkansas and Kentland, Indiana. Viskase, as the Lessee      
under the relevant agreements, continues to operate all of the facilities. The  
lease has been accounted for as a capital lease.                                

The principal terms of the sale and leaseback transaction include: (a)  a       
15-year basic lease term (plus selected renewals at Viskase's option), (b)      
annual rent payments in advance beginning in February 1991, and (c) a fixed     
price purchase option at the end of the basic 15-year term and fair market      
purchase options at the end of the basic term and each renewal term. Further,   
the Lease Documents contain covenants requiring maintenance by the Company of   
certain financial ratios and restricting the Company's ability to pay dividends,
make payments to affiliates, make investments and incur indebtedness.           

Annual rental payments under the Lease will be approximately $19.2 million      
through 1997, $21.4 million in 1998 and $23.5 million through the end of the    
basic 15-year term. Viskase is required to provide credit support consisting of 
a standby letter of credit in an amount up to one year's rent through at least  
1997.                                                                           

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This credit support can be reduced up to $4 million currently if the Company    
achieves and maintains certain financial ratios. As of March 28, 1996 the       
Company had met the required financial ratios and the letter of credit has been 
reduced by $4 million. The letter can be further reduced in 1997 or eliminated  
after 1998 if the Company achieves and maintains certain financial ratios.      
Envirodyne and its other principal subsidiaries guaranteed the obligations of   
Viskase under the Lease.                                                        

The 1996 rental payment of $19,227 was paid on February 28, 1996. Principal     
payments under the capital lease obligation for the years ended 1996 through    
1999 range from approximately $6 million to $14 million.                        

Aggregate maturities of remaining long-term debt for each of the next five      
fiscal years are:                                                               

                                                                [Download Table]

                                             Total     
                                        ---------------
                                                       
1996                                       $ 9,019     
1997                                         9,418     
1998                                        12,313     
1999                                        95,477     
2000                                        95,669     

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3.  CONTINGENCIES (dollars in thousands)                                        

A class action lawsuit by former employees of subsidiary corporations           
comprising most of the Company's former steel and mining division (SMD) was     
pending as of the commencement of the bankruptcy case in which the plaintiffs   
were seeking substantial damages. In March 1996, Envirodyne completed a         
settlement of the lawsuit under which Envirodyne was released and discharged    
from all claims in exchange for 900,000 shares of Envirodyne common stock       
without any admission or finding of liability or wrongdoing.                    

Litigation has been initiated with respect to events arising out of the         
bankruptcy cases and the 1989 acquisition of Envirodyne by Emerald Acquisition  
Corporation (Emerald) with respect to which, although Envirodyne is not         
presently a party to such litigation, certain defendants have asserted          
indemnity rights against Envirodyne. In ARTRA Group Incorporated v. Salomon     
Brothers Holding Company Inc, Salomon Brothers Inc, D.P. Kelly & Associates,    
L.P., Donald P. Kelly, Charles K. Bobrinskoy, James L. Massey, William Rifkind  
and Michael Zimmerman, Case No. 93 A 1616, United States Bankruptcy Court for   
the Northern District of Illinois, Eastern Division (Bankruptcy Court), ARTRA   
Group Incorporated (ARTRA) alleges breach of fiduciary duty and tortious        
inference in connection with the negotiation and consummation of Envirodyne's   
plan of reorganization (Plan of Reorganization) in 1993. In ARTRA Group         
Incorporated v.  Salomon Brothers Holding Company Inc, Salomon Brothers Inc,    
D.P. Kelly & Associates, L.P., Donald P. Kelly, Charles K. Bobrinskoy and       
Michael Zimmerman, Case No. 93 L 2198, Circuit Court of the Eighteenth Judicial 
Circuit, County of DuPage, State of Illinois, ARTRA alleges breach of fiduciary 
duty, fraudulent and negligent misrepresentation and breach of contract in      
connection with the 1989 acquisition of Envirodyne by Emerald. The plaintiff    
seeks damages in the total amount of $136.2 million plus interest and punitive  
damages of $408.6 million. D.P. Kelly & Associates, L.P. and Messrs. Kelly,     
Bobrinskoy, Massey, Rifkind and Zimmerman have asserted common law and          
contractual rights of indemnity against Envirodyne for attorneys' fees, costs   
and any ultimate liability relating to the claims set forth in the complaints.  
Envirodyne is continuing its evaluation of the merits of the indemnification    
claims against Envirodyne and the underlying claims in the litigation. Upon the 
undertaking of D.P. Kelly & Associates, L.P. to repay such funds in the event   
it is ultimately determined that there is no right to indemnity, Envirodyne is  
advancing funds to D.P. Kelly & Associates, L.P. and Mr. Kelly for the payment  
of legal fees in the case pending before the Bankruptcy Court. Although the     
Company is not a party to either case, the Company believes that the            
plaintiff's claims raise similar factual issues to those raised in the          
Envirodyne bankruptcy case which, if adjudicated in a manner similar to that in 
the Envirodyne bankruptcy case, would render it difficult for the plaintiff to  
establish liability. Accordingly, the Company believes that the indemnification 
claims would not have a material adverse effect upon the business or financial  
position of the Company, even if the claimants were ultimately successful in    
establishing their right to indemnification.                                    

Certain of Envirodyne's stockholders prior to the acquisition of Envirodyne by  
Emerald failed to exchange their certificates representing old Envirodyne       
common stock for the $40 per share cash merger consideration specified by the   
applicable acquisition agreement. In the Envirodyne bankruptcy case, Envirodyne 
sought to equitably subordinate the claims of the holders of untendered shares, 
so that such holders would not receive a distribution under the Plan of         
Reorganization. The Bankruptcy Court granted Envirodyne's motion for summary    
judgment and equitably subordinated the claims of the holders of untendered     
shares to the claims of other general unsecured creditors. Certain of the       
affected holders appealed and both the U.S. District Court and the U.S. Seventh 
Circuit Court of Appeals affirmed the Bankruptcy Court decision. The time       
period for further appeal has not passed. Envirodyne believes                   

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that even in the event of further appeal, if any, and reversal of the prior     
decisions, the maximum number of shares of common stock that it would be        
required to issue to such claimants is approximately 106,000.                   

Clear Shield National, Inc. and some of its employees have received subpoenas   
from the Antitrust Division of the United States Department of Justice relating 
to a grand jury investigation of the disposable plastic cutlery industry. The   
U.S.  Department of Justice has advised a former officer and an existing        
employee that they are targets of the investigation.  Both individuals were     
invited to appear and testify before the grand jury but both declined. Clear    
Shield National is cooperating fully with the investigation.                    

In February 1996 Clear Shield National and three other plastic cutlery          
manufacturers were named as defendants in the following three civil complaints: 
Eisenberg Brothers, Inc., on behalf of itself and all others similarly          
situated, v.  Amcel Corp., Clear Shield National, Inc., Dispoz-O Plastics Corp. 
and Benchmark Holdings, Inc. t/a Winkler Products, Civil Action No. 96-728,     
United States District Court for the Eastern District of Pennsylvania; St.      
Cloud Restaurant Supply Company v. Amcel Corp., Clear Shield National, Inc.,    
Dispoz-O Plastics Corp. and Benchmark Holdings, Inc. t/a Winkler Products, Case 
No. 96C 0777, United States District Court for the Northern District of         
Illinois, Eastern Division; and Servall Products, Inc., on behalf of itself and 
all others similarly situated, v. Amcel Corporation, Clear Shield National,     
Inc., Dispoz-O Plastics Corporation and Benchmark Holdings, Inc. t/a Winkler    
Products, Civil Action No.  96-1116, United States District Court for the       
Eastern District of Pennsylvania. Each of the complaints alleges, among other   
things, that from October 1990 through April 1992 the defendants unlawfully     
conspired to fix the prices at which plastic cutlery would be sold. The Company 
has informed the plaintiffs that such claims as they relate to Clear Shield     
were discharged by the order of the Bankruptcy Court and Plan of Reorganization 
and that the plaintiffs are permanently enjoined from pursuing legal action to  
collect discharged claims.                                                      

On February 27, 1996, the plaintiff in the St. Cloud case voluntarily dismissed 
the action without prejudice and refiled its action in the U.S. District Court  
for the Eastern District of Pennsylvania but did not name Clear Shield National 
as a defendant. On March 14, 1996, Eisenberg Brothers Inc. filed a motion in    
Clear Shield National's Bankruptcy proceeding in the U.S. Bankruptcy Court for  
the Northern District of Illinois, Eastern Division. Eisenberg Brothers Inc.'s  
motion contends that the Bankruptcy Court's order did not discharge the         
plaintiff's claim.                                                              

The Company and its subsidiaries are involved in various legal proceedings      
arising out of its business and other environmental matters, none of which is   
expected to have a material adverse effect upon its results of operations, cash 
flows or financial position.                                                    

4.  CAPITAL STOCK, PAID IN CAPITAL, AND WARRANTS                                

On February 23, 1996, the United States Bankruptcy Court for the Northern       
District of Illinois, Eastern District entered an order approving a settlement  
agreement resolving all claims of the former union employees of Wisconsin Steel 
Company which shut down in March 1980. Under terms of the approved settlement   
of Frank Lumpkin, et al. v. Envirodyne Industries, Inc. (Lumpkin) and without   
any admission or finding of liability or wrongdoing, Envirodyne was released    
and discharged from all claims in exchange for 900,000 shares of common stock.  
The distribution is in accordance with the terms of Envirodyne's Plan of        
Reorganization under which common stock was distributed to Envirodyne's general 
unsecured creditors in satisfaction of their allowed claims.                    

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The Company issued additional shares of common stock for the Lumpkin settlement 
and to the holders of general unsecured claims of Envirodyne (as opposed to the 
subsidiaries of Envirodyne) under the terms of the Plan of Reorganization. The  
total number of shares outstanding after issuance of common stock for the       
Lumpkin settlement and for the additional distribution to holders of general    
unsecured claims of Envirodyne is 14,479,721.                                   

Under the terms of the Plan of Reorganization, Envirodyne issued warrants to    
purchase 10% of the fully diluted common stock. The issuance of common stock    
pursuant to the Lumpkin settlement, together with other issuances of common     
stock since the consummation of the Plan of Reorganization, caused an           
adjustment to the exercise price of the warrants and the number of shares of    
common stock for which a warrant is exercisable. The exercise price was         
adjusted from $17.25 to $16.08 per share and the number of common shares for    
which each warrant is exercisable was adjusted from 1.000 share to 1.073        
shares.                                                                         

5.  SUBSIDIARY GUARANTORS                                                       

Envirodyne's payment obligations under the Senior Secured Notes are fully and   
unconditionally guaranteed on a joint and several basis (collectively,          
Subsidiary Guarantees) by Viskase Corporation, Viskase Holding Corporation,     
Viskase Sales Corporation, Clear Shield National, Inc., Sandusky Plastics, Inc. 
and Sandusky Plastics of Delaware, Inc., each a direct or indirect wholly-owned 
subsidiary of Envirodyne and each a "Guarantor." These subsidiaries represent   
substantially all of the operations of Envirodyne conducted in the United       
States. The remaining subsidiaries of Envirodyne generally are foreign          
subsidiaries or otherwise relate to foreign operations.                         

The obligations of each Guarantor under its Subsidiary Guarantee are the senior 
obligation of such Guarantor, and are collateralized, subject to certain        
permitted liens, by substantially all of the domestic assets of the Guarantor   
and, in the case of Viskase Holding Corporation, by a pledge of 65% of the      
capital stock of Viskase S.A. The Subsidiary Guarantees and security are shared 
with the lenders under the Revolving Credit Agreement on a pari passu basis and 
are subject to the priority interest of the holders of obligations under the    
Letter of Credit Facility, each pursuant to an intercreditor agreement.         

The following consolidating condensed financial data illustrate the composition 
of the combined Guarantors. No single Guarantor has any significant legal       
restrictions on the ability of investors or creditors to obtain access to its   
assets in the event of default on the Subsidiary Guarantee other than its       
subordination to senior indebtedness described above.  Separate financial       
statements of the Guarantors are not presented because management has           
determined that these would not be material to investors. Based on the book     
value and the market value of the pledged securities of Viskase Corporation,    
Viskase Sales Corporation, Clear Shield National, Inc., Sandusky Plastics, Inc. 
and Sandusky Plastics of Delaware, Inc., these Subsidiary Guarantors do not     
constitute a substantial portion of the collateral and, therefore, the separate 
financial statements of these subsidiaries have not been provided. Separate     
unaudited interim financial statements of Viskase Holding Corporation are being 
filed within this quarterly report.                                             

Investments in subsidiaries are accounted for by the parent and Subsidiary      
Guarantors on the equity method for purposes of the supplemental consolidating  
presentation. Earnings of subsidiaries are therefore reflected in the parent's  
and Subsidiary Guarantors' investment accounts and earnings. The principal      
elimination entries eliminate investments in subsidiaries and intercompany      
balances and transactions.                                                      

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ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
MARCH 28, 1996

                                                        [Enlarge/Download Table]

                                                      Guarantor     Nonguarantor                     Consolidated 
                                           Parent   Subsidiaries    Subsidiaries   Eliminations (1)     Total     
                                          --------  ------------    ------------   ----------------  -------------
                                                                   (in thousands)                                 
                                                                                                                  
ASSETS                                                                                                            
  Current assets:                                                                                                 
    Cash and equivalents                 $ 16,489        $ (1,923)       $  8,436                     $ 23,002    
    Receivables and advances, net          73,219          67,508          52,060      $ (106,439)      86,348    
    Inventories                                            68,570          38,124          (1,455)     105,239    
    Other current assets                      510          22,090           9,473                       32,073    
                                         --------        --------        --------       ---------     --------    

      Total current assets                 90,218         156,245         108,093        (107,894)     246,662    

Property, plant and equipment including                                                                           
  those under capital lease                   265         400,668         148,705                      549,638    
  Less accumulated depreciation                                                                                   
    and amortization                          176          63,569          22,859                       86,604    
                                         --------        --------        --------       ---------     --------    
Property, plant and equipment, net             89         337,099         125,846                      463,034    

Deferred financing costs                    6,497                             951                        7,448    
Other assets                                               42,672           1,655                       44,327    
Investment in subsidiaries                 71,972         117,371                        (189,343)                
Excess reorganization value                                93,152          39,737                      132,889    
                                         --------        --------        --------       ---------     --------    
                                         $168,776        $746,539        $276,282       $(297,237)    $894,360    
                                         ========        ========        ========       =========     ========    

LIABILITIES & STOCKHOLDERS' EQUITY                                                                                
  Current liabilities:                                                                                            
    Short-term debt including current                                                                             
      portion of long-term debt and                                                                               
      obligation under capital lease                     $  7,051        $  4,963                    $  12,014    
    Accounts payable and advances         $    15          99,213          48,640      $ (106,439)      41,429    
    Accrued liabilities                    19,868          36,273          22,710                       78,851    
                                         --------        --------        --------       ---------     --------    

      Total current liabilities            19,883         142,537          76,313        (106,439)     132,294    

Long-term debt including obligation                                                                               
  under capital lease                     379,262         136,462           7,389                      523,113    

Accrued employee benefits                                  51,649           4,295                       55,944    
Deferred and noncurrent income taxes       33,330          15,015          24,811                       73,156    
Intercompany loans                       (373,552)        340,000          33,504              48                 

Commitments and contingencies                                                                                     

Stockholders' equity:                                                                                             
  Preferred stock, $.01 par value;                                                                                
    none outstanding                                                                                              
  Common stock, $.01 par value;                                                                                   
    14,479,721 shares issued and                                                                                  
    outstanding                               145               3          32,738         (32,741)         145    
  Paid in capital                         134,855          87,899          87,871        (175,770)     134,855    
  Accumulated earnings (deficit)          (31,058)        (32,889)          3,498          29,391      (31,058)   
  Cumulative foreign currency                                                                                     
    translation adjustments                 5,911           5,863           5,863         (11,726)       5,911    
                                         --------        --------        --------       ---------     --------    
    Total stockholders' equity            109,853          60,876         129,970        (190,846)     109,853    
                                         --------        --------        --------       ---------     --------    
                                         $168,776        $746,539        $276,282       $(297,237)    $894,360    
                                         ========        ========        ========       =========     ========    

 (1)  Elimination of intercompany receivables, payables and investment accounts.

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ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
DECEMBER 28, 1995 

                                                        [Enlarge/Download Table]

                                                      Guarantor        Nonguarantor                    Consolidated
                                            Parent  Subsidiaries       Subsidiaries  Eliminations (1)     Total    
                                          --------  ------------       ------------  ----------------  ------------
                                                                   (in thousands)                                  
                                                                                                                   
ASSETS                                                                                                             
  Current assets:                                                                                                  
    Cash and equivalents                 $ 18,013       $    486      $ 11,826                          $ 30,325   
    Receivables and advances, net          52,462         70,458        57,082        $ (90,548)          89,454   
    Inventories                                           63,355        38,233           (2,114)          99,474   
    Other current assets                      176         12,364         9,106                            21,646   
                                         --------       --------      --------        ---------         --------   

      Total current assets                 70,651        146,663       116,247          (92,662)         240,899   

Property, plant and equipment including                                                                            
  those under capital lease                   261        394,813       150,417                           545,491   
  Less accumulated depreciation                                                                                    
    and amortization                          150         55,620        20,217                            75,987   
                                         --------       --------      --------        ---------         --------   
Property, plant and equipment, net            111        339,193       130,200                           469,504   

Deferred financing costs                    7,048                        1,042                             8,090   
Other assets                                              43,720         1,869                            45,589   
Investment in subsidiaries                 77,766        117,578                       (195,344)                   
Excess reorganization value                               94,968        40,517                           135,485   
                                         --------       --------      --------        ---------         --------   

                                         $155,576       $742,122      $289,875        $(288,006)        $899,567   
                                         ========       ========      ========        =========         ========   

LIABILITIES & STOCKHOLDERS' EQUITY                                                                                 
  Current liabilities:                                                                                             
    Short-term debt including current                                                                              
      portion of long-term debt and                                                                                
      obligation under capital lease                      $6,407        $6,097                          $ 12,504   
    Accounts payable and advances        $     80         78,848        50,737        $ (90,548)          39,117   
    Accrued liabilities                     8,126         37,488        21,939                            67,553   
                                         --------       --------      --------        ---------         --------   

      Total current liabilities             8,206        122,743        78,773          (90,548)         119,174   

Long-term debt including obligation                                                                                
  under capital lease                     379,262        143,198         7,721                           530,181   

Accrued employee benefits                                 51,345         4,281                            55,626   
Deferred and noncurrent income taxes       34,088         17,507        25,895                            77,490   
Intercompany loans                       (383,076)       340,000        43,083               (7)                   

Commitments and contingencies                                                                                      

Stockholders' equity:                                                                                              
  Preferred stock, $.01 par value;                                                                                 
    none outstanding                                                                                               
  Common stock, $.01 par value;                                                                                    
    13,579,460 shares issued and                                                                                   
    outstanding                               136              3        32,738          (32,741)             136   
  Paid in capital                         134,864         87,899        87,871         (175,770)         134,864   
  Accumulated earnings (deficit)          (25,131)       (27,752)        2,334           25,418          (25,131)  
  Cumulative foreign currency                                                                                      
    translation adjustments                 7,227          7,179         7,179          (14,358)           7,227   
                                         --------       --------      --------        ---------         --------   
    Total stockholders' equity            117,096         67,329       130,122         (197,451)         117,096   
                                         --------       --------      --------        ---------         --------   

                                         $155,576       $742,122      $289,875        $(288,006)        $899,567   
                                         ========       ========      ========        =========         ========   

 (1)  Elimination of intercompany receivables, payables and investment accounts.

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ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED MARCH 28, 1996 

                                                        [Enlarge/Download Table]

                                                       Guarantor   Nonguarantor                  Consolidated
                                           Parent    Subsidiaries  Subsidiaries    Eliminations     Total    
                                          -------    ------------  ------------    ------------  ------------
                                                                   (in thousands)                            
                                                                                                             
NET SALES                                              $102,481        $66,212       $ (8,957)     $159,736  

COSTS AND EXPENSES                                                                                           
  Cost of sales                                          78,867         50,458         (9,616)      119,709  
  Selling, general and administrative       $1,546       14,921         10,175                       26,642  
  Amortization of intangibles and                                                                            
    excess reorganization value                           3,228            863                        4,091  
                                          --------     --------        -------       --------      --------  

OPERATING INCOME (LOSS)                     (1,546)       5,465          4,716            659         9,294  

  Interest income                              216                         175                          391  
  Interest expense                          10,940        3,343            593                       14,876  
  Intercompany interest expense (income)   (10,513)       9,379          1,134                               
  Management fees (income)                  (1,591)       1,218            373                               
  Other expense (income), net                2,210          173            653                        3,036  
  Equity Loss (income) in subsidiary         4,478       (1,164)                       (3,314)               
                                           -------     --------       --------       --------      --------  

INCOME (LOSS) BEFORE INCOME TAXES           (6,854)      (7,484)         2,138          3,973        (8,227) 
  Income tax provision (benefit)              (927)      (2,347)           974                       (2,300) 
                                           -------     --------       --------       --------      --------  

NET INCOME (LOSS)                          $(5,927)    $ (5,137)       $ 1,164       $  3,973       $(5,927) 
                                           =======     ========        =======       ========       =======  

ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING CASH FLOWS
FOR THREE MONTHS ENDED MARCH 28, 1996 

                                                        [Enlarge/Download Table]

                                                             Guarantor   Nonguarantor                  Consolidated
                                                  Parent   Subsidiaries  Subsidiaries    Eliminations     Total    
                                                --------   ------------  ------------    ------------  ------------
                                                                         (in thousands)                            
                                                                                                                   
Net cash provided by (used in)                                                                                     
  operating activities                          $(11,061)     $ 9,527         $7,401                      $ 5,867  

Cash flows from investing activities:                                                                              
  Capital expenditures                                (3)      (5,919)          (621)                      (6,543) 
  Proceeds from sale of property, plant and                                                                        
    equipment                                                      35             14                           49  
                                                --------     --------        -------     --------         -------  
      Net cash (used in) investing activities         (3)      (5,884)          (607)                      (6,494) 

Cash flows from financing activities:                                                                              
  Repayment of revolving loan, long-term                                                                           
    borrowings and capital lease obligations                   (6,052)        (1,150)                      (7,202) 

  Increase (decrease) in Envirodyne loan           9,540                      (9,540)                              
                                                --------     --------       --------     --------         -------  
      Net cash provided by (used in) financing                                                                     
        activities                                 9,540       (6,052)       (10,690)                      (7,202) 
Effect of currency exchange rate changes                                                                           
  on cash                                                                        506                          506  
                                                --------     --------       --------     --------         -------  

Net increase (decrease) in cash                                                                                    
  and equivalents                                 (1,524)      (2,409)        (3,390)                      (7,323) 
Cash and equivalents at beginning                                                                                  
  of period                                       18,013          486         11,826                       30,325  
                                                --------     --------        -------     --------         -------  
Cash and equivalents at end                                                                                        
  of period                                      $16,489     $ (1,923)       $ 8,436                      $23,002  
                                                 =======     ========        =======     ========         =======  

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ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED MARCH 30, 1995 

                                                        [Enlarge/Download Table]

                                                      Guarantor    Nonguarantor                 Consolidated
                                           Parent   Subsidiaries   Subsidiaries   Eliminations      Total   
                                          --------  ------------   ------------   ------------  ------------
                                                                  (in thousands)                            
                                                                                                            
NET SALES                                             $102,289       $ 62,520       $ (8,985)     $155,824  

COSTS AND EXPENSES                                                                                          
  Cost of sales                                         75,069         48,903         (9,017)      114,955  
  Selling, general and administrative      $1,573       17,354          9,343                       28,270  
  Amortization of intangibles and                                                                           
    excess reorganization value                          3,066            844                        3,910  
                                          -------     --------       --------       --------      --------  

OPERATING INCOME (LOSS)                    (1,573)       6,800          3,430             32         8,689  

  Interest income                                           55              9                           64  
  Interest expense                          9,084        3,522            828                       13,434  
  Intercompany interest expense (income)   (9,352)       8,502            850                               
  Management fees (income)                 (1,850)       1,558            292                               
  Other expense (income), net              (2,152)         (43)         1,604                         (591) 
  Equity loss (income) in subsidiary        5,540          756                        (6,296)               
                                          -------     --------       --------       --------      --------  

INCOME (LOSS) BEFORE INCOME TAXES          (2,843)      (7,440)          (135)         6,328        (4,090) 
  Income tax provision                      1,052       (1,868)           621                         (195) 
                                          -------     --------       --------       --------      --------  

NET INCOME (LOSS)                         $(3,895)    $ (5,572)      $   (756)      $  6,328      $ (3,895) 
                                          =======     ========       ========       ========      ========  

ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING CASH FLOWS
FOR THREE MONTHS ENDED MARCH 30, 1995 

                                                        [Enlarge/Download Table]

                                                            Guarantor   Nonguarantor                  Consolidated
                                                 Parent   Subsidiaries  Subsidiaries    Eliminations      Total   
                                                --------  ------------  ------------    ------------  ------------
                                                                        (in thousands)                            
                                                                                                                  

Net cash provided by (used in) operating                                                                          
  activities                                   $(23,043)     $12,237       $(3,730)                     $(14,536) 

Cash flows from investing activities:                                                                             
  Capital expenditures                                        (5,826)       (1,805)                       (7,631) 
                                                -------     --------      --------        --------      --------  
      Net cash (used in) investing activities                 (5,826)       (1,805)                       (7,631) 

Cash flows from financing activities:                                                                             
  Proceeds from revolving loan and                                                                                
    long term borrowings                         13,900                     28,349                        42,249  
  Deferred financing costs                         (464)                                                    (464) 
  Repayment of revolving loan, long-term                                                                          
    borrowings and capital lease obligations     (2,837)      (5,450)      (11,686)                      (19,973) 
  Increase (decrease) in Envirodyne loan         14,705                    (14,705)                               
                                                -------     --------      --------        --------      --------  
      Net cash provided by (used in)                                                                              
        financing activities                     25,304       (5,450)        1,958                        21,812  
Effect of currency exchange rate                                                                                  
  changes on cash                                                              275                           275  
                                                -------     --------      --------        --------      --------  
Net increase (decrease) in cash                                                                                   
  and equivalents                                 2,261          961        (3,302)                          (80) 
Cash and equivalents at beginning of period         555        1,853         4,881                         7,289  
                                                -------     --------      --------        --------      --------  
Cash and equivalents at end of period           $ 2,816     $  2,814      $  1,579                      $  7,209  
                                                =======     ========      ========        ========      ========  

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VISKASE HOLDING CORPORATION AND SUBSIDIARIES

The financial information included in this quarterly report has been prepared   
in conformity with the accounting principles and practices reflected in the     
financial statements included in the annual report on Form 10-K filed with the  
Securities and Exchange Commission for the year ended December 28, 1995 (1995   
Form 10-K). These quarterly financial statements should be read in conjunction  
with the financial statements and the notes thereto included in the 1995 Form   
10-K. The accompanying financial information, which is unaudited, reflects all  
adjustments which are, in the opinion of management, necessary for a fair       
statement of the results for the interim periods presented.                     

The condensed consolidated balance sheet as of December 28, 1995 was derived    
from the audited Viskase Holding Corporation's consolidated financial           
statements included in Envirodyne Industries, Inc.'s annual report of Form      
10-K.                                                                           

Reported interim results of operations are based in part on estimates which may 
be subject to year-end adjustments. In addition, these quarterly results of     
operations are not necessarily indicative of those expected for the year.       

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VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS 

                                                                [Download Table]

                                                   March 28,     December 28,   
                                                     1996             1995      
                                               ----------------  ---------------

                                                                 (in thousands) 
                                                                                
ASSETS                                                                          
  Current assets:                                                               
    Cash and equivalents                            $  8,436      $  11,826     
    Receivables, net                                  49,351         53,022     
    Receivables, affiliates                           51,328         51,829     
    Inventories                                       38,124         38,233     
    Other current assets                               9,473          9,106     
                                                    --------        -------     
        Total current assets                         156,712        164,016     

  Property, plant and equipment                      148,705        150,417     
    Less accumulated depreciation                     22,859         20,217     
                                                  ----------       --------     
    Property, plant and equipment, net               125,846        130,200     

  Deferred financing costs                               951          1,042     
  Other assets                                         1,655          1,869     
  Excess reorganization value                         39,737         40,517     
                                                    --------       --------     
                                                    $324,901       $337,644     
                                                    ========       ========     

LIABILITIES AND STOCKHOLDERS' EQUITY                                            
  Current liabilities:                                                          
    Short-term debt including current                                           
      portion of long-term debt                      $ 4,963      $   6,097     
    Accounts payable                                  15,819         13,720     
    Accounts payable and advances, affiliates         50,044         54,152     
    Accrued liabilities                               22,711         21,942     
                                                   ---------     ----------     
        Total current liabilities                     93,537         95,911     

  Long-term debt                                       7,389          7,721     

  Accrued employee benefits                            4,295          4,281     
  Deferred and noncurrent income taxes                24,811         25,895     
  Intercompany loans                                  71,514         81,094     

  Commitments and contingencies                                                 

  Stockholders' equity:                                                         
    Common stock, $1.00 par value,                                              
      1,000 shares authorized;                                                  
      100 shares issued and outstanding                                         
    Paid in capital                                  103,463        103,463     
    Retained earnings                                 14,029         12,100     
    Cumulative foreign currency                                                 
      translation adjustments                          5,863          7,179     
                                                   ---------     ----------     
        Total stockholders' equity                   123,355        122,742     
                                                    --------       --------     
                                                    $324,901       $337,644     
                                                    ========       ========     

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

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VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS 

                                                        [Enlarge/Download Table]

                                                             Three Months Ended                       
                                                       ------------------------------                 
                                                       March 28,            March 30,                 
                                                         1996                 1995                    
                                                       ---------            ---------                 
                                     (in thousands, except for number of shares and per share amounts)
                                                                                                      
NET SALES                                               $66,212              $62,520                  

COSTS AND EXPENSES                                                                                    
  Cost of sales                                          50,458               48,903                  
  Selling, general                                                                                    
    and administrative                                    8,912                8,846                  
  Amortization of intangibles                                                                         
    and excess reorganization value                         863                  844                  
                                                        -------              -------                  

OPERATING INCOME                                          5,979                3,927                  

  Interest income                                           175                   39                  
  Interest expense                                          593                  858                  
  Intercompany interest expense                           1,134                  838                  
  Management fees                                           373                  292                  
  Other expense, net                                        653                1,299                  
                                                        -------              -------                  

INCOME BEFORE INCOME TAXES                                3,401                  679                  

  Income tax provision                                    1,472                  848                  
                                                        -------              -------                  

NET INCOME (LOSS)                                       $ 1,929              $  (169)                 
                                                        =======              =======                  

WEIGHTED AVERAGE                                                                                      
  COMMON SHARES                                             100                  100                  

PER SHARE AMOUNTS:                                                                                    

NET INCOME (LOSS)                                       $19,290              $(1,690)                 
                                                        =======              =======                  

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

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VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS 

                                                        [Enlarge/Download Table]

                                                                     Three Months Ended          
                                                             ----------------------------------- 
                                                               March 28,               March 30, 
                                                                 1996                    1995    
                                                             ------------            ------------
                                                                       (in thousands)            
                                                                                                 
Cash flows from operating activities:                                                            
  Net income                                                   $  1,929              $   (169)   
  Adjustments to reconcile net income                                                            
    to net cash provided by operating activities:                                                
      Depreciation                                                2,982                 2,808    
      Amortization of intangibles and excess                                                     
        reorganization value                                        863                   844    
      Amortization of deferred financing fees and discount           57                    54    
      Increase (decrease) in deferred and                                                        
          noncurrent income taxes                                  (536)                  (91)   
      (Gain) on sales of property, plant and equipment              (14)                         

      Changes in operating assets and liabilities:                                               
          Accounts receivable                                     2,872                   (88)   
          Accounts receivable, affiliates                            97                (2,325)   
          Inventories                                              (338)               (6,652)   
          Other current assets                                      591                 1,276    
          Accounts payable and accrued liabilities                2,865                (1,321)   
          Accounts payable and advances, affiliates              (3,964)                1,225    
          Other                                                      (3)                 (689)   
                                                               --------              --------    
      Total adjustments                                           5,472                (4,959)   
                                                               --------              --------    

          Net cash provided by (used in) operating activities     7,401                (5,128)   

Cash flows from investing activities:                                                            
  Capital expenditures                                             (621)               (1,805)   
  Proceeds from sale of property, plant and equipment                14                          
                                                               --------              --------    
          Net cash (used in) investing activities                  (607)               (1,805)   

Cash flows from financing activities:                                                            
  Proceeds from revolving loan and long-term borrowings                                28,349    
  Repayment of revolving loan and long-term borrowings           (1,150)              (11,686)   
  Increase (decrease) in Envirodyne loan                         (9,540)              (14,627)   
                                                               --------              --------    
          Net cash provided by (used in) financing activities   (10,690)                2,036    

Effect of currency exchange rate changes on cash                    506                   275    
                                                               --------              --------    
Net (decrease) in cash and equivalents                           (3,390)               (4,622)   
Cash and equivalents at beginning of period                      11,826                 6,201    
                                                               --------              --------    
Cash and equivalents at end of period                          $  8,436              $  1,579    
                                                               ========              ========    

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

Supplemental cash flow information:                                                              
  Interest paid                                                    $138                 $ 250    
  Income taxes paid                                                $250                 $ 685    

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

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VISKASE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. INVENTORIES (dollars in thousands)                                           

Inventories consisted of:                                                       

                                                                [Download Table]

                   March 28,  December 28,
                      1996        1995    
                   ---------  ------------
                                          
Raw materials       $ 4,653       $ 5,299 
Work in process      13,045        13,342 
Finished products    20,426        19,592 
                   --------       ------- 
                    $38,124       $38,233 
                    =======       ======= 

2. CONTINGENCIES (dollars in thousands)                                         

Viskase Holding Corporation and its subsidiaries are involved in various legal  
proceedings arising out of its business and other environmental matters, none   
of which is expected to have a material adverse effect upon its results of      
operations, cash flows or financial position.                                   

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ANNEX D 

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=============================================================================== 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM 10-K 

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

(MARK ONE)                                                                      
[X]          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE               

SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

FOR THE FISCAL YEAR ENDED DECEMBER 25, 1995 

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 33-66392 

HOULIHAN'S RESTAURANT GROUP, INC. 
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                                                                [Download Table]
                                                                                   
                   DELAWARE                                 43-0913506             
(STATE OR OTHER JURISDICTION OF INCORPORATION  (I.R.S. EMPLOYER IDENTIFICATION NO.)
                OR ORGANIZATION)                                                   

TWO BRUSH CREEK BOULEVARD, KANSAS CITY, MISSOURI 64112
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE) 

(816) 756-2200
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) 

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: 

None. 

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: 

None. 

 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 
requirements for the past 90 days.  Yes  X No ___                               

   Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities       
Exchange Act of 1934 subsequent to the distribution of securities under a plan  
confirmed by a court.  Yes  X No ___                                            

     The aggregate market value of the registrant's stock held by non-affiliates
as of February 26, 1996 was $13,238,782 based upon the average bid and ask price
on February 26, 1996.                                                           

 The number of shares of the registrant's common stock outstanding as of
February 26, 1996 was 9,998,012.                                                

The exhibit index is located on page E-1.                             
=============================================================================== 

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HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY

FORM 10-K 
FISCAL YEAR ENDED DECEMBER 25, 1995 

INDEX 

                                                        [Enlarge/Download Table]

                                                                                          PAGE
                                                                                          ----
                                                                                              
PART I                                                                                        
Item 1.      Business....................................................................   3 
Item 2.      Properties..................................................................   8 
Item 3.      Legal Proceedings...........................................................   9 
Item 4.      Submission of Matters to a Vote of Security Holders.........................   9 
PART II                                                                                       
Item 5.      Market for the Registrant's Common Stock and Related Stockholder Matters....  10 
Item 6.      Selected Financial Data.....................................................  11 
Item 7.      Management's Discussion and Analysis of Financial Condition                      
               and Results of Operations.................................................  12 
Item 8.      Financial Statements and Supplementary Data.................................  16 
Item 9.      Changes in and Disagreements with Accountants on Accounting and Financial        
               Disclosure................................................................  16 
PART III                                                                                      
Item 10.     Directors and Executive Officers of the Registrant..........................  16 
Item 11.     Executive Compensation......................................................  18 
Item 12.     Security Ownership of Certain Beneficial Owners and Management..............  21 
Item 13.     Certain Relationships and Related Transactions..............................  21 
PART IV                                                                                       
Item 14.     Exhibits, Financial Statements and Reports on Form 8-K......................  22 
Signatures...............................................................................  23 

 2

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PART I

ITEM 1. BUSINESS                                                                

GENERAL                                                                         

Houlihan's Restaurant Group, Inc. and its wholly-owned subsidiary,    
Houlihan's Restaurants, Inc. and its subsidiaries (the "Company") operates full 
service casual dining restaurants in 25 states. At December 25, 1995, it        
operated 98 restaurants, including 61 Houlihan's, 28 Darryl's, three upscale    
Seafood Grills and six Specialty Restaurants comprised of four dinnerhouses, one
upscale steakhouse and the Buena Vista Cafe. At that date, the Company also     
franchised 18 Houlihan's restaurants in seven states and the Commonwealth of    
Puerto Rico. The Company is a Delaware corporation formed on May 31, 1968 and is
the successor to a business founded in 1962 in Kansas City, Missouri. The       
restaurant business is the only business in which the Company is engaged.       

OVERVIEW OF THE COMPANY'S RESTAURANT CONCEPTS                                   

The Company's primary restaurant concepts are Houlihan's and Darryl's,
which operate in the casual dining segment of the restaurant industry. During   
1995, sales for these concepts comprised 67% and 23%, respectively, of the      
Company's total sales. All of the Company's restaurants serve beer, wine and    
cocktails, both in the restaurant areas and in the separate bar areas. Sales of 
alcoholic beverages constituted 23% of the Company's net sales for the fiscal   
year ended December 25, 1995.                                                   

Houlihan's. The first Houlihan's restaurant was opened in Kansas City,
Missouri in 1972. As of December 25, 1995, the Company operated 61 Houlihan's   
restaurants located in 21 states, primarily along the East Coast and in the     
Midwest and franchised 18 additional Houlihan's restaurants in seven states and 
the Commonwealth of Puerto Rico.                                                

   Houlihan's is the Company's largest restaurant concept. The concept has a
strong appeal to adult casual dining guests, principally in the 25 to 49 age    
group. Almost all menu items are freshly prepared on the restaurant premises.   
Houlihan's restaurants are open seven days a week, serving lunch, dinner and    
late evening meals. The average Houlihan's dinner guest check for the fiscal    
year ended December 25, 1995 was $11.46.                                        

The following table sets forth, for the periods indicated, information
concerning Company-owned Houlihan's:                                            

                                                        [Enlarge/Download Table]

                                        1995      1994     1993       1992      1991   
                                       ------    ------   ------     ------    ------  
                                                                                       
Number of Houlihan's:                                                                  
  Open at beginning of period.........     56        53       51         59        61  
  Opened or converted during period...      5         5        3(a)      --        --  
  Closed or divested during period....     --        (2)      (1)        (8)       (2) 
                                       ------    ------   ------     ------    ------  
          Open at end of period.......     61        56       53         51        59  
Average sales per restaurant open for                                                  
  full period (in thousands).......... $3,118    $3,148   $3,092     $3,114    $2,990  
Percentage increase (decrease) in                                                      
  comparable restaurant sales.........   (0.6)%     0.6%    (1.7)%     (1.4)%    (3.7)%

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

(a) Includes two Specialty Restaurants which were closed and in the process of  
being converted to Houlihan's.                                        

Darryl's. Darryl's restaurants are also casual dining restaurants that
offer a diverse menu that includes traditional items such as barbecued ribs and 
steaks. As with Houlihan's, almost all items are prepared on the restaurant     
premises. In late 1995, the Company adopted a new strategy for the concept that 
includes a new menu emphasizing wood-fired steaks. The new strategy requires the
update of facilities with new wood grills as well as a new smallware package in 
each restaurant. The menu is expected to be fully implemented in all restaurants
by the end of the first quarter of 1996. In December 1995, one of the concept's 
three Area Directors was promoted to Vice President and put in charge of the    
Darryl's concept. Darryl's restaurants are                                      

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open seven days a week, serving lunch, dinner and late evening meals. As of     
December 25, 1995, the Company operated 28 Darryl's restaurants located in eight
states, primarily in the Southeast. The average Darryl's dinner guest check for 
the fiscal year ended December 25, 1995 was $11.48.                             

The following table sets forth, for the periods indicated, information
concerning Darryl's:                                                            

                                                        [Enlarge/Download Table]

                                      1995       1994       1993      1992      1991   
                                     ------     ------     ------    ------    ------  
                                                                                       
Number of Darryl's:                                                                    
  Open at beginning of period.......     30         31         31        31        31  
  Opened or converted during                                                           
     period.........................     --         --         --        --        --  
  Closed or divested during                                                            
     period.........................     (2)(a)     (1)(b)     --        --        --  
                                     ------     ------     ------    ------    ------  
          Open at end of period.....     28         30         31        31        31  
Average sales per restaurant open                                                      
  for full period (in thousands).... $2,178     $2,226     $2,302    $2,368    $2,467  
Percentage increase (decrease) in                                                      
  comparable restaurant sales.......   (3.6)%     (3.7)%     (2.8)%    (4.0)%    (4.9)%

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

(a) Includes one Darryl's which was converted to J. Gilbert's in August 1995.   

(b) Represents one Darryl's which was converted to a Houlihan's.                

     Seafood Grills. The Seafood Grills compete in the upscale restaurant market
under the names "Bristol", "Braxton" and "Chequers." These restaurants target   
special occasion and business entertainment diners by offering an extensive     
selection of seafood and steaks, an upscale level of service and well-appointed 
facilities. The Seafood Grill restaurants are open seven days a week, serving   
lunch, dinner and late evening meals. As of December 25, 1995, the Company      
operated three Seafood Grills located in St. Louis, Chicago and Atlanta. The    
average Seafood Grill dinner guest check for the fiscal year ended December 25, 
1995 was $24.11.                                                                

The following table sets forth, for the periods indicated, information
concerning the Seafood Grills:                                                  

                                                                [Download Table]

                                      1995     1994     1993     1992     1991   
                                     ------   ------   ------   ------   ------  
                                                                                 
Number of Seafood Grills:                                                        
  Open at beginning of period.......      4        4        4        6        6  
  Opened or converted during                                                     
     period.........................     --       --       --       --       --  
  Closed or divested during                                                      
     period.........................     (1)      --       --       (2)      --  
                                     ------   ------   ------   ------   ------  
          Open at end of period.....      3        4        4        4        6  
Average sales per restaurant open                                                
  for full period (in thousands).... $4,024   $4,070   $3,813   $3,668   $3,194  
Percentage increase (decrease) in                                                
  comparable restaurant sales.......    4.9%     6.8%     3.9%     1.5%    (7.9)%

Specialty Restaurants. The Specialty Restaurants consist of four      
dinnerhouses, one upscale steakhouse and the Buena Vista Cafe. The dinnerhouses,
which operate under the names "Charley's Place" and "Phineas," compete in the   
high end of the casual dining market, target special occasion diners, and       
feature full menus which emphasize steak and prime rib and are open seven days a
week, serving lunch, dinner and late evening meals. The average dinner guest    
check for the dinnerhouses for the fiscal year ended December 25, 1995 was      
$13.21. The steakhouse, which operates under the name "J. Gilbert's," is the    
Company's newest concept. It also competes in the upscale restaurant market and 
features a menu that is printed daily and specializes in Black Angus steaks,    
chicken and seafood. J. Gilbert's is open seven days a week, serving dinner and 
late evening meals only. The average dinner guest check for J. Gilbert's for the
fiscal year ended December 25, 1995 was $20.58. The Buena Vista Cafe, located   
near Fisherman's Wharf in San Francisco, California, is known for having        
introduced the Irish Coffee drink in the United States. Sales of Irish Coffee   
represent a significant portion of the Buena Vista Cafe's sales.                

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The following table sets forth, for the periods indicated, information
concerning the Specialty Restaurants:                                           

                                                        [Enlarge/Download Table]

                                      1995       1994     1993        1992     1991   
                                     ------     ------   ------      ------   ------  
                                                                                      
Number of Specialty Restaurants:                                                      
  Open at beginning of period.......      5          5        7           7        7  
  Opened or converted during                                                          
     period.........................      1(a)      --       --          --       --  
  Closed or divested during                                                           
     period.........................     --         --       (2)(b)      --       --  
                                     ------     ------   ------      ------   ------  
          Open at end of period.....      6          5        5           7        7  
Average sales per restaurant open                                                     
  for full period (in thousands).... $2,277     $2,311   $2,258      $2,227   $2,196  
Percentage increase (decrease) in                                                     
  comparable restaurant sales.......   (1.5)%      2.4%     1.5%        1.5%    (4.3)%

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

(a) Represents one restaurant which was converted to J. Gilbert's from Darryl's.

(b) Represents two restaurants which were closed and in the process of          
conversion to Houlihan's.                                               

BUSINESS DEVELOPMENT                                                            

   The Company's expansion strategy consists of three main elements: opening
Company-owned Houlihan's restaurants, franchising the Houlihan's concept in     
non-corporate markets and expanding the Seafood Grills concept and J. Gilbert's 
concept on a limited basis. The Company opened five new Houlihan's in 1995 and  
plans to open three new Company-owned Houlihan's restaurants in 1996.           
Additionally, the Company expects that ten to twelve franchised Houlihan's      
restaurants will open in 1996.                                                  

  In addition to the expansion of the Houlihan's concept, the Company will
also open one new Seafood Grill in April 1996 and one new J. Gilbert's in late  
1996.                                                                           

 The Company believes it has a sufficient number of qualified restaurant
managers that will enable it to meet its expansion goals without compromising   
quality. The Company will designate managers of new restaurants by drawing on   
the pool of managers at existing restaurants. In this way, the Company will     
maintain its high standards by utilizing managers who have a proven track record
with the concept. The Company has also designated a team of employees           
responsible for opening new locations, including the hiring and training of     
kitchen personnel and other individuals who will serve as hosts, waiters,       
bartenders and restaurant managers. In addition, the Company has its own        
construction and design group with overall responsibilities for restaurant      
design and construction management. Management believes this group reduces the  
required investment in new restaurants.                                         

 The Company believes that its ability to select high profile restaurant
sites is critical to its success. The Company has developed a customer profile  
for each restaurant concept based on the demographics and dining habits of its  
existing customer base. The Company utilizes a lifestyle and demographics       
software system in combination with several other factors in the site selection 
process, including local market demographics, site visibility, aesthetics,      
accessibility and proximity to significant generators of potential guests such  
as major retail centers, office complexes, hotel concentrations and             
entertainment facilities including sports arenas and theaters. As of December   
25, 1995, the Company had secured all the sites for anticipated new restaurants 
in 1996 and has begun working on sites for 1997.                                

FRANCHISE OPERATIONS                                                            

  The Company considers its franchising program to be a key element of its
expansion strategy. The Company intends to expand its franchising activities    
primarily in areas where it does not currently operate Company-owned Houlihan's 
restaurants. In this way, the Company hopes to increase customer awareness      
nationwide at a more rapid pace than corporate expansion alone would allow. The 
addition of franchised restaurants also provides the Company with operating     
efficiencies as well as an important source of income.                          

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    During 1995, the Company signed eight new franchise development agreements
for an aggregate commitment of 33 new Houlihan's restaurants to be developed    
over a five-year period. Since the beginning of 1994, the Company has signed 14 
franchise agreements that provide for the development of a total of 67 new      
Houlihan's, including those franchise restaurants that are currently open.      
During 1995, seven Houlihan's franchise restaurants opened in six states and the
Commonwealth of Puerto Rico, bringing the total number of franchised restaurants
opened to 18. The Company expects to sign five to six new agreements in 1996 and
expects that ten to twelve more franchised restaurants will open in 1996. In    
addition, the Company intends to pursue international expansion through         
franchising.                                                                    

    The Company has franchised areas that include Portland, Oregon; Denver and
Colorado Springs, Colorado; Reno and Las Vegas, Nevada; Tucson, Arizona; Austin,
Texas; North Carolina; Wisconsin; South Carolina; North Dakota; South Dakota;   
Cleveland and certain counties in Ohio; Tennessee; certain counties in Indiana  
and Kentucky; Orlando, Florida; and Puerto Rico. Additionally, one of the       
franchise development agreements provides for the development of five           
restaurants in airports in Atlanta, Chicago, Los Angeles and Philadelphia.      

  The Company's standard franchise agreement has a 20-year term, with four
five-year renewal options, and provides for a payment to the Company of a       
one-time initial franchise fee and a continuing royalty fee at a rate of 4% of  
gross sales. Under the standard franchise agreement, the franchisees must       
operate their restaurants in accordance with the Company's operational          
standards.                                                                      

MANAGEMENT AND EMPLOYEES                                                        

    The Company strives to maintain quality and consistency in its restaurants
through the careful training and supervision of personnel and the establishment 
of standards relating to food and beverage preparation and presentation, alcohol
service, maintenance of facilities, sanitation, safety, recordkeeping and       
employee relations.                                                             

   Each restaurant has a general manager and two to five assistant managers,
depending on the size of the restaurant. The Company has 14 Area Directors that 
are responsible for the overall operations of four to ten restaurants in a      
particular geographic region. Additionally, the Area Directors have oversight   
responsibilities for any franchise restaurants in their designated region. The  
Company provides its management with ongoing training tools and programs        
designed to help enhance employee knowledge of menu items, sales techniques and 
guest service. Management of the Company's franchise restaurants also take part 
in the various management training programs. Training teams enlisted from among 
the Company's most qualified and experienced employees provide one-on-one       
instruction to the staff of new Company-owned and franchise restaurants.        

 At December 25, 1995, the Company employed 8,239 persons, of whom 8,103
were restaurant employees and 136 were corporate personnel. Of the restaurant   
employees, 533 performed managerial functions. Except for restaurant management 
and most corporate personnel, employees are paid on an hourly basis.            
Approximately 44% of the Company's employees were employed on a part-time basis 
(25 hours or less per week).                                                    

    The Company believes it provides working conditions and wages that compare
favorably with those offered by its competitors, and it believes its relations  
with employees are good. The Company has a collective bargaining agreement with 
one union covering certain employees of the Buena Vista Cafe.                   

PURCHASING                                                                      

 In order to provide uniform quality and obtain competitive pricing, the
corporate purchasing department monitors and purchases major commodities such as
beef, pork, poultry and seafood products and negotiates and administers national
and regional contracts for various items. As the prices of certain of these     
products vary significantly based on seasonal and market supply/demand factors, 
the purchasing department often enters into forward purchase agreements to      
secure advantageous pricing. Each restaurant typically purchases bakery products
and supplies and other perishable items from local vendors or through the       
Company's arrangements with national distributors. The Company purchases produce
on a regional basis. Franchise                                                  

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restaurants are required to use suppliers that are pre-approved by the Company  
in order to maintain quality control.                                           

ADVERTISING                                                                     

The Company believes that the food, service and decor offered by its  
restaurants provides its best advertising, and it relies principally upon       
satisfied guests to promote its restaurants by word-of-mouth. In addition, the  
Company uses a certain amount of radio and newspaper advertising in selected    
markets, runs print advertisements in several travel and entertainment magazines
and engages in limited promotional activities before opening a new restaurant.  
During 1996, the Company plans to utilize quarterly promotional campaigns that  
incorporate a market-specific media mix, including television in certain        
markets.                                                                        

Houlihan's continues to use a dining for miles program with American  
Airlines. The program creates increased awareness and provides added value to a 
highly targeted and desirable consumer segment. Platinum and Gold American      
AAdvantage(R) members receive a Dining Advantage Guide which features Houlihan's
as the only national casual dining chain. Members receive miles for every dollar
spent at Houlihan's. During 1995, Houlihan's also participated in the Visa      
Rewards for Dining and Diversions program with Visa in which Visa utilized bill 
inserts and advertising to notify cardholders that savings certificates would be
rewarded for purchases made during a specified time period. Savings certificates
could then be redeemed at Houlihan's for a free dessert or appetizer with an    
entree purchase.                                                                

  During 1995, the Company entered into an agreement for the right to name
the Tampa Bay Buccaneer Football Stadium "Houlihan's Stadium". Additionally, the
agreement provides the Company with advertising rights inside the stadium and in
Tampa Bay Buccaneer programs and brochures. See "Certain Relationships and      
Related Transactions".                                                          

COMPETITION                                                                     

  The restaurant business is highly competitive and the competition can be
expected to increase. Price, restaurant location, food quality, service and     
attractiveness of facilities are important aspects of competition, and the      
competitive environment is often affected by factors beyond the Company's or a  
particular restaurant's control. These factors include changes in the public's  
dining habits, population and traffic patterns and local economic conditions.   
The Company and its franchisees compete with a wide variety of restaurants,     
ranging from national and regional restaurant chains to locally-owned           
restaurants, some of which have greater financial resources than the Company.   
There is also active competition for management personnel and hourly restaurant 
employees, as well as intense competition for attractive commercial real estate 
sites suitable for restaurants.                                                 

GOVERNMENTAL REGULATION                                                         

     Each of the Company's restaurants is subject to state and/or local laws and
regulations governing health, sanitation and safety and the sale of alcoholic   
beverages. The selection of new restaurant sites is affected by federal, state  
and local laws and regulations regarding environmental matters, zoning and land 
use. The Company has not encountered any difficulties or failures in obtaining  
necessary licenses and approvals that could delay or prevent new restaurant     
openings and does not, at this time, anticipate any.                            

     The Company is subject to a variety of federal and state laws that regulate
the sale of franchises and the franchise relationship. Generally, these laws and
regulations impose certain disclosure and registration requirements prior to the
sale and marketing of franchises. These laws and regulations have not had a     
material effect on the Company's franchise operations.                          

    The Company is subject to the Fair Labor Standards Act, which governs such
matters as minimum wages, overtime and other working conditions. Approximately  
53% of the Company's employees as of December 25, 1995 were paid at rates tied  
to the minimum wage. The Company is also subject to the Americans With          
Disabilities Act and various family leave mandates.                             

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TRADE AND SERVICE MARKS                                                         

  The Company owns a number of trade and service marks used in conjunction
with its business. The following trade and service marks are among those owned  
by the Company: Houlihan's(R), Darryl's(R), Charley's Place(SM), Phineas(SM), J.
Gilbert's(SM), The Buena Vista(R) and Braxton Seafood Grill & Chophouse(R). In  
addition, the Company is entitled to limited use of the service mark Bristol Bar
& Grill(SM) in the St. Louis and Kansas City areas and has obtained the use of  
the service mark Chequers Bar & Grill(SM) under license from Checkers of North  
America.                                                                        

The Company has registered with state and federal authorities and will
continue to register, or renew the registration of, those trade and service     
marks it deems important to the continued operation and recognition of its      
restaurant businesses. The Company regards its service marks and logos as       
important to the identification of its restaurants and believes they have       
significant value in the conduct of its business. The Company's policy is to    
utilize marks when appropriate, to pursue registration of its marks whenever    
possible and to vigorously oppose infringement activities that might diminish   
the value of its marks.                                                         

ITEM 2. PROPERTIES                                                              

     As of December 25, 1995, the Company owned the land and buildings on and in
which it operates 25 restaurants, owned the buildings and leased the land for   
three restaurants and leased 70 restaurants. The Company's restaurants are      
approximately 8,600 square feet on average, and they have been open an average  
of 10.5 years as of December 25, 1995. The Company's 25 owned properties consist
of three Houlihan's, 20 Darryl's and two Specialty Restaurants. Substantially   
all owned and leased properties are mortgaged as collateral under the Company's 
bank credit agreement (the "Bank Credit Agreement").                            

The leases for the Company's open and operating restaurants generally 
provide for an initial term from ten to twenty years and renewal options of five
to twenty-five years. The leases generally provide for payment of a fixed rental
and, in most cases, percentage rentals based on sales.                          

     The Company leases approximately 35,000 square feet in a building in Kansas
City, Missouri, which houses its corporate headquarters. The Company also leases
a facility in Kansas City, Missouri, which contains approximately 22,000 square 
feet, which is utilized to manufacture, refurbish, warehouse and distribute     
restaurant furnishings and decor items.                                         

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The following table sets forth the jurisdiction in which both the     
Company-owned restaurants and franchise restaurants are located and the number  
of restaurants in each as of December 25, 1995:                                 

                                                        [Enlarge/Download Table]

                                                    COMPANY-OWNED                                
                             -------------------------------------------------------   FRANCHISE 
                                                       SEAFOOD    SPECIALTY           -----------
                             HOULIHAN'S    DARRYL'S    GRILLS    RESTAURANTS   TOTAL  HOULIHAN'S 
                             ----------    --------    ------    -----------   -----  -----------
                                                                                                 
Alabama.......................                3                                   3              
Arizona.......................   3                                                3              
California....................   3                                    1           4              
Colorado......................   1                                                1        2     
Connecticut...................   1                                    1           2              
Florida.......................   2            3                                   5              
Georgia.......................   3                        1                       4              
Illinois......................   6                        1                       7              
Indiana.......................   1            1                                   2        1     
Kansas........................   1                                    1           2              
Kentucky......................                2                                   2              
Louisiana.....................   1                                                1              
Maryland......................   1                                    1           2              
Massachusetts.................   4                                                4              
Michigan......................   2                                                2              
Missouri......................   6            1           1                       8              
Nevada........................                                                    0        1     
New Jersey....................   7                                                7              
New York......................   3                                                3       10     
North Carolina................               11                                  11        1     
Ohio..........................   3                                                3        1     
Pennsylvania..................  10                                    1          11              
Tennessee.....................                3                                   3              
Texas.........................   1                                                1              
Virginia......................   1            4                       1           6              
Wisconsin.....................   1                                                1        1     
Puerto Rico...................                                                    0        1     
                                --           --          --          --          --       --     
                                61           28           3           6          98       18     
                                ==           ==          ==          ==          ==       ==     

ITEM 3. LEGAL PROCEEDINGS                                                       

    The Company is subject to various claims and pending legal actions arising
in the normal course of business. Management believes that the final disposition
of these claims and pending actions will not have a material adverse effect,    
individually or in the aggregate, on the business or the financial position of  
the Company.                                                                    

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                     

None.                                                                 

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PART II 

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS    

     The Company's common stock is traded on the over-the-counter ("OTC") market
under the symbol "HOUL" (formerly "HOPS"). There has been limited public trading
on the OTC of the Common Stock. Bid quotations reflect interdealer prices,      
without retail mark-up, mark-down or commission and may not necessarily         
represent actual transactions. The following table sets forth the quarterly high
and low bid quotations of the Common Stock, as reported by the OTC Bulletin     
Board.                                                                          

                                                                [Download Table]

                                                      HIGH        LOW  
                                                      -----      ----- 
                                                                       
Fiscal year ended December 25, 1995:                                   
  First Quarter....................................  $ 8 1/2     $6 1/2
  Second Quarter...................................    8 7/8      8 1/2
  Third Quarter....................................    8 7/8      7 1/8
  Fourth Quarter...................................    7 1/8      4 1/2

Fiscal year ended December 26, 1994:                                   
  First Quarter....................................  $11 1/4     $8 1/8
  Second Quarter...................................   11 1/4      9 3/4
  Third Quarter....................................   10          8    
  Fourth Quarter...................................   10 1/4      6 1/2

  As of December 25, 1995, there were less than 50 stockholders of record.

   Holders of Common Stock are entitled to receive dividends when, as and if
declared by the Company's Board of Directors out of funds legally available     
therefor. However, the ability of Houlihan's Restaurants, Inc., to declare and  
pay dividends to Houlihan's Restaurant Group, Inc. is restricted by the terms of
the Bank Credit Agreement to 35% of the cash flow in excess of certain amounts  
as set forth in the Bank Credit Agreement. As of December 25, 1995, the Company 
has not paid any dividends and does not anticipate the payment of cash dividends
in the foreseeable future.                                                      

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ITEM 6. SELECTED FINANCIAL DATA                                                 

    The following selected Statement of Income data and Balance Sheet data for
the periods indicated has been derived from the Consolidated Financial          
Statements of Houlihan's Restaurant Group, Inc. and Subsidiary. Such financial  
statements have been audited by Deloitte & Touche LLP, independent certified    
public accountants. The information below should be read in conjunction with    
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations" and the Consolidated Financial Statements of the Company and notes  
thereto included elsewhere in this Form 10-K.                                   

SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                        [Enlarge/Download Table]

                                                      FISCAL YEAR ENDED (A)(B)                             
                                   ----------------------------------------------------------------------- 
                                   DECEMBER 25,   DECEMBER 26,  DECEMBER 27,   DECEMBER 28,   DECEMBER 29, 
                                       1995           1994          1993           1992          1991      
                                   ------------   ------------  ------------  -------------   ------------ 
                                                                                                           
                                                                              (PREDECESSOR)   (PREDECESSOR)
STATEMENT OF INCOME DATA:                                                                                  
Net sales........................   $  267,622     $  259,367     $ 257,225     $266,532       $287,060    
Cost of sales, including                                                                                   
  operating expenses (exclusive                                                                            
  of depreciation and                                                                                      
  amortization shown                                                                                       
  separately)....................      222,375        215,562       208,532      228,926        245,580    
                                    -----------    -----------    ----------    --------       --------    
          Gross profit...........       45,247         43,805        48,693       37,606         41,480    
Depreciation and amortization....       14,865         16,245        19,610       18,428         19,829    
General and administrative                                                                                 
  expenses.......................       16,938         17,176        17,736       15,038         14,646    
Loss on disposition of                                                                                     
  properties, net................          605            847           624          601            587    
Interest expense.................        8,189          6,562         6,428       10,242(c)      24,637(c) 
Other (income), net..............       (3,531)        (2,883)       (2,700)      (3,606)        (3,712)   
Reorganization items and                                                                                   
  restructuring costs............           --             --            --        3,612         13,913    
Income tax provision (benefit)...        3,916          2,900         4,026       (1,173)        (6,206)   
                                    -----------    -----------    ----------    --------       --------    
  Income (loss) before                                                                                     
     extraordinary item..........        4,265          2,958         2,969       (5,536)       (22,214)   
Extraordinary gain on discharge                                                                            
  of prepetition liabilities.....           --             --            --       31,031             --    
                                    -----------    -----------    ----------    --------       --------    
          Net income (loss)......   $    4,265     $    2,958     $   2,969     $ 25,495       $(22,214)   
                                    ===========    ===========    ==========    ========       ========    
Earnings per common and common                                                                             
  equivalent share(d)............   $     0.43     $     0.30     $    0.30           --             --    
                                    ===========    ===========    ==========    ========       ========    
Weighted average common and                                                                                
  common equivalent shares(d)....   10,032,254     10,012,928     9,998,012           --             --    
                                    ===========    ===========    ==========    ========       ========    
BALANCE SHEET DATA:                                                                                        
Working capital surplus                                                                                    
  (deficit)......................   $  (15,494)    $  (12,270)    $  (9,220)    $ (8,947)      $  5,512    
Total assets.....................      191,016        192,508       204,235      197,301        235,627    
Total debt, including capitalized                                                                          
  leases.........................       83,981         89,553        99,997      103,276        202,033    
Stockholders' equity (deficit)...       70,192         65,927        62,969       60,000        (17,951)   
OTHER FINANCIAL DATA:                                                                                      
Capital expenditures.............   $   14,626     $   17,814     $  10,521     $  7,978       $  5,240    

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

(a) Unless otherwise indicated, references herein to years pertain to the       
  Company's 52- or 53- week fiscal years ending the last Monday in December.
All fiscal years presented were 52-week fiscal years.                   

(b) "Predecessor" refers to the Company prior to December 28, 1992.             

(c) From November 1991 to December 1992, interest expense attributable to senior
    subordinated notes was stayed resulting in a decrease in interest expense of
$11,767 for 1992 and $1,260 for 1991.                                   

(d) Earnings per common share for fiscal years 1992 and 1991 are not meaningful 
    due to reorganization and revaluation entries and the significant changes in
   the Company's capital structure upon its reorganization which was completed
December 28, 1992.                                                      

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 
OF OPERATIONS                                                   

GENERAL                                                                         

  The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto included elsewhere in   
this Form 10-K. The Company reports fiscal year results of operations based on  
52-or 53-week periods. The fiscal years ended December 25, 1995, December 26,   
1994 and December 27, 1993 were 52-week fiscal years and are referred to        
hereafter as 1995, 1994 and 1993, respectively.                                 

The following table sets forth, for the periods indicated, information
derived from the Consolidated Financial Statements of the Company (dollars in   
thousands). All percentages contained in the table below are percentages of net 
sales for the period indicated.                                                 

                                                        [Enlarge/Download Table]

                                              1995                1994                1993        
                                        ----------------    ----------------    ----------------  
                                         AMOUNT    PERCENT   AMOUNT    PERCENT   AMOUNT    PERCENT
                                        --------   -----    --------   -----    --------   -----  
                                                                                                  
Net sales.............................. $267,622   100.0%   $259,367   100.0%   $257,225   100.0% 
Cost of sales:                                                                                    
  Food and bar costs...................   78,363    29.3      76,329    29.4      74,832    29.1  
  Labor costs..........................   85,351    31.9      83,186    32.1      80,825    34.1  
  Operating expenses (exclusive of                                                                
     depreciation and amortization)....   58,661    21.9      56,047    21.6      52,875    20.6  
                                        --------   ------   --------   ------   --------   ------ 
          Total cost of sales..........  222,375    83.1     215,562    83.1     208,532    81.1  
                                        --------   ------   --------   ------   --------   ------ 
          Gross profit.................   45,247    16.9      43,805    16.9      48,693    18.9  
Depreciation and amortization..........   14,865     5.5      16,245     6.3      19,610     7.6  
General and administrative expenses....   16,938     6.3      17,176     6.6      17,736     6.9  
Loss on disposition of properties,                                                                
  net..................................      605     0.2         847     0.3         624     0.2  
Other (income), net....................   (3,531)   (1.3)     (2,883)   (1.1)     (2,700)   (1.0) 
Interest expense.......................    8,189     3.1       6,562     2.6       6,428     2.5  
Income tax provision...................    3,916     1.5       2,900     1.1       4,026     1.6  
                                        --------   ------   --------   ------   --------   ------ 
          Net income................... $  4,265     1.6%   $  2,958     1.1%   $  2,969     1.1% 
                                        ========   ======   ========   ======   ========   ====== 

FISCAL 1995 COMPARED WITH FISCAL 1994                                           

Net sales for 1995 increased $8,255,000, or 3.2%, to $267,622,000 from
$259,367,000 in 1994. The increase in net sales was due to sales of $17,780,000 
generated by five new restaurants and one conversion opened in 1995, four new   
restaurants opened in 1994 and three restaurants that were converted to         
Houlihan's from other concepts in 1994. The increase in sales was offset by a   
decrease in comparable restaurant sales of $2,899,000, or 1.2%, and a decrease  
of $6,626,000 due to the closing of two restaurants in 1995 and two in 1994.    

    "Comparable restaurants" are restaurants open throughout fiscal years 1994
and 1995. The increases (decreases) in comparable restaurant sales, by concept, 
from 1994 to 1995 were as follows:                                              

                                                                [Download Table]

                                       FOOD         BAR         TOTAL 
                                      ------       ------       ------
                                                                      
Houlihan's.........................    0.5 %       (4.0)%       (0.6)%
Darryl's...........................   (3.6)%       (3.7)%       (3.6)%
Seafood Grills.....................    6.1 %       (0.5)%        4.9 %
Specialty Restaurants..............   (0.3)%       (3.8)%       (1.5)%
          Total....................   (0.4)%       (3.8)%       (1.2)%

     The decrease in total comparable restaurant sales for the Company from 1994
to 1995 reflects a 0.4% decrease in food sales and a 3.8% decrease in sales of  
alcoholic beverages. The percentage of the Company's net sales generated by the 
sale of alcoholic beverages in 1995 remained consistent with 1994 at 23%. The   
Company has implemented several strategies to improve and/or maintain alcoholic 
beverage sales in                                                               

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consideration of a continuing industry-wide declining trend in customer drinking
habits. These strategies included offering several micro-brewery beer products, 
a new drink menu and various local promotions.                                  

     Cost of sales as a percentage of net sales remained consistent with 1994 at
83.1% Cost of sales are composed of three major items: food and bar costs, labor
costs and operating expenses.                                                   

   Combined food and bar costs were 29.3% and 29.4% of net sales in 1995 and
1994, respectively. The decrease was due to favorable poultry and dairy prices  
during 1995, as well as a menu price increase which became effective in the     
fourth quarter of 1995.                                                         

   Labor costs improved to 31.9% of sales in 1995 from 32.1% of net sales in
1994. The decrease was primarily due to the implementation of new labor         
scheduling systems in eleven of the Company's restaurants. The new systems rely 
on estimated guest counts based upon historical information to assist restaurant
management in scheduling employees in the most efficient manner possible. The   
new systems should be fully implemented in all of the Company's restaurants by  
the second quarter of 1996.                                                     

    Operating expenses as a percentage of net sales increased 0.3% to 21.9% in
1995 from 21.6% in 1994. The increase is due primarily to rent increases in     
several of the Company's restaurants. Approximately 71% of the Company's        
restaurants are leased. Additionally, paper goods and supplies increased due to 
new packaging for the "To Go" and delivery service sales, which increased in    
volume during 1995.                                                             

Depreciation and amortization expense decreased to $14,865,000 from   
$16,245,000 during the year due to an increased number of assets which are      
fully-depreciated. The decrease is also due, in part, to the closing of two     
restaurants during the first quarter of 1995.                                   

General and administrative expenses decreased $238,000, or 1.4%, to   
$16,938,000 in 1995 from $17,176,000 in 1994. The decrease is a result of cost  
savings associated with a staff and procedural restructuring in January 1995.   
The restructuring was undertaken to improve the efficiency and productivity of  
the overhead and support areas of the Company. The savings were partially offset
by approximately $600,000 of expenses associated with a registration statement  
that was withdrawn by the Company during 1995 due to unfavorable developments in
the high-yield financing market.                                                

Other income increased to $3,531,000 in 1995 from $2,883,000 in 1994  
primarily due to a 47% increase in franchise income as a result of an increase  
in royalty income and the recognition of franchise fees associated with opening 
seven new franchise restaurants during 1995.                                    

   Interest expense for 1995 increased to $8,189,000 from $6,562,000 in 1994
due to higher interest rates related to the Company's bank debt during 1995. The
weighted average interest rate related to the Company's bank debt was 8.5% for  
1995 as compared to 7.0% for 1994. Also, additional interest expense was        
incurred related to the $7,000,000 the Company borrowed on its Revolving Credit 
Facility during the year, of which all but $1,000,000 was repaid by year end.   

The effective income tax rate was 48% for 1995 and 50% for 1994. The  
decrease in the effective rate is due primarily to the increase in pre-tax book 
income of $2,323,000.                                                           

Net income increased $1,307,000 to $4,265,000, or 1.6% of sales, from 
$2,958,000, or 1.1% of sales, in 1994 primarily due to increased sales and      
stable cost of sales. Earnings per common and common equivalent share increased 
to $0.43 in 1995 from $0.30 due to the factors discussed above.                 

FISCAL 1994 COMPARED WITH FISCAL 1993                                           

Net sales for 1994 increased $2,142,000, or 0.8%, to $259,367,000 from
$257,225,000 in 1993. The increase in net sales was due to sales of $6,188,000  
generated by four new restaurants opened in 1994, one new restaurant opened in  
1993 and three restaurants that were converted to Houlihan's from other concepts
in 1994. The increase in sales was offset by a decrease in comparable restaurant
sales of $326,000, or 0.1%, and a decrease of $3,720,000 due to the closing of  
two restaurants in 1994 and one in 1993.                                        

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    "Comparable restaurants" are restaurants open throughout fiscal years 1993
and 1994. The increases (decreases) in comparable restaurant sales, by concept, 
from 1993 to 1994 were as follows:                                              

                                                                [Download Table]

                                           FOOD       BAR       TOTAL 
                                          ------     ------     ------
                                                                      
Houlihan's.............................    1.5 %     (1.7)%      0.6 %
Darryl's...............................   (3.9)%     (2.2)%     (3.7)%
Seafood Grills.........................    7.5 %      3.9 %      6.8 %
Specialty Restaurants..................    2.5 %      2.1 %      2.4 %
Total..................................    0.2 %     (1.3)%     (0.1)%

     The decrease in total comparable restaurant sales for the Company from 1993
to 1994 reflects a 0.2% increase in food sales and a 1.3% decrease in sales of  
alcoholic beverages at comparable restaurants. The percentage of the Company's  
net sales generated by the sale of alcoholic beverages decreased from 23.6% in  
1993 to 23.3% in 1994, which is believed to be the result of a continuing       
industry-wide trend in customer drinking habits. During 1994, the Company       
implemented several strategies to diminish the effect of the trend of decreasing
alcoholic beverage sales. These strategies included offering several            
micro-brewery beer products, a new drink menu and various local promotions. As a
result, the decrease in the sales of alcoholic beverages slowed to 1.3% in 1994 
compared to a decrease of 5.2% in 1993 and 8.4% in 1992. The Company believes   
that its ongoing implementation of new promotional strategies will continue to  
diminish the effect of the general trend of declining alcoholic beverage sales. 

 Cost of sales as a percentage of net sales increased 2.0% from 81.1% in
1993 to 83.1% in 1994. Cost of sales are composed of three major items: food and
bar costs, labor costs and operating expenses.                                  

   Combined food and bar costs were 29.1% and 29.4% of net sales in 1993 and
1994, respectively. The increase in food and bar costs as a percentage of net   
sales was due primarily to an increase in food costs resulting from a new "value
oriented" Darryl's menu implemented in April 1994, the costs associated with a  
system-wide roll out of a new Houlihan's menu, the increased use of certain     
products purchased from outside suppliers rather than prepared on the restaurant
premises, as well as increases in the prices of certain grocery items.          

Labor costs were 31.4% and 32.1% of net sales in 1993 and 1994,       
respectively. The increase is partially due to the initial costs of introducing 
new service programs in the first quarter of 1994 in both the Houlihan's and    
Darryl's concepts which were designed to enhance service to accommodate the     
individual needs of the guests. In addition, as the percentage of net sales     
generated by the sale of alcoholic beverages continues to decline, labor costs  
as a percentage of net sales have increased due to the relatively fixed nature  
of labor costs associated with sales of alcoholic beverages.                    

   Operating expenses as a percentage of net sales increased 1.0% from 20.6%
in 1993 to 21.6% in 1994. The increase is due primarily to an increase in       
pre-opening expense of $1,152,000 from $116,000 in 1993 to $1,268,000 in 1994   
associated with opening four new restaurants and three restaurants that were    
converted from other concepts. The increase is also due to an increase in       
laundry and cleaning expenses caused by the change to outside laundering for    
linens in all of the Company's restaurants.                                     

Depreciation and amortization expense decreased by $3,365,000 from    
$19,610,000 in 1993 to $16,245,000 in 1994. The decrease is due, in part, to the
closing of two restaurants and the conversion of three restaurants during 1994. 

    General and administrative expenses decreased by $560,000 from $17,736,000
in 1993 to $17,176,000 in 1994. As a percentage of net sales, general and       
administrative expenses decreased from 6.9% in 1993 to 6.6% in 1994. The        
decrease in the amount of general and administrative expenses is due, in part,  
to the reduction in the bonus expense for corporate management and the increase 
in the allocation of corporate development costs as a result of the increase in 
new restaurant openings from 1993 to 1994.                                      

Interest expense increased by $134,000 from $6,428,000 in 1993 to     
$6,562,000 in 1994 due to higher interest rates related to the Company's bank   
debt during 1994. The weighted average interest rate related to                 

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the Company's bank debt was 5.3% for 1993 as compared to 7.0% for 1994. The     
Company reduced its bank debt in 1994 by $10,222,000.                           

The effective income tax rate was 58% for 1993 and 50% for 1994. The  
decrease in the effective rate is due primarily to the recognition of the FICA  
tax credit that was introduced for tax years after 1993.                        

    Net income decreased by $11,000 from $2,969,000 for 1993 to $2,958,000 for
1994 due primarily to the factors discussed above.                              

LIQUIDITY AND CAPITAL RESOURCES                                                 

At December 25, 1995, the Company had cash and cash equivalents of    
$10,314,000. The Company's working capital deficit increased to $15,494,000 in  
1995 from $12,270,000 in 1994. Cash flow from new and existing restaurants,     
proceeds from new loans and proceeds from the disposition of properties         
generated cash proceeds that were offset by capital expenditures and payments on
long-term debt. The Company historically has relied principally upon internally 
generated funds to finance its restaurant expansion and to fund working capital 
expenditures and has operated with working capital deficiencies. The Company's  
ability to operate with working capital deficiencies is due to the nature of the
restaurant business, which does not require significant investments in accounts 
receivable or inventories and which generally allows the procurement of food and
supplies on trade credit.                                                       

     At December 25, 1995, the Company had $14,073,000 available to it under its
$20,000,000 revolving credit facility (reduced by $4,927,000 of outstanding     
standby letters of credit and a $1,000,000 loan) provided pursuant to the Bank  
Credit Agreement. The Bank Credit Agreement requires semi-annual payments of    
$5,500,000 in March and September 1996, increasing over time to $6,750,000, with
the balance due at maturity on September 30, 1999. By means of an interest rate 
cap, the Company has effectively protected itself against increases in LIBOR    
above 10% on a notional amount of $30,000,000 of its indebtedness through March 
1997.                                                                           

The Company's capital expenditures (excluding capital leases) totaled 
$14,626,000, $17,814,000 and $10,521,000 in 1995, 1994 and 1993, respectively.  
Subject to restrictions on capital expenditures contained in the Bank Credit    
Agreement, the Company expects to incur capital expenditures in 1996 of         
approximately $14,000,000 in connection with opening five new restaurants in    
1996, for normal restaurant renovations and replacements and for the continuing 
installation of new management information systems in the Company's restaurants.

The Company intends to continue to operate with working capital       
deficiencies and to rely upon internally generated funds to finance its         
restaurant operations and to fund working capital expenditures, including its   
expansion plans. Management believes that cash on hand, funds to be generated   
internally from operations and the use of working capital changes, lease        
financing and funds available to the Company under its revolving credit facility
will be adequate to meet the Company's debt service and capital expenditure     
requirements for the foreseeable future.                                        

SEASONALITY                                                                     

The Company's sales generally are not subject to seasonality, although
sales are generally slightly higher during the fourth quarter, and slightly     
lower during the first quarter, due to weather and the dining habits of the     
Company's guests.                                                               

IMPACT OF INFLATION                                                             

In the past, the Company has been able to recover inflationary cost   
increases through increased food and beverage menu prices. There have been, and 
there may be in the future, delays in implementing such menu price increases,   
and competitive pressures may limit the Company's ability to recover such cost  
increases in their entirety. Historically, the effects of inflation on the      
Company's net income have not been materially adverse.                          

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                             

See the Index to Financial Statements on Page F-1.                    

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND         
FINANCIAL DISCLOSURE                                            

None.                                                                 

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                     

   The following table sets forth the name, age, and position of each person
who is a director or officer of the Company. Officers are elected for one-year  
terms and serve at the pleasure of the Board. Each director will serve until his
successor is elected and qualified.                                             

                                                                [Download Table]

            NAME                 AGE                    POSITION                
-----------------------------    ---    ----------------------------------------
                                                                                
Malcolm I. Glazer............    67     Chairman of the Board of Directors      
Avram A. Glazer..............    35     Director                                
Kevin E. Glazer..............    33     Director                                
Bryan G. Glazer..............    31     Director                                
Joel M. Glazer...............    28     Director                                
Warren H. Gfeller............    43     Director                                
Frederick R. Hipp............    45     President, Chief Executive Officer and  
                                          Director                              
William W. Moreton...........    35     Executive Vice President/Chief Financial
                                          Officer, Treasurer and Secretary      
Henry C. Miller..............    41     Senior Vice President/Houlihan's and    
                                          Dinnerhouses                          
Andrew C. Gunkler............    43     Senior Vice President/Franchising       
Mark T. Walker...............    38     Vice President/Construction and Design  
James W. Kaiser..............    45     Vice President/Purchasing and Facilities
Marc L. Kuemmerlein..........    41     Vice President/General Counsel          
Kenneth C. Vetter............    44     Vice President/Darryl's (appointed      
                                          January 1996)                         

   Malcolm I. Glazer has been the Chairman of the Board of the Company since
September 16, 1992. Malcolm Glazer has been President and Chief Executive       
Officer of the First Allied Corporation since 1984. Mr. Glazer's diversified    
portfolio consists of investments in television broadcasting, health care,      
banking, natural gas services, real estate and food service equipment. He is    
Chairman of the Board of Directors of Zapata Corporation, a natural gas company,
a director of Specialty Equipment Companies, Inc., a domestic manufacturer of   
food service equipment, a director of Envirodyne Industries, Inc., a producer of
food packaging and food service supplies and a director of Buccaneers Limited   
Partnership, the entity that owns the Tampa Bay Buccaneer National Football     
League franchise.                                                               

Avram A. Glazer has been a director of the Company since September 16,
1992. Avram Glazer has been Vice President of the First Allied Corporation since
1985. Avram Glazer also serves as Chief Executive Officer and a director of     
Zapata Corporation. He is also a member of the Board of Directors of Specialty  
Equipment Companies, Inc. and Envirodyne Industries, Inc. Avram Glazer is the   
son of Malcolm Glazer.                                                          

Kevin E. Glazer has been a director of the Company since September 16,
1992. Kevin Glazer has been Vice President of the First Allied Corporation since
1986. He is also a member of the Board of Directors of Specialty Equipment      
Companies, Inc. Kevin Glazer is the son of Malcolm Glazer.                      

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Bryan G. Glazer has been a director of the Company since September 16,
1992. Bryan Glazer has been Vice President of the First Allied Corporation since
1989 and is a director of the Buccaneers Limited                                
Partnership. Bryan Glazer is the son of Malcolm Glazer.                         

     Joel M. Glazer has been a director of the Company since September 16, 1992.
Joel Glazer has been Vice President of the First Allied Corporation since 1989  
and is a director of the Buccaneers Limited Partnership. Joel Glazer is the son 
of Malcolm Glazer.                                                              

  Warren H. Gfeller has been a director of the Company since September 16,
1992. Mr. Gfeller is the owner of Clayton-Hamilton Equities and was the         
President, Chief Executive Officer and a director of Ferrellgas, Inc. in        
Liberty, Missouri from 1983 through 1991. He is also a director of Synergy Gas  
Corp., the Kansas Wildscape Foundation, House Specialties Corporation, Gardner  
Bancshares, Inc., and Stranger Valley Land Company.                             

  Frederick R. Hipp has been the President, Chief Executive Officer, and a
director of the Company since August 1988. He served as President/Casual Dining 
Division of the Company from June 1985 to August 1988 and as Executive Vice     
President of the Company from May 1980 to June 1985. Prior to joining the       
Company, Mr. Hipp served as President of Restaurant Data Systems, Inc. from 1978
to 1980 and served in a number of operations and support positions with the     
Steak & Ale Corporation from 1973 to 1978.                                      

William W. Moreton joined the Company in October 1992 as the Vice     
President, Chief Financial Officer, Treasurer and Secretary and was promoted to 
Executive Vice President in April 1993. Prior to this position, Mr. Moreton     
served as Vice President-Head of Special Asset Management-U.S. for Credit       
Agricole-CNCA from April 1989 to October 1992. Prior to that he was with Arthur 
Andersen & Co. from July 1982 to April 1989 where he served as a Manager in the 
Audit and Financial Consulting Division.                                        

    Henry C. Miller has been Senior Vice President/Houlihan's and Dinnerhouses
since October 22, 1993. He served as Vice President/Operations and General      
Manager -- Houlihan's and Dinnerhouses from April to October 1993. He served as 
Vice President/Operations -- Houlihan's and Dinnerhouses from August 1988 to    
April 1993 and served as Vice President/Operations -- Houlihan's from October   
1985 to August 1988. He served as Director/Franchise Operations from October    
1984 to October 1985 and served in the capacity of Area Director from May 1982  
to October 1984. Prior to May 1982, Mr. Miller served in a variety of restaurant
operations positions.                                                           

    Andrew C. Gunkler was elected Senior Vice President/Franchising in January
1996. He served as Vice President/Franchising from February 1994 to December    
1995. Prior to joining the Company in 1994, he served as Vice President of      
Franchising for East Side Mario's from October 1992 to December 1993 and as     
Director of Franchise Development for Perkins Family Restaurants from October   
1985 to October 1992.                                                           

Mark T. Walker has been Vice President/Construction and Design since  
October 1991. He served as Director of Facilities from October 1987 to October  
1991 and as Manager of Construction from September 1985 until October 1987.     
Prior to holding these positions, Mr. Walker served as a regional facilities    
manager with Montgomery Ward from September 1983 until September 1985.          

 James W. Kaiser was elected Vice President/Purchasing and Facilities in
February 1995. He served as Director/Purchasing from October 1988 to September  
1994. Prior to joining the Company he served as Director of Purchasing for      
ChiChi's Mexican Restaurants.                                                   

    Marc L. Kuemmerlein was elected Vice President/General Counsel in December
1995. He served as General Counsel from January 1993 to December 1995 and as    
Corporate Counsel from July 1990 to January 1993. Prior to joining the Company, 
Mr. Kuemmerlein practiced general corporate and real estate law with the firm   
Smith, Gill, Fisher & Butts, which merged with Bryan Cave LLP in July 1995.     

     Kenneth C. Vetter was appointed Vice President/Darryl's in January 1996. He
served as a Darryl's Area Director from December 1977 to January 1996. Mr.      
Vetter served as a General Manager in Darryl's restaurant operations from       
December 1975 to December 1977. Prior to December 1975, he served in a variety  
of restaurant operations positions.                                             

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ITEM 11. EXECUTIVE COMPENSATION                                                 

The following table sets forth certain information concerning the     
compensation of the Company's Chief Executive Officer and the other four most   
highly compensated executive officers of the Company in 1995.                   

SUMMARY COMPENSATION TABLE

                                                        [Enlarge/Download Table]

                                                                          LONG-TERM               
                                                                        COMPENSATION      ALL     
                                                ANNUAL COMPENSATION        AWARDS        OTHER    
                                               ------------------------  -----------  COMPENSATION
      NAME AND PRINCIPAL POSITION        YEAR  SALARY ($)  BONUS ($)(A)  OPTIONS (#)    ($) (B)   
---------------------------------------  ----  ----------  ------------  -----------   -----------
                                                                                                  
Frederick R. Hipp......................  1995   370,055       74,011       50,000       24,953    
  President and Chief Executive Officer  1994   362,024           --      250,000       28,223    
                                         1993   362,024      325,387           --       33,195    

William W. Moreton.....................  1995   170,683       68,273       16,000        5,651    
  Executive Vice President/              1994   159,192           --       74,000        6,932    
  Chief Financial Officer                1993   147,884      118,130           --          270    

Henry C. Miller........................  1995   155,019       62,008       14,000        5,339    
  Senior Vice President/                 1994   146,269           --       68,000        6,932    
  Houlihan's and Dinnerhouses            1993   135,769      108,452           --        4,168    

Andrew C. Gunkler......................  1995   105,481       83,547           --          474    
  Senior Vice President/Franchising      1994    97,385       50,300       32,000          274    
                                         1993        --           --           --           --    

Mark T. Walker.........................  1995    99,827       14,974           --        2,776    
  Vice President/Construction and        1994    90,798           --       31,000        3,869    
     Design                                                                                       
                                         1993    85,923       68,635           --        3,792    

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

(a) Reflects bonus amounts earned in each year as provided under the annual     
incentive plan, employment agreements and letter agreements with the    
executive officers discussed below.                                     

(b) Includes Company contributions to the retirement savings plan, group term   
life insurance premiums and disability insurance premiums.              

     The named executive officers received automobile allowances, reimbursements
of automobile expenses, moving expenses and/or reimbursements for financial     
planning services. Such other compensation did not exceed in the aggregate the  
lesser of $50,000 or 10% of the total of annual salary and bonus reported for   
such officers.                                                                  

  The following table sets forth certain information concerning options to
purchase the Company's Common Stock granted in 1995 to the five individuals     
named in the Summary Compensation Table.                                        

OPTION GRANTS IN LAST FISCAL YEAR 

                                                        [Enlarge/Download Table]

                             INDIVIDUAL GRANTS                                              POTENTIAL REALIZABLE VALUE    
-----------------------------------------------------------------------------------------    AT ASSUMED ANNUAL RATES      
                                          % OF TOTAL                                              OF STOCK PRICE          
                                           OPTIONS                                               APPRECIATION FOR         
                                          GRANTED TO       EXERCISE                                OPTION TERM            
                            OPTIONS      EMPLOYEES IN        PRICE           EXPIRATION    -------------------------------
           NAME             GRANTED      FISCAL YEAR       PER SHARE            DATE            5%                10%     
           ----             -------      -------------     ---------       --------------  -------------     -------------
                                                                                                                          
Frederick R. Hipp..........  50,000          30.4%           $5.875        Oct. 26, 2005     $   184,800       $   468,200
William W. Moreton.........  16,000           9.7%           $5.875        Oct. 26, 2005          59,100           149,800
Henry C. Miller............  14,000           8.5%           $5.875        Oct. 26, 2005          51,700           131,100
Andrew C. Gunkler..........    --             --               --                --                   --                --
Mark T. Walker.............    --             --               --                --                   --                --

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 As of December 25, 1995, the options were not exercisable and the stock
price was below the exercise price.                                             

  The Certificate of Incorporation states that the seven member board will
serve concurrent terms of one year. All directors who are not full-time         
employees of the Company receive fees of $10,000 per annum and $500 per meeting 
and are eligible to receive stock options pursuant to the Company's option plan 
for outside directors. See "Benefit Plans and Arrangements."                    

In December 1992, the Board of Directors established the Compensation 
Committee composed of Messrs. Malcolm Glazer and Warren Gfeller. The duties of  
the Compensation Committee are to review remuneration for corporate officers and
to make recommendations to the Board of Directors regarding changes in          
compensation. The Committee's objectives are to establish compensation programs 
designed to attract, retain and reward executives who will lead the Company in  
achieving its business goals in a highly competitive industry and to ensure that
management compensation is reasonable in light of the Company's objectives,     
compensation for similar personnel in other companies and other relevant        
criteria.                                                                       

     The Company's present compensation program consists of an annual component,
which includes base salary plus an annual incentive bonus, and a long-term      
component consisting of stock options. During 1995, the Compensation Committee  
met informally and after considering the report of external consultants, the    
Committee recommended increases in executive salaries for 1995. The increases   
were believed to be competitive with similar personnel in other companies within
the industry.                                                                   

EMPLOYMENT AGREEMENTS                                                           

  On March 23, 1989, the Company entered into an employment agreement with
Frederick R. Hipp. The agreement, as amended on August 5, 1991, provides for a  
minimum base annual salary of $362,000 subject to adjustment, for severance     
payments under certain circumstances, and permits Mr. Hipp to receive bonuses.  
Mr. Hipp's employment agreement also provides other fringe benefits including   
(i) additional term life insurance equal to 5.5 times base salary, (ii)         
additional long-term disability coverage which, when combined with the Company's
standard long-term disability insurance, equals 60% of base salary paid out     
annually to age 65, (iii) an automobile allowance plus related operating and    
maintenance expenses, and (iv) financial and estate planning and associated     
legal expenses. Additionally, pursuant to the agreement, the Company must       
indemnify Mr. Hipp, if, among other things, he becomes a party to a legal action
or lawsuit arising in connection with the proper exercise of his duties. The    
agreement was further amended on February 11, 1992 to provide for a severance   
payment if his employment is terminated upon a change of control of the Company 
in an amount equal to 2.99 times Mr. Hipp's average annual compensation for the 
previous five years. This amount would equal $954,000 as of December 25, 1995.  

   On August 5, 1991, the Company entered into a letter agreement with Henry
C. Miller which, as amended, provides for the payment of severance payments if  
Mr. Miller's employment is terminated under certain change of control           
circumstances in an amount equal to 2.99 times Mr. Miller's average annual      
compensation for the previous five years, or $407,000 as of December 25, 1995. A
"change of control" as defined in the agreements with respect to Messrs. Hipp   
and Miller, occurred on December 28, 1992. In March 1993, the Company entered   
into agreements with Messrs. Moreton and Walker providing for severance payments
of 2.99 times the executive's average annual compensation for the previous five 
years if their employment is terminated under certain change of control         
circumstances. Such amounts would aggregate to $891,000 as of December 25, 1995.

    In all of the above agreements, there is no limitation with respect to the
passage of time between the change of control and the termination of the        
employee. Such individuals are not entitled to a severance payment in the event 
of a termination of employment resulting from (a) death or retirement, (b)      
termination by the Company for "cause", or termination by the employee for a    
reason other than a "good reason". A "good reason" is defined to include an     
assignment of duties materially inconsistent with such individual's status as a 
senior executive officer, a reduction in annual salary, a transfer of the       
employee to a location more than 50 miles from the current corporate office     
location, a failure of the Company to pay an installment of a previous bonus    
award, the failure of the Company to maintain the individual's current level of 
employment                                                                      

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benefits, or the failure of the Company to obtain a satisfactory employment     
agreement for the individual from a successor company. The agreements do not    
have an expiration date.                                                        

BENEFIT PLANS AND ARRANGEMENTS                                                  

     Annual Incentive Plan. The Company maintains an annual incentive plan which
includes executive officers and other key employees of the Company. Under the   
plan, participants generally are eligible to receive cash bonuses based on the  
Company's earnings before interest, taxes, depreciation and amortization.       

    Retirement Savings Plans. The Company has two retirement savings plans for
its employees, a trusted plan under Section 401(k) of the Internal Revenue Code 
("RSP I"), and an untrusted deferred compensation plan ("RSP II"). RSP I covers 
employees of the Company whose total annual compensation is less than $66,000,  
as adjusted pursuant to Internal Revenue Code Section 415(d), and who have      
completed at least one year of employment. Participants are able to reduce their
taxable salary compensation by a specified percentage and receive a 50% matching
contribution by the Company of up to 3% of the individual participant's         
qualified compensation as defined in the plan. RSP II covers employees of the   
Company whose total annual compensation is $66,000 or more and matches the      
provisions of RSP I, except for certain exceptions. RSP II is unfunded, and all 
salary reduction contributions and the Company's contributions remain a part of 
the Company's general assets. RSP II permits eligible employees to contribute 1%
to 15% of their base salary plus bonus.                                         

    Stock Option Plans. The Company maintains two stock option plans, one plan
for outside directors ("Option Plan I") and one plan for executives and certain 
key employees ("Option Plan II"), providing for the issuance of options to      
purchase 540,000 and 750,000 shares, respectively. Options for 360,000 and      
653,600 shares were issued and outstanding as of December 25, 1995 under Option 
Plans I and II, respectively. The Board of Directors determines the option price
based upon the estimated market value of the Company's Common Stock at the date 
of grant based on the price of the shares as traded in the over-the-counter     
market. The options generally vest over a four-year period from the date of     
grant and are exercisable over the period stated in each option. Option Plan I  
provides for the issuance of up to 30,000 shares to each outside director per   
year to the extent the options are available under the plan.                    

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT         

The following table sets forth information with respect to beneficial 
ownership of shares of the Company's Common Stock as of December 25, 1995 by    
each beneficial owner of more than five percent of the Company's Common Stock,  
each director, each executive officer named in the Summary Compensation Table   
and all directors and officers of the Company as a group.                       

                                                        [Enlarge/Download Table]

                                                          PERCENTAGE       PERCENTAGE   
                                               NUMBER        OF               OF        
                                                 OF        SHARES           FULLY       
                                               SHARES        OF             DILUTED     
                                                 OF        COMMON           SHARES      
                                               COMMON       STOCK             OF        
           NAME OF STOCKHOLDER(A)              STOCK     OUTSTANDING(B)  COMMON STOCK(C)
           ----------------------             --------   --------------  ---------------
                                                                                        
Glazer Group(d).............................. 7,325,815      73.27%           72.92%    
  1482 S. Ocean Blvd.                                                                   
  Palm Beach, FL 33480                                                                  
Merrill Lynch & Co., Inc.(e)................. 1,154,769      11.55            11.50     
  World Financial Center, N. Tower                                                      
  250 Vesey Street                                                                      
  New York, NY 10281                                                                    
Euram Management, Inc. ......................   502,596       5.03             5.00     
  One EAB Plaza                                                                         
  Uniondale, NY 11555                                                                   
Warren H. Gfeller............................    --           --               --       
Frederick R. Hipp(f).........................    56,129        *                *       
William W. Moreton(f)........................    --           --               --       
Henry C. Miller(f)...........................    --           --               --       
Andrew C. Gunkler(f).........................    --           --               --       
Mark T. Walker(f)............................     1,000        *                *       
All directors and officers as a group........ 7,212,042      72.13            71.79     
                                              ---------      -----            -----     

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

* Less than 1% of outstanding Common Stock.                                 

(a)  Because the Company is not subject to the provisions of Section 13(d) of   
    the Securities Act of 1934, as amended, the Company is unable to ascertain
beneficial ownership based upon statements filed with the Commission  
     pursuant to Sections 13(d) of 13(g) of the Securities Exchange Act of 1934,
as amended.                                                           

(b)  Based on 9,998,012 shares of Common Stock outstanding.                     

(c)  Assumes the exercise of 47,710 warrants outstanding at an exercise price of
$37.92.                                                               

(d)  Includes Malcolm I. Glazer, Chairman of the Board of Directors, and his    
     sons, Avram A. Glazer, Kevin E. Glazer, Bryan G. Glazer and Joel M. Glazer,
    each a director. See "Directors and Executive Officers of the Registrant."

(e)  Based on information contained in a Schedule 13G dated as of January 18,   
1996.                                                                 

(f)  Excludes 300,000, 90,000, 82,000, 32,000 and 31,000 shares of Common Stock 
  subject to outstanding options granted to Messrs. Hipp, Moreton, Miller,
   Gunkler and Walker, respectively, none of which are exercisable within 60
days of the date of this Form 10-K.                                   

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                         

On January 11, 1995, the Company entered into an option agreement with
First Allied Tampa which granted the Company the exclusive right to operate a   
casual dining restaurant in the existing Tampa Bay Buccaneer Football Stadium or
in a new Tampa Bay Stadium, if built. First Allied Tampa is wholly owned by the 
Glazer Group, owners of 73% of the Company's stock on a fully diluted basis.    
After performing due diligence, the Company and First Allied Tampa mutually     
agreed to terminate the option on February 6, 1995. Full return of all          
consideration paid under the agreement occurred on April 28, 1995.              

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On October 13, 1995, the Company entered into an Advertising and      
Sponsorship Agreement (the "Agreement") with the Buccaneers Limited Partnership 
for the exclusive naming rights to the Tampa Bay Buccaneer Football Stadium (the
"Stadium"). The Buccaneers Limited Partnership is 100% controlled by the Glazer 
Group. The Agreement provides the Company with the right to name the Stadium    
"Houlihan's Stadium". Additionally, it provides the Company with advertising    
rights inside the Stadium and in Tampa Bay Buccaneer programs and brochures. The
Agreement is for a ten-year period at a total cost of $10,000,000. The payment  
terms are $2,000,000 per year for the first five years of the Agreement. The    
Company made the first payment under the Agreement on December 5, 1995. If the  
Tampa Bay Buccaneers move to a new stadium and the Buccaneers Limited           
Partnership retains the naming rights, the Agreement will continue. If the      
Buccaneers Limited Partnership loses the naming rights, the Agreement will be   
terminated and the monies paid by the Company for future years will be refunded.

PART IV 

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K                 

(a) Financial Statements                                              

       The financial statements are listed in the accompanying "Index to
Financial Statements" on page F-1.                        

Exhibits                                                        

         The exhibits filed with or incorporated by reference in this report
are listed on the Exhibit Index beginning on page E-1.    

(b) Reports on Form 8-K                                               

      No reports on Form 8-K were filed during the last quarter of the
period covered by this Report.                                                  

 SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES    
PURSUANT TO SECTION 12 OF THE ACT                                               

     No annual report or proxy statement was sent to security holders during the
fiscal year ended December 25, 1995.                                            

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SIGNATURES

   PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES ACT
OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF  
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.                                  

                                     HOULIHAN'S RESTAURANT GROUP, INC.

Date: March 6, 1996                       By:   /s/  WILLIAM W. MORETON         
                                            ----------------------------------
                                            William W. Moreton
                                            Executive Vice President and
                                           Chief Financial Officer

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES 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.                                      

                                                        [Enlarge/Download Table]

                 SIGNATURE                              TITLE                   DATE      
------------------------------------------  ---------------------------     ------------- 
                                                                                          
By:      /s/ FREDERICK R. HIPP              President, Chief Executive      March 6, 1996 
------------------------------------------    Officer and Director                        
             Frederick R. Hipp                (principal executive                        
                                              officer)                                    

By:      /s/ WILLIAM W. MORETON             Executive Vice President/Chief  March, 6, 1996
------------------------------------------    Financial Officer (principal                
             William W. Moreton               financial and accounting                    
                                              officer)                                    

By:       /s/ MALCOLM I. GLAZER             Chairman and Director           March 6, 1996 
------------------------------------------                                                
              Malcolm I. Glazer                                                           

By:        /s/ AVRAM A. GLAZER              Director                        March 6, 1996 
------------------------------------------                                                
               Avram A. Glazer                                                            

By:        /s/ KEVIN E. GLAZER              Director                        March 6, 1996 
------------------------------------------                                                
               Kevin E. Glazer                                                            

By:        /s/ BRYAN G. GLAZER              Director                        March 6, 1996 
------------------------------------------                                                
               Bryan G. Glazer                                                            

By:        /s/ JOEL M. GLAZER               Director                        March 6, 1996 
------------------------------------------                                                
               Joel M. Glazer                                                             

By:       /s/ WARREN H. GFELLER             Director                        March 6, 1996 
------------------------------------------                                                
              Warren H. Gfeller                                                           

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HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS 

                                                        [Enlarge/Download Table]

                                                                                       PAGE
                                                                                       --- 
                                                                                           
Independent Auditors' Report.......................................................... F-2 
Consolidated Balance Sheets as of December 25, 1995 and December 26, 1994............. F-3 
Consolidated Statements of Income for the fiscal years ended December 25, 1995,            
  December 26, 1994 and December 27, 1993............................................. F-4 
Consolidated Statements of Stockholders' Equity for the fiscal years ended December        
  25, 1995, December 26, 1994 and December 27, 1993................................... F-5 
Consolidated Statements of Cash Flows for the fiscal years ended December 25, 1995,        
  December 26, 1994 and December 27, 1993............................................. F-6 
Notes to Consolidated Financial Statements............................................ F-8 

All schedules are omitted as the required information is not present in amounts 
sufficient to require submission of the schedule, or because the required       
information is included in the consolidated financial statements or the notes   
thereto.                                                                        

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INDEPENDENT AUDITORS' REPORT

To Houlihan's Restaurant Group, Inc.:                                           

    We have audited the accompanying consolidated balance sheets of Houlihan's
Restaurant Group, Inc. and subsidiary (the "Company") as of December 25, 1995   
and December 26, 1994 and the related consolidated statements of income,        
stockholders' equity and cash flows for the fiscal years ended December 25,     
1995, December 26, 1994 and December 27, 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 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Houlihan's  
Restaurant Group, Inc. and subsidiary as of December 25, 1995 and December 26,  
1994, and the results of their operations and their cash flows for the fiscal   
years ended December 25, 1995, December 26, 1994 and December 27, 1993 in       
conformity with generally accepted accounting principles.                       

DELOITTE & TOUCHE LLP                                                           
Kansas City, Missouri                                                           
March 6, 1996                                                                   

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HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                        [Enlarge/Download Table]

                                                                      DECEMBER  DECEMBER
                                                                        25,       26,   
                                                                        1995      1994  
                                                                      --------  --------
                                                                                        
                               ASSETS                                                   
Current assets:                                                                         
  Cash and cash equivalents.......................................... $ 10,314  $ 10,310
  Receivables........................................................    1,661     1,515
  Inventories........................................................    2,276     2,446
  Other current assets...............................................    2,918     2,451
  Deferred income taxes..............................................    1,401     1,413
                                                                      --------  --------
          Total current assets.......................................   18,570    18,135
Property, equipment and leaseholds, net..............................  104,521   102,843
Reorganization value in excess of amounts allocable to identifiable                     
  assets, net........................................................   62,108    65,759
Deferred debt issuance costs, net....................................      330       440
Other assets, net....................................................    5,487     5,331
                                                                      --------  --------
                                                                      $191,016  $192,508
                                                                      ========  ========
                LIABILITIES AND STOCKHOLDERS' EQUITY                                    
Current liabilities:                                                                    
  Current portion of long-term debt and capitalized lease                               
     obligations..................................................... $ 11,202  $  6,177
  Accounts payable...................................................    8,811    10,050
  Accrued interest...................................................      676     1,652
  Accrued liabilities................................................   13,375    12,526
                                                                      --------  --------
          Total current liabilities..................................   34,064    30,405
Long-term debt and capitalized lease obligations, less current                          
  portion............................................................   72,779    83,376
Other liabilities....................................................   10,834     9,253
Deferred income taxes................................................    3,147     3,547
                                                                      --------  --------
          Total liabilities..........................................  120,824   126,581
                                                                      --------  --------
Stockholders' equity:                                                                   
  Common stock -- par value $.01 per share, 20,000,000 shares                           
     authorized, 9,998,012 shares issued and outstanding.............      100       100
  Additional paid-in capital.........................................   59,900    59,900
  Retained earnings..................................................   10,192     5,927
                                                                      --------  --------
          Total stockholders' equity.................................   70,192    65,927
                                                                      --------  --------
                                                                      $191,016  $192,508
                                                                      ========  ========

See accompanying notes to consolidated financial statements.

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HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                        [Enlarge/Download Table]

                                                    52 WEEKS     52 WEEKS     52 WEEKS  
                                                     ENDED        ENDED        ENDED    
                                                    DECEMBER     DECEMBER     DECEMBER  
                                                      25,          26,          27,     
                                                      1995         1994         1993    
                                                   ----------   ----------   ---------- 
                                                                                        
Net sales......................................... $  267,622   $  259,367   $  257,225 
Cost of sales:                                                                          
  Food and bar costs..............................     78,363       76,329       74,832 
  Labor costs.....................................     85,351       83,186       80,825 
  Operating expenses (exclusive of depreciation                                         
     and amortization shown separately)...........     58,661       56,047       52,875 
                                                   -----------  -----------  -----------
          Total cost of sales.....................    222,375      215,562      208,532 
                                                   -----------  -----------  -----------
          Gross profit............................     45,247       43,805       48,693 
Depreciation and amortization.....................     14,865       16,245       19,610 
General and administrative expenses...............     16,938       17,176       17,736 
Loss on disposition of properties, net............        605          847          624 
Other (income), net...............................     (3,531)      (2,883)      (2,700)
Interest expense..................................      8,189        6,562        6,428 
                                                   -----------  -----------  -----------
          Income before income taxes..............      8,181        5,858        6,995 
Income tax provision..............................      3,916        2,900        4,026 
                                                   -----------  -----------  -----------
          Net income.............................. $    4,265   $    2,958   $    2,969 
                                                   ===========  ===========  ===========
Earnings per common and common equivalent share                                         
  (Note 2)........................................ $     0.43   $     0.30   $     0.30 
                                                   ===========  ===========  ===========
Weighted average common and common equivalent                                           
  shares.......................................... 10,032,254   10,012,928    9,998,012 
                                                   ===========  ===========  ===========

See accompanying notes to consolidated financial statements.

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HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 
(DOLLARS IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                  COMMON STOCK          WARRANTS      ADDITIONAL                TOTAL     
                               ------------------   ----------------   PAID-IN    RETAINED   STOCKHOLDERS'
                                SHARES     AMOUNT  WARRANTS   AMOUNT    CAPITAL    EARNINGS      EQUITY   
                               --------    ------  --------   ------   -------    -------    -------------
                                                                                                          
Balance, December 28, 1992.... 9,998,012   $  100   47,710    $   --   $59,900    $    --      $60,000    
  Net income..................       --        --       --        --        --      2,969        2,969    
                               ---------   ------   ------    ------   -------    -------      -------    
Balance, December 27, 1993.... 9,998,012      100   47,710        --    59,900      2,969       62,969    
  Net income..................       --        --       --        --        --      2,958        2,958    
                               ---------   ------   ------    ------   -------    -------      -------    
Balance, December 26, 1994.... 9,998,012      100   47,710        --    59,900      5,927       65,927    
  Net income..................       --        --       --                          4,265        4,265    
                               ---------   ------   ------    ------   -------    -------      -------    
Balance, December 25, 1995.... 9,998,012   $  100   47,710    $   --   $59,900    $10,192      $70,192    
                               =========   ======   ======    ======   =======    =======      =======    

See accompanying notes to consolidated financial statements.

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HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS 
(DOLLARS IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                            52 WEEKS      52 WEEKS     52 WEEKS   
                                                             ENDED         ENDED        ENDED     
                                                          DECEMBER 25,  DECEMBER 26,  DECEMBER 27,
                                                              1995          1994         1993     
                                                          ------------  ------------  ------------
                                                                                                  
Cash flows from operating activities:                                                             
  Net income.............................................   $  4,265      $  2,958     $  2,969   
  Adjustments to reconcile net income to net cash                                                 
     provided by operating activities:                                                            
     Depreciation and amortization.......................     14,865        16,245       19,610   
     Amortization of deferred debt issuance costs........        110           110          144   
     Loss on disposition of properties, net..............        605           847          624   
     Deferred income tax provision (benefit).............       (388)          390         (887)  
     Changes in operating assets and liabilities:                                                 
       Receivables.......................................       (146)         (244)         130   
       Inventories.......................................        170            (3)          98   
       Other current assets..............................       (467)         (399)        (713)  
       Accounts payable..................................     (1,239)          476        3,395   
       Accrued interest..................................       (976)           97        1,526   
       Accrued liabilities...............................        849        (7,176)       3,305   
     Other assets........................................        141        (1,228)         276   
     Other liabilities...................................      1,581         2,024       (1,140)  
                                                            --------      --------     --------   
          Net cash provided by operating activities......     19,370        14,097       29,337   
                                                            --------      --------     --------   
Cash flows from investing activities:                                                             
  Capital expenditures, excluding capitalized leases.....    (14,626)      (17,814)     (10,521)  
  Proceeds from disposition of properties................        832            91           52   
                                                            --------      --------     --------   
          Net cash used for investing activities.........    (13,794)      (17,723)     (10,469)  
                                                            --------      --------     --------   
Cash flows from financing activities:                                                             
  Net proceeds from issuance of long-term debt, excluding                                         
     capitalized lease obligations.......................      7,000            --           --   
  Payments on long-term debt, including capitalized lease                                         
     obligations.........................................    (12,572)      (10,444)      (3,279)  
                                                            --------      --------     --------   
          Net cash used for financing activities.........     (5,572)      (10,444)      (3,279)  
                                                            --------      --------     --------   
Net increase (decrease) in cash and cash equivalents.....          4       (14,070)      15,589   
Cash and cash equivalents at beginning of period.........     10,310        24,380        8,791   
                                                            --------      --------     --------   
Cash and cash equivalents at end of period...............   $ 10,314      $ 10,310     $ 24,380   
                                                            ========      ========     ========   
Supplemental Disclosures of Cash Flow Information:                                                
  Cash paid during the period for:                                                                
     Interest............................................   $  9,055      $  6,355     $  4,758   
                                                            ========      ========     ========   
     Income taxes........................................   $  3,500      $  6,917     $  3,546   
                                                            ========      ========     ========   

DISCLOSURE OF ACCOUNTING POLICY:                                                

For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity of three 
months or less to be cash equivalents.                                          

See accompanying notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION                                                                 

Houlihan's Restaurant Group, Inc., together with its wholly-owned     
subsidiary, Houlihan's Restaurants, Inc. and its subsidiaries (the "Company")   
operates full service casual dining restaurants in twenty-five states. At       
December 25, 1995, it operated 98 restaurants, including 61 Houlihan's, 28      
Darryl's, three upscale Seafood Grills and six Specialty Restaurants comprised  
of four dinnerhouses, one upscale steakhouse and the Buena Vista Cafe. At that  
date the Company also franchised 18 Houlihan's in seven states and the          
Commonwealth of Puerto Rico. Houlihan's Restaurant Group, Inc. does not engage  
in any business or activity other than holding the capital stock of Houlihan's  
Restaurants, Inc.                                                               

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                   

Principles of consolidation                                                 

   The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All significant intercompany balances and      
transactions have been eliminated.                                              

Fiscal year                                                                 

The Company reports fiscal year results of operations based on 52- or 
53-week periods. The fiscal years ended December 25, 1995, December 26, 1994 and
December 27, 1993 were composed of 52 weeks. References to years are to the     
fiscal years then ended.                                                        

Use of Estimates in Preparing Financial Statements                          

The preparation of financial statements in conformity with generally  
accepted accounting principles requires management to make estimates and        
assumptions that affect the reported amounts of assets and liabilities and      
disclosure of contingent assets and liabilities at the date of the financial    
statements and the reported amounts of revenues and expenses during the         
reporting period. Actual results could differ from those estimates.             

Inventories                                                                 

Inventories consist primarily of food and liquor and are stated at the
lower of cost or market. Costs are determined using the first-in, first-out     
(FIFO) method.                                                                  

Property, equipment and leaseholds                                          

     Property, equipment and leaseholds are depreciated on a straight-line basis
over their estimated useful lives (buildings - 20 years and furniture, fixtures 
and equipment - 2 to 10 years). Leasehold improvements are amortized on a       
straight-line basis over the shorter of their estimated useful lives or the     
remaining terms of the leases. Property under capitalized leases is amortized   
over the terms of the leases using the straight-line method.                    

  Losses on disposition of properties in the normal course of business are
recognized when a commitment to divest a restaurant property is made by the     
Company and include estimated carrying costs through the expected date of       
disposal. Gains on disposition of properties in the normal course of business   
are recognized at the date of sale.                                             

Pre-opening expenses                                                        

   Certain costs incurred in connection with the opening of new or converted
restaurants (principally the initial food and liquor order, smallwares and the  
cost associated with training staff) are expensed upon opening                  

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or conversion of restaurants. Pre-opening expenses, included in cost of sales in
the accompanying consolidated statements of income, were $969,000, $1,268,000   
and $116,000 for 1995, 1994 and 1993, respectively.                             

Franchise rights                                                            

 Franchise rights are attributable to the Company's franchise agreements
existing prior to 1994 and have been capitalized in the accompanying            
consolidated balance sheets (included in other assets). The rights are being    
amortized over 14 years.                                                        

Franchise revenues                                                          

Franchise revenues from area franchise development agreements are     
recognized proportionately upon opening of the restaurants in accordance with   
Statement of Financial Accounting Standards No. 45. Revenues from individual    
restaurant franchise agreements are recognized upon opening of the restaurants. 
Franchise revenues included in other income in the accompanying consolidated    
statements of income aggregated $1,596,000, $1,087,000 and $949,000 for 1995,   
1994 and 1993, respectively.                                                    

Reorganization value in excess of amounts allocable to identifiable assets  

 The reorganization value in excess of amounts allocable to identifiable
assets is being amortized using the straight-line method over 20 years.         
Accumulated amortization at December 25, 1995 and December 26, 1994 was         
$10,901,000 and $7,250,000, respectively.                                       

 The Company annually evaluates the carrying value of the reorganization
value in excess of amounts allocable to identifiable assets based on            
expectations of undiscounted cash flows and operating income.                   

Deferred debt issuance costs                                                

 Deferred debt issuance costs at December 25, 1995 include approximately
$516,000 and $135,000 of fees and financing costs related to the Company's bank 
credit agreement and the interest rate cap, respectively. Such costs are        
amortized over the expected lives of the respective debt issues and the interest
rate cap period (see Note 7). As of December 25, 1995, the unamortized costs    
were $287,000 and $43,000, respectively.                                        

Temporary cash investments                                                  

     Cash and cash equivalents include temporary cash investments, consisting of
commercial paper, of $6,212,000 and $6,216,000 at December 25, 1995 and December
26, 1994, respectively. Temporary cash investments are carried at cost which    
approximates market.                                                            

Earnings per common and common equivalent share                             

   Earnings per common and common equivalent share are based on the weighted
average number of shares outstanding and the assumed exercise of outstanding    
dilutive stock options issued under the Company's stock option plans (see Note  
11) less the number of treasury shares assumed to be purchased from the proceeds
using the average market price of the Company's common stock. At December 25,   
1995, warrants to purchase up to 47,740 shares of common stock at a price of    
$37.92 per share were outstanding. Additional shares of common stock issuable   
upon the exercise of the warrants have not been considered in the calculation as
the effect would be antidilutive. At December 25, 1995, December 26, 1994 and   
December 27, 1993, the weighted average number of common and common equivalent  
shares outstanding was 10,032,254, 10,012,928 and 9,998,012, respectively, which
results in earnings per common and common equivalent shares of $0.43, $0.30 and 
$0.30, respectively.                                                            

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

New Accounting Standard                                                     

Effective January 1, 1996, SFAS No. 123, "Accounting for Stock-Based  
Compensation," will require increased disclosure of compensation expense arising
from stock compensation plans. The Statement encourages rather than requires    
companies to adopt a new method that accounts for stock compensation awards     
based on their estimated fair value at the date they are granted. Companies will
be permitted, however, to continue accounting under APB Opinion No. 25 which    
requires compensation cost be recognized based on the difference, if any,       
between the quoted market price of the stock and the amount an employee must pay
to acquire the stock. The Company will continue to apply APB Opinion No. 25 in  
its consolidated financial statements.                                          

3. RECEIVABLES                                                                  

Receivables are comprised of the following:                           

                                                                [Download Table]

                                                        DECEMBER      DECEMBER
                                                          25,           26,   
                                                          1995          1994  
                                                        --------      --------
                                                                              
                                                            (IN THOUSANDS)    
Trade, principally credit cards.......................  $  1,093      $  1,041
Franchise royalties and related receivables...........       431            63
Other.................................................       137           411
                                                        --------      --------
                                                        $  1,661      $  1,515
                                                        ========      ========

4. OTHER CURRENT ASSETS                                                         

Other current assets are comprised of the following:                  

                                                                [Download Table]

                                                        DECEMBER      DECEMBER
                                                          25,           26,   
                                                          1995          1994  
                                                        --------      --------
                                                                              
                                                            (IN THOUSANDS)    
Prepaid advertising rights (See Note 10)..............  $  1,000      $     --
Prepaid occupancy costs...............................       467         1,205
Prepaid insurance.....................................       379           366
Prepaid licenses......................................       128           149
Deposits with vendors.................................       130           200
Other.................................................       814           531
                                                        --------      --------
                                                        $  2,918      $  2,451
                                                        ========      ========

5. PROPERTY, EQUIPMENT AND LEASEHOLDS                                           

Property, equipment and leaseholds are comprised of the following:    

                                                                [Download Table]

                                                        DECEMBER      DECEMBER
                                                          25,           26,   
                                                          1995          1994  
                                                        --------      --------
                                                                              
                                                            (IN THOUSANDS)    
Land and improvements.................................  $ 19,546      $ 20,004
Buildings and improvements............................    29,798        29,938
Leasehold improvements................................    45,108        37,398
Furniture, fixtures and equipment.....................    47,007        42,579
                                                        --------      --------
                                                         141,459       129,919
Less: Accumulated depreciation and amortization.......    36,938        27,076
                                                        --------      --------
                                                        $104,521      $102,843
                                                        ========      ========

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

Property under capitalized leases in the amount of $1,865,000 and     
$2,112,000 at December 25, 1995 and December 26, 1994, respectively, is included
principally in buildings and improvements. Capitalized leases relate primarily  
to the buildings on certain restaurant properties. The land portions of the     
restaurant property leases are accounted for as operating leases.               

Depreciation and capitalized lease amortization expense relating to   
property, equipment and leaseholds for 1995, 1994 and 1993 was $11,058,000,     
$12,438,000 and $15,852,000, respectively. Of these amounts, $247,000, $226,000 
and $226,000, respectively, related to capitalized lease amortization.          

Substantially all of the capitalized and operating leases have terms, 
including all options, expiring after 1999 and most leases have renewal options.
The leases generally provide for payment of minimum annual rent, real estate    
taxes, insurance and maintenance and, in most cases, contingent rent (calculated
as a percentage of sales) in excess of minimum rent.                            

 There were no contingent rents under capitalized leases for the periods
presented. Total rental expense for all operating leases is composed of the     
following:                                                                      

                                                                [Download Table]

                                               1995         1994         1993  
                                              -------      -------      -------
                                                                               
                                                       (IN THOUSANDS)          
Minimum rent................................  $10,364      $ 9,303      $ 8,863
Contingent rent.............................    2,107        2,298        2,455
                                              -------      -------      -------
                                              $12,471      $11,601      $11,318
                                              =======      =======      =======

The present value of capitalized lease payments and the future minimum
lease payments on noncancelable operating leases as of December 25, 1995 are as 
follows:                                                                        

                                                                [Download Table]

                                                          CAPITALIZED  OPERATING
                                                          LEASES       LEASES   
                                                          ------       -------  
                                                                                
                                                             (IN THOUSANDS)     
1996....................................................  $  596       $10,725  
1997....................................................     596        10,679  
1998....................................................     596        10,065  
1999....................................................     596         9,541  
2000....................................................     579         8,515  
Thereafter..............................................   2,084        49,883  
                                                          ------       -------  
Total minimum lease payments............................   5,047       $99,408  
                                                                       =======  
Less: Interest..........................................   2,178                
                                                          ------                
Present value of minimum lease payments.................  $2,869                
                                                          ======                

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

6. OTHER ASSETS                                                                 

Other assets are comprised of the following:                          

                                                                [Download Table]

                                                        DECEMBER 25,  DECEMBER 26,
                                                            1995         1994     
                                                           ------       ------    
                                                             (IN THOUSANDS)       
                                                                                  
Franchise rights, net....................................  $1,718       $1,874    
Liquor licenses..........................................   2,464        2,464    
Advertising rights (See Note 10).........................   1,000           --    
Construction allowances..................................      94          382    
Other....................................................     211          611    
                                                           ------       ------    
                                                           $5,487       $5,331    
                                                           ======       ======    

     Construction allowances represent advances made for restaurant construction
or remodeling which are recovered through reductions in future contingent rent  
payments. These amounts are expensed as such reductions are realized.           

7. LONG-TERM DEBT                                                               

  Long-term debt, including capitalized lease obligations, is comprised of
the following:                                                                  

                                                                [Download Table]

                                                        DECEMBER 25,  DECEMBER 26,
                                                            1995         1994     
                                                          -------      -------    
                                                             (IN THOUSANDS)       
                                                                                  
Bank Debt:                                                                        
  Term Loan.............................................  $40,112      $46,506    
  Real Estate Loan......................................   40,000       40,000    
  Revolving Credit Facility.............................    1,000           --    
Capitalized lease obligations (Note 5)..................    2,869        3,047    
                                                          -------      -------    
                                                           83,981       89,553    
Less: Current portion                                      11,202        6,177    
                                                          -------      -------    
                                                          $72,779      $83,376    
                                                          =======      =======    

 Scheduled maturities of outstanding long-term debt for each of the five
fiscal years subsequent to December 25, 1995, including capitalized lease       
obligations, are as follows:                                                    

                                                                [Download Table]

                                                 (IN THOUSANDS)
                                                               
1996...............................................  $11,202   
1997...............................................   52,231   
1998...............................................   13,765   
1999...............................................    4,915   
2000...............................................      330   

Bank Credit Agreement                                                       

The Company entered into a credit agreement on December 28, 1992, (the
"Bank Credit Agreement") with Credit Agricole-CNCA, New York Branch (the "Bank")
providing for a $62,939,000 Term Loan, a $40,000,000 Real Estate Loan and a     
$20,000,000 Revolving Credit Facility (collectively, the "Bank Debt").          

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The Term Loan requires semi-annual principal payments as follows:     

                                                                [Download Table]

                                                             PRINCIPAL 
                                                             AMOUNT    
                                                               OF      
                       PAYMENT DATES                         PAYMENT   
-----------------------------------------------------------  -------   
                                                                       
                                                               (IN     
                                                             THOUSANDS)
March 31, 1996 and September 30, 1996......................  $ 5,500   
March 31, 1997 and September 30, 1997......................    5,500   
March 31, 1998 and September 30, 1998......................    6,750   

  The final Term Loan installment is payable on March 31, 1999 and will be
equal to the unpaid principal amount of the Term Loan. The Real Estate Loan and 
the Revolving Credit Facility are scheduled to mature on March 31, 1997.        

  Under the terms of the Bank Credit Agreement, the Company is required to
reduce its Bank Debt with the net proceeds resulting from any permitted sales of
assets, issuances of debt or equity, and 65% of the Company's Excess Cash Flow  
(as defined in the Bank Credit Agreement). The Term Loan shall be repaid first, 
the Real Estate Loan shall be repaid second and the Revolving Credit Facility   
shall be permanently reduced last. All such prepayments of the Term Loan will be
applied 50% in the order of maturity and 50% in the inverse order of maturity.  
In 1995, the Company reduced the balance of the Term Loan by $6,394,000 which   
consisted of $5,606,000 as required by the Bank Credit Agreement and $788,000 of
net cash proceeds resulting from the disposition of assets during 1995.         

    The Revolving Credit Facility can be used for working capital purposes and
to provide up to a maximum of $20,000,000 of standby letters of credit. The     
amount available under the Revolving Credit Facility is reduced by the principal
amount of any outstanding standby letters of credit. A commitment fee of 1/2 of 
1% per annum is required based upon the daily unused amount of the Revolving    
Credit Facility. A fee of 1% per annum is also required based upon the daily    
amount of outstanding standby letter of credit commitments. Standby letters of  
credit totaling $4,927,000 issued under the Revolving Credit Facility were      
outstanding as of December 25, 1995.                                            

     The Bank Debt interest is calculated at 2% over the reserve adjusted London
Interbank Offered Rate ("LIBOR"). At December 25, 1995, interest on the Term    
Loan, the Real Estate Loan and the Revolving Credit Facility loan was being     
charged at 7.875%.                                                              

     As required by the Bank Credit Agreement, during 1993 the Company purchased
an interest rate cap for a four-year period on an aggregate notional amount of  
$30,000,000 pursuant to which the Company shall be protected against increases  
in LIBOR in excess of the greater of (i) 10% per annum and (ii) 2 1/2% per annum
plus the Alternate Base Rate (as defined in the Bank Credit Agreement) through  
March 29, 1997.                                                                 

Collateral Arrangements                                                     

   Substantially all of the Company's assets are pledged as collateral under
the Bank Credit Agreement. In addition, borrowings under the Bank Credit        
Agreement are guaranteed by the parent company and by each of its active        
wholly-owned subsidiaries. This guarantee is secured by a pledge of all of the  
capital stock of Houlihan's Restaurants, Inc., and the guarantees of the active 
wholly-owned subsidiaries are collateralized by security interests in all of the
assets of each such subsidiary.                                                 

Financing Covenants and Restrictions                                        

The Bank Credit Agreement contains various covenants and restrictions,
including (i) restriction of additional indebtedness, mergers or consolidations,
payment of indebtedness, affiliated transactions and investments in affiliates, 
unless certain financial tests are met, and (ii) restriction on the payment of  
dividends                                                                       

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to 35% of the Company's future Excess Cash Flow (as defined). The Bank Credit   
Agreement also contains various covenants which, among other things, restrict   
the amount of annual capital expenditures and require the maintenance of certain
financial ratios and minimum consolidated net worth (as defined). Based on the  
Bank Credit Agreement covenants, there were no retained earnings available for  
payment of dividends at December 25, 1995. Failure to comply with any of the    
financial and operating covenants included in the Bank Credit Agreement or the  
occurrence of a Change of Control (as defined in the Bank Credit Agreement)     
would permit the Bank to accelerate the maturity of the Bank Debt.              

8. ACCRUED LIABILITIES                                                          

Accrued liabilities are comprised of the following:                   

                                                                [Download Table]

                                                        DECEMBER 25,  DECEMBER 26,
                                                           1995          1994     
                                                          -------      -------    
                                                             (IN THOUSANDS)       
                                                                                  
Wages, salaries and bonuses.............................  $ 2,141      $ 1,670    
Payroll taxes...........................................      474          401    
Sales and property taxes................................    1,984        1,902    
Rent....................................................    1,830        1,686    
Federal and state taxes.................................      816           --    
Gift certificates.......................................    1,087          991    
Advertising.............................................    1,418        1,196    
Vacation................................................      425          425    
Worker's compensation...................................      618          601    
Utilities...............................................      610          750    
Employee insurance......................................      399          468    
Other...................................................    1,573        2,436    
                                                          -------      -------    
                                                          $13,375      $12,526    
                                                          =======      =======    

9. INCOME TAXES                                                                 

The income tax provisions (benefits) consist of the following:        

                                                                [Download Table]

                                                  1995        1994        1993  
                                                 ------      ------      ------ 
                                                         (IN THOUSANDS)         
                                                                                
Current provision..............................  $4,304      $2,510      $4,913 
Deferred provision (benefit)...................    (388)        390        (887)
                                                 ------      ------      ------ 
                                                 $3,916      $2,900      $4,026 
                                                 ======      ======      ====== 

Current tax liabilities are included in accrued liabilities in the    
accompanying consolidated balance sheets.                                       

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

Deferred income taxes result from temporary differences between the   
financial statement and tax basis of the Company's assets and liabilities. The  
sources of the differences and their cumulative tax effects are as follows:     

                                                                [Download Table]

                                                       DECEMBER 25,  DECEMBER 26,
                                                          1995          1994     
                                                         -------       -------   
                                                            (IN THOUSANDS)       
                                                                                 
Current:                                                                         
  Assets:                                                                        
     Insurance reserves................................  $   370       $   183   
     Net operating losses..............................    1,425         1,425   
  Liabilities:                                                                   
     Other.............................................     (394)         (195)  
                                                         -------       -------   
                                                         1,401..         1,413   
                                                         -------       -------   
Noncurrent:                                                                      
  Assets:                                                                        
     Development fees..................................      255           121   
     Insurance reserves................................    2,965         2,595   
     Deferred debt issuance costs......................      247           326   
     Net operating losses..............................      587         2,059   
     General business credit carryforwards.............    6,238         5,737   
     Other.............................................      620           478   
     Less: Valuation allowance.........................   (1,000)       (1,000)  
  Liabilities:                                                                   
     Excess tax depreciation...........................  (12,389)      (13,132)  
     Franchise rights..................................     (670)         (731)  
                                                         -------       -------   
                                                          (3,147)       (3,547)  
                                                         -------       -------   
                                                         $(1,746)      $(2,134)  
                                                         =======       =======   

   A reconciliation between the actual income tax provision and income taxes
computed by applying the statutory Federal income tax rate to the income before 
income taxes is as follows:                                                     

                                                                [Download Table]

                                                         1995     1994     1993
                                                         ---      ---      --- 
                                                                               
Statutory federal tax rate.............................   34%      34%      34%
State and local income taxes (net of Federal tax                               
  benefit).............................................    9       10        8 
General business credits...............................  (12)     (16)      -- 
Nondeductible amortization of reorganization value in                          
  excess of amounts allocable to identifiable assets...   15       21       18 
Other..................................................    2        1       (2)
                                                         ---      ---      --- 
Effective tax rate.....................................   48%      50%      58%
                                                         ===      ===      === 

As of December 25, 1995, the Company has total net operating loss and 
general business credit carryforwards of approximately $5,159,000 and           
$6,238,000, respectively. The carryforwards will expire from 1996 through 2010. 
The utilization of the net operating loss carryforwards is limited due to the   
change of ownership which occurred in 1992 to $3,654,000 per year. The          
utilization of $5,737,000 of the general business credit carryforwards is also  
limited due to the change in ownership. The first $4,320,000 of the general     
business credit carryforwards is limited to $574,000 per year, and the next     
$1,417,000 is limited to $1,279,000 per year. To the extent net operating loss  
and general business credit carryforward limitations are not utilized           

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in a year, the unused limitation increases the subsequent year limitation       
amount. The general ordering rules for net operating losses and tax credits are 
that net operating losses must be utilized before tax credits.                  

10. OTHER AFFILIATED TRANSACTIONS                                               

On October 13, 1995, the Company entered into an Advertising and      
Sponsorship Agreement (the "Agreement") with the Buccaneers Limited Partnership 
for the exclusive naming rights to the Tampa Bay Buccaneer Football Stadium (the
"Stadium"). The Buccaneers Limited Partnership is 100% controlled by the Glazer 
Group, owners of approximately 73% of the Company's common stock on a fully     
diluted basis. The Agreement provides the Company with the right to name the    
Stadium "Houlihan's Stadium". Additionally, it provides the Company with        
advertising rights inside the Stadium and in Tampa Bay Buccaneer programs and   
brochures.                                                                      

    The Agreement is for a ten-year period at a total cost of $10,000,000. The
payment terms are $2,000,000 per year for the first five years of the Agreement.
The Company made the first payment under the Agreement on December 5, 1995 of   
which $1,000,000 is reflected as a current asset and $1,000,000 is reflected as 
a noncurrent asset in the accompanying consolidated balance sheet.              

If the Tampa Bay Buccaneers move to a new stadium and the Buccaneers  
Limited Partnership retains the naming rights, the Agreement will continue. If  
the Buccaneers Limited Partnership loses the naming rights, the Agreement will  
be terminated and the monies paid by the Company for future years will be       
refunded.                                                                       

During 1995, the Company received $161,000 from First Allied Tampa    
Corporation, which is wholly owned by the Glazer Group. The amount represents   
accrued interest resulting from the termination of an option agreement that     
granted the Company the exclusive right to operate a restaurant in the Tampa Bay
Buccaneer Football Stadium.                                                     

During 1995 and 1994, directors fees aggregating $24,000 and $40,000, 
respectively, were paid to members of the Company's Board of Directors who are  
members of the Glazer Group.                                                    

11. BENEFIT PLANS                                                               

    The Company maintains several incentive compensation and related plans for
executives and key operating personnel. Total expenses for these plans included 
in the accompanying consolidated statements of income for 1995, 1994 and 1993   
were $2,615,000, $1,960,000 and $3,726,000, respectively.                       

Substantially all of the Company's salaried employees are eligible to 
participate in defined contribution retirement savings plans under which Company
contributions are based on employee contributions and compensation. The         
Company's expense during 1995, 1994 and 1993 under such plans was $672,000,     
$462,000 and $564,000, respectively.                                            

  On February 9, 1994, the Company's Board of Directors approved two stock
option plans, one plan for outside directors ("Option Plan I") and one for      
executives and certain key employees ("Option Plan II"), providing for the      
issuance of options to purchase 540,000 and 750,000 shares, respectively. The   
Board of Directors determines the option price based upon the estimated market  
value of the Company's common stock at the date of grant based on the price of  
the shares as traded in the over-the-counter market. The options generally vest 
over a four-year period from the date of grant and are exercisable over the     
period stated in each option. The Company makes no recognition in the balance   
sheet of the options until such options are exercised and no amounts applicable 
thereto are reflected in net income. Option Plan I provides for the issuance of 
up to 30,000 shares to each outside director per year to the extent the options 
are available under the plan.                                                   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

 The following is a summary of stock option transactions during 1995 and
1994:                                                                           

                                                                [Download Table]

                                                           1995         1994   
                                                         --------      ------- 
                                                                               
Option Plan I:                                                                 
  Options outstanding at beginning of year.............   180,000           -- 
  Granted..............................................   180,000      180,000 
  Canceled.............................................        --           -- 
                                                         --------      ------- 
  Options outstanding at end of year...................   360,000      180,000 
                                                         ========      ======= 
Option Plan II:                                                                
  Options outstanding at beginning of year.............   617,000           -- 
  Granted..............................................   164,600      699,000 
  Canceled.............................................  (128,000)     (82,000)
                                                         --------      ------- 
  Options outstanding at end of year...................   653,600      617,000 
                                                         ========      ======= 

12. CONTINGENCIES AND COMMITMENTS                                               

Litigation                                                                  

The Company is currently involved in various claims and pending legal 
actions arising in the normal course of business. In the opinion of management, 
the final disposition of these claims and pending actions will not have a       
material adverse effect, individually or in the aggregate, on the business or   
the financial position of the Company.                                          

Severance Payment Agreements                                                

   In prior years, the Company entered into agreements with certain officers
which provide for severance payments in the event the employment of such        
officers is terminated upon a change of control of the Company, as defined in   
the agreements. The severance payments shall be equal to 2.99 times the average 
compensation of each participant for the previous five years. As of December 25,
1995, the contingent liability under the agreements for all participants was    
approximately $2,252,000.                                                       

Real Estate Consulting Contracts                                            

     In 1992, the Company entered into real estate consulting contracts expiring
in 2001 with management companies which employ two beneficial owners of a       
company that previously had a controlling interest in the Company for a total of
$625,000 per year. The total expense incurred under the contracts during 1995,  
1994 and 1993 was $625,000 each year.                                           

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================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM 10-Q 

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

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE 
SECURITIES EXCHANGE ACT OF 1934                     

FOR THE QUARTERLY PERIOD ENDED MARCH 25, 1996 

OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934                     

COMMISSION FILE NUMBER 33-66392 

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

HOULIHAN'S RESTAURANT GROUP, INC. 
Incorporated pursuant to the Laws of Delaware State 

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

Internal Revenue Service -- Employer Identification No. 43-0913506

Two Brush Creek Boulevard, Kansas City, Missouri 64112

(816) 756-2200

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

 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 
requirements for the past 90 days.  Yes 'X'      No                             
               -----       -----

   Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities      
Exchange Act of 1934 subsequent to the distribution of securities under a plan  
confirmed by a court.  Yes 'X'      No                                          
-----       -----           

   Number of shares of common stock outstanding as of May 6, 1996: 9,998,012

================================================================================

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INDEX 

                                                        [Enlarge/Download Table]

                                                                                         PAGE
                                                                                         ----
                                                                                             
PART I  FINANCIAL INFORMATION                                                                

  Item 1.   Consolidated Financial Statements                                                
            Consolidated Balance Sheets.................................................   3 
            Consolidated Statements of Income...........................................   4 
            Consolidated Statements of Cash Flows.......................................   5 
            Notes to Consolidated Financial Statements..................................   6 

  Item 2.   Management's Discussion and Analysis of Financial Condition.................   7 

PART II  OTHER INFORMATION                                                                   

  Item 6.   Exhibits and Reports on Form 8-K............................................  11 

  Signature.............................................................................  12 

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HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

ASSETS

                                                        [Enlarge/Download Table]

                                                                      MARCH 25,   DECEMBER 25,
                                                                        1996          1995    
                                                                     -----------  ------------
                                                                                              
                                                                     (UNAUDITED)   (AUDITED)  
Current assets:                                                                               
  Cash and cash equivalents.........................................  $  15,563     $ 10,314  
  Receivables.......................................................      1,508        1,661  
  Inventories.......................................................      2,142        2,276  
  Other current assets..............................................      2,241        2,918  
  Deferred income taxes.............................................      1,439        1,401  
                                                                      ---------     --------  
          Total current assets......................................     22,893       18,570  
Property, equipment and leaseholds, net.............................    105,245      104,521  
Reorganization value in excess of amounts allocable to identifiable                           
  assets, net.......................................................     61,196       62,108  
Deferred debt issuance costs, net...................................        303          330  
Other assets, net...................................................      5,411        5,487  
                                                                      ---------     --------  
          Total assets..............................................  $ 195,048     $191,016  
                                                                      =========     ========  
                               LIABILITIES AND STOCKHOLDERS' EQUITY                           
Current liabilities:                                                                          
  Current portion of long-term debt and capitalized lease                                     
     obligations....................................................  $  11,209     $ 11,202  
  Accounts payable..................................................      6,869        8,811  
  Accrued interest..................................................        691          676  
  Accrued liabilities...............................................     13,374       13,375  
                                                                      ---------     --------  
          Total current liabilities.................................     32,143       34,064  
Long-term debt, including capitalized lease obligations, less                                 
  current portion...................................................     77,724       72,779  
Other liabilities...................................................     11,448       10,834  
Deferred income taxes...............................................      2,869        3,147  
                                                                      ---------     --------  
          Total liabilities.........................................    124,184      120,824  
                                                                      ---------     --------  
Stockholders' equity:                                                                         
  Common stock -- par value $.01 per share, 20,000,000 shares                                 
     authorized, 9,998,012 shares issued and outstanding............        100          100  
  Additional paid-in capital........................................     59,900       59,900  
  Retained earnings.................................................     10,864       10,192  
                                                                      ---------     --------  
          Total stockholders' equity................................     70,864       70,192  
                                                                      ---------     --------  
          Total liabilities and stockholders' equity................  $ 195,048     $191,016  
                                                                      =========     ========  

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF INCOME 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED) 

                                                        [Enlarge/Download Table]

                                                                       THIRTEEN WEEKS ENDED    
                                                                     ------------------------- 
                                                                     MARCH 25,      MARCH 27,  
                                                                        1996           1995    
                                                                     ----------     ---------- 
                                                                                               
Net sales........................................................... $   66,974     $   67,407 
Cost of sales:                                                                                 
  Food and bar costs................................................     19,528         19,435 
  Labor costs.......................................................     21,351         21,522 
  Operating expenses (exclusive of depreciation and amortization                               
     shown separately)..............................................     15,829         14,628 
                                                                     ----------     ---------- 
          Total cost of sales.......................................     56,708         55,585 
                                                                     ----------     ---------- 
          Gross profit..............................................     10,266         11,822 
Depreciation and amortization.......................................      3,784          3,615 
General and administrative expenses.................................      4,419          4,492 
Loss on disposition of properties, net..............................        139            346 
Other (income), net.................................................     (1,279)          (905)
Interest expense....................................................      1,840          2,261 
                                                                     ----------     ---------- 
          Income before taxes.......................................      1,363          2,013 
Income tax provision................................................        691            938 
                                                                     ----------     ---------- 
          Net income................................................ $      672     $    1,075 
                                                                     ==========     ========== 
Earnings per common and common equivalent share..................... $     0.07     $     0.11 
                                                                     ==========     ========== 
Weighted average common and common equivalent shares................  9,998,012      9,998,012 
                                                                     ==========     ========== 

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS 
(DOLLARS IN THOUSANDS)
(UNAUDITED) 

                                                        [Enlarge/Download Table]

                                                                          THIRTEEN WEEKS ENDED  
                                                                         -----------------------
                                                                         MARCH 25,     MARCH 27,
                                                                           1996          1995   
                                                                         ---------     ---------
                                                                                                
Cash flows from operating activities:                                                           
  Net income...........................................................   $   672       $ 1,075 
  Adjustments to reconcile net income to net cash provided by operating                         
     activities:                                                                                
     Depreciation and amortization.....................................     3,784         3,615 
     Amortization of deferred debt issuance costs......................        27            27 
     Loss on disposition of properties, net............................       139           346 
     Deferred income tax provision (benefit)...........................      (316)          113 
     Changes in operating assets and liabilities:                                               
       Receivables.....................................................       153        (4,780)
       Inventories.....................................................       134           (44)
       Other current assets............................................       677           574 
       Accounts payable................................................    (1,942)       (2,722)
       Accrued interest................................................        15           442 
       Accrued liabilities.............................................        (1)         (227)
     Other assets......................................................       138          (508)
     Other liabilities.................................................       614           242 
                                                                          -------       ------- 
          Net cash provided by (used for) operating activities.........     4,094        (1,847)
                                                                          -------       ------- 
Cash flows from investing activities:                                                           
  Capital expenditures, excluding capital leases.......................    (3,863)       (2,655)
  Proceeds from disposition of properties..............................        66           795 
                                                                          -------       ------- 
          Net cash used for investing activities.......................    (3,797)       (1,860)
                                                                          -------       ------- 
Cash flows from financing activities:                                                           
  Net proceeds from issuance of long-term debt, excluding capitalized                           
     lease obligations.................................................     5,000         5,000 
  Payments on long-term debt, including capitalized lease                                       
     obligations.......................................................       (48)         (830)
                                                                          -------       ------- 
          Net cash provided by financing activities....................     4,952         4,170 
                                                                          -------       ------- 
Net increase in cash and cash equivalents..............................     5,249           463 
Cash and cash equivalents at beginning of period.......................    10,314        10,310 
                                                                          -------       ------- 
Cash and cash equivalents at end of period.............................   $15,563       $10,773 
                                                                          =======       ======= 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                              
Cash paid (received) during the period for:                                                     
  Interest.............................................................   $ 1,798       $ 1,792 
                                                                          =======       ======= 
  Income taxes.........................................................   $  (663)      $    96 
                                                                          =======       ======= 

DISCLOSURE OF ACCOUNTING POLICY:                                                

For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity of three 
months or less to be cash equivalents.                                          

See accompanying notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 25, 1996
(UNAUDITED) 

1. BASIS OF PRESENTATION                                                        

    The consolidated financial statements of Houlihan's Restaurant Group, Inc.
and subsidiary (the "Company") included in this Form 10-Q have been prepared    
without audit (except that the balance sheet information as of December 25, 1995
has been derived from consolidated financial statements which were audited) in  
accordance with the rules and regulations of the Securities and Exchange        
Commission. Certain information and footnote disclosures normally included in   
financial statements prepared in accordance with generally accepted accounting  
principles have been condensed or omitted pursuant to such rules and            
regulations. The Company believes that the disclosures are adequate to make the 
information presented not misleading. The accompanying consolidated financial   
statements should be read in conjunction with the audited financial statements  
and notes thereto included in the Company's Annual Report on Form 10-K for the  
year ended December 25, 1995.                                                   

    Company management believes that the information furnished herein reflects
all adjustments, consisting only of normal recurring adjustments, necessary for 
a fair presentation of the results of the interim periods presented. The results
of operations for the interim periods presented are not necessarily indicative  
of those to be expected for the full year.                                      

    The Company owns and operates full service casual dining restaurants under
the names of "Houlihan's", "Darryl's", "Bristol", "Braxton", "Chequers", "J.    
Gilbert's", "Charley's Place", "Phineas" and the "Buena Vista Cafe".            

2. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE                              

   Earnings per common and common equivalent share are based on the weighted
average number of shares outstanding and the assumed exercise of outstanding    
dilutive stock options issued under the Company's stock option plans less the   
number of treasury shares assumed to be purchased from the proceeds using the   
average market price of the Company's common stock. At March 25, 1996, warrants 
to purchase up to 47,740 shares of common stock at a price of $37.92 per share  
were outstanding. Additional shares of common stock issuable upon the exercise  
of these warrants have not been considered in the calculation as the effect     
would be antidilutive.                                                          

3. LONG-TERM DEBT                                                               

  Long-term debt, including capitalized lease obligations, is comprised of
the following (in thousands):                                                   

                                                        [Enlarge/Download Table]

                                                              MARCH 25,  DECEMBER 25,
                                                                1996         1995    
                                                              ---------  ------------
                                                                                     
Bank debt:                                                                           
  Term Loan..................................................  $40,112     $ 40,112  
  Real Estate Loan...........................................   40,000       40,000  
  Revolving Credit Loan......................................    6,000        1,000  
Capitalized lease obligations................................    2,821        2,869  
                                                               -------     --------  
                                                                88,933       83,981  
Less: Current portion........................................   11,209       11,202  
                                                               -------     --------  
                                                               $77,724     $ 72,779  
                                                               =======     ========  

    On January 8, 1996 the Company borrowed $5,000,000 on its Revolving Credit
Facility for general corporate purposes. In addition, on March 25, 1996, the    
Bank Credit Agreement was amended to revise certain covenants of the agreement  
(the "Second Amendment"). The minimum interest coverage ratio                   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

specified for the first fiscal quarter of 1996 was reduced to 3.6. The Second   
Amendment also required the aggregate Revolving Credit Facility commitment be   
reduced to $15,000,000 from $20,000,000. As of March 25, 1996, the Company was  
in compliance with all covenants of the Bank Credit Agreement as amended.       

4. CONTINGENCIES AND COMMITMENTS                                                

Severance Agreements                                                        

   In prior years, the Company entered into agreements with certain officers
which provide for severance payments in the event the employment of such        
officers is terminated upon a change of control of the Company, as defined in   
the agreements. As of March 25, 1996, the contingent liability under the        
agreements for all participants was approximately $2,300,000.                   

5. SUBSEQUENT EVENT                                                             

 On May 1, 1996, the Company entered into a letter of intent with Zapata
Corporation "Zapata", relating to Zapata's proposed acquisition of the Company  
for a combination of cash and stock amounting to $8.00 per share. Approximately 
35% of Zapata's outstanding shares of common stock are owned by the Glazer      
Group, which owns approximately 73% of the Company's outstanding stock. The     
letter of intent was negotiated by representatives of special committees of the 
directors of both the Company and Zapata who are not members of the Glazer      
family. The proposed transaction is subject to the negotiation and execution of 
a definitive merger agreement and, among other things, approval of the          
transaction by the directors and stockholders of both companies.                

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 
OF OPERATIONS                                                   

  The following discussion and analysis should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations" presented in the Company's Annual Report on Form 10-K for the fiscal
year ended December 25, 1995.                                                   

GENERAL                                                                         

   The Company operates full service casual dining restaurants in 23 states.
At March 25, 1996, it operated 98 restaurants, including 61 Houlihan's, 28      
Darryl's, three upscale Seafood Grills and six Specialty Restaurants comprised  
of four dinnerhouses, one upscale steakhouse and the Buena Vista Cafe. At that  
date, the Company also franchised 21 Houlihan's restaurants in nine states and  
the Commonwealth of Puerto Rico.                                                

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

RESULTS OF OPERATIONS                                                           

The following table sets forth information derived from the Company's 
Consolidated Statements of Income expressed as a percentage of net sales.       

                                                        [Enlarge/Download Table]

                                                                   QUARTER ENDED       
                                                            ---------------------------
                                                            MARCH 25,         MARCH 27,
                                                              1996              1995   
                                                            ---------         ---------
                                                                                       
Net sales..................................................   100.0%            100.0% 
Cost of sales:                                                                         
  Food and bar costs.......................................    29.2              28.8  
  Labor costs..............................................    31.9              31.9  
  Operating expenses.......................................    23.6              21.8  
                                                              -----             -----  
          Total cost of sales..............................    84.7              82.5  
                                                              -----             -----  
            Gross profit...................................    15.3              17.5  
Depreciation and amortization..............................     5.6               5.4  
General and administrative expense.........................     6.6               6.7  
Loss on disposition of properties, net.....................     0.2               0.5  
Other (income), net........................................    (1.8)             (1.4) 
Interest expense...........................................     2.7               3.3  
                                                              -----             -----  
          Income before income taxes.......................     2.0               3.0  
Income tax provision.......................................     1.0               1.4  
                                                              -----             -----  
          Net income.......................................     1.0%              1.6% 
                                                              =====             =====  

   Net Sales. Net sales for the first quarter decreased to $66,974,000, 0.6%
down from $67,407,000 generated for the same quarter of 1995. The decrease was  
primarily due to a 2.8% decrease in comparable restaurant sales during the first
quarter due to inclement winter weather during the first two months of the      
quarter that affected sales in many of the Company's restaurants. The weather   
caused 43 restaurants to close for an average of 1.7 days. The decrease was     
partially offset by additional sales generated by the seven new Houlihan's and  
one J. Gilbert's restaurant opened since December 26, 1994.                     

    "Comparable restaurants" are restaurants open throughout fiscal years 1995
and 1996. The increases (decreases) in comparable restaurant sales, by concept, 
for the first quarter of 1996 versus 1995 were as follows:                      

                                                        [Enlarge/Download Table]

                                                                     FIRST QUARTER      
                                                                ----------------------- 
                                                                FOOD     BAR      TOTAL 
                                                                ----     ----     ----- 
                                                                                        
Houlihan's..................................................... (2.2)%   (5.3)%   (3.0)%
Darryl's....................................................... (2.7)    (1.3)    (2.4) 
Seafood Grills.................................................  1.1      3.3      1.6  
Specialty...................................................... (7.8)    (5.4)    (7.0) 
Total Company.................................................. (2.4)%   (4.3)%   (2.8)%

    Cost of Sales. Cost of sales as a percentage of net sales increased during
the first quarter of 1996 from the same period of 1995. Cost of sales are       
composed of three major items: food and bar costs, labor costs and operating    
expenses.                                                                       

     Combined food and bar costs as a percentage of net sales increased to 29.2%
during the first quarter of 1996 from 28.8% for the same period in 1995. The    
increase was the result of cost increases and inefficiencies caused by the      
implementation of a new menu in the Darryl's concept during the first quarter.  
The new menu,                                                                   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

emphasizing quality wood-fired steaks, was implemented in substantially all     
Darryl's restaurants at the end of the quarter.                                 

 Labor costs as a percentage of net sales remained flat in comparison to
prior year. Costs continue to be controlled due to the implementation of new    
labor scheduling systems in the Company's restaurants. The new systems will be  
rolled-out to all of the Company's restaurants by the end of the second quarter.

Operating expenses increased during the first quarter primarily due to
increases in promotional expenses. During the first quarter, the Company tested 
various advertising promotions in selected markets using radio, print, billboard
and television. Additionally, promotional expenses increased due to the         
amortization of costs associated with the agreement for the right to name the   
Tampa Bay Buccaneer Football Stadium "Houlihan's Stadium". Operating expenses   
were also affected by an increase in rent expense in the Company's restaurants. 

Depreciation and Amortization Expense. Depreciation and amortization  
expense as a percentage of net sales increased during the first quarter due to  
increased capital expenditures from new unit construction and ongoing restaurant
renovation and replacements.                                                    

     General and Administrative Expenses. General and administrative expenses as
a percent of net sales declined during the first quarter of 1996 as compared to 
the same period of 1995. The decrease is a result of cost savings associated    
with the staff and procedural restructuring that was undertaken during the first
quarter of 1995 to improve the efficiency and productivity of the overhead and  
support areas of the Company. The decrease was partially offset by an increase  
in costs associated with the Company's franchise program due to the continuing  
rapid growth of the program.                                                    

     Other Income. Other income as a percentage of net sales increased primarily
as a result of an increase in franchise revenues over the prior period. As of   
the end of the quarter, the Company franchised 21 restaurants and had signed    
agreements with 14 franchise development groups providing for the development of
an aggregate of 57 additional Houlihan's over a five-year period.               

Interest Expense. Interest expense decreased in the 1996 first quarter
compared to the 1995 first quarter due to lower average interest rates during   
the period, as well as a lower outstanding debt balance. The average interest   
rate on the Company's outstanding bank debt was 7.6% for the first quarter of   
1996 as compared to 8.9% for the first quarter of 1995.                         

 Income Taxes. The Company's effective income tax rate was 50.7% for the
1996 first quarter, compared to 46.6% for the same period of 1995. The higher   
effective rate was a result of the effect of amortization of the reorganization 
value in excess of amounts allocable to identifiable assets in relation to a    
smaller pretax income.                                                          

     Net Income. Net income for the first quarter of 1996 decreased to $672,000,
or $0.07 per share, from $1,075,000, or $0.11 per share, from the first quarter 
of 1995. The decrease is attributable to the decline in comparable restaurant   
sales and the increases in certain expenses mentioned above.                    

LIQUIDITY AND CAPITAL RESOURCES                                                 

     At March 25, 1996, the Company had cash and cash equivalents of $15,563,000
and a working capital deficiency of $9,250,000. The Company historically has    
relied principally upon internally generated funds to finance its restaurant    
operations and to fund working capital expenditures and has operated with       
working capital deficiencies. The Company's ability to operate with such        
deficiencies is due to the nature of the restaurant business, which does not    
require significant investments in accounts receivable or inventories and which 
generally allows the procurement of food and supplies on trade credit.          

  Long-term debt outstanding at March 25, 1996 consisted of a Term Loan, a
Real Estate Loan, a Revolving Credit Facility and obligations under capital     
leases. The bank credit agreement requires semi-annual payments on the Term Loan
of $5,500,000 on March 31, 1996 and September 30, 1996, increasing over         

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

time to $6,750,000, with the balance due at maturity on September 30, 1999. At  
March 25, 1996, the Company had $4,952,000 available to it under the Revolving  
Credit Facility. By means of an interest rate cap, the Company has effectively  
protected itself against increases in LIBOR above 10% on a notional amount of   
$30,000,000 of its indebtedness through March 1997.                             

 Capital expenditures totalled $3,863,000 for the quarter as compared to
$2,655,000 for the same period in 1995. The increase was attributable to costs  
incurred for two new Houlihan's that were opened during the quarter, as well as 
ongoing remodeling projects, normal restaurant renovations and replacements and 
the continuing installation of new management information systems in the        
Company's restaurants. The Company expects to incur capital expenditures of     
$10,637,000 for the remainder of 1996 in connection with opening three          
additional restaurants and for normal renovations and replacements.             

The Company intends to continue to operate with working capital       
deficiencies and to rely upon internally generated funds to finance its         
restaurant operations and to fund working capital expenditures, including its   
expansion plans. Management believes that cash on hand, funds to be generated   
internally from operations and the use of working capital changes, lease        
financing and funds available to the Company under its credit facility will be  
adequate to meet the Company's debt service and capital expenditure requirements
for the foreseeable future.                                                     

IMPACT OF INFLATION                                                             

In the past, the Company has been able to recover inflationary cost   
increases through increased food and beverage menu prices. There have been, and 
there may be in the future, delays in implementing such menu price increases,   
and competitive pressures may limit the Company's ability to recover such cost  
increases in their entirety. Historically, the effects of inflation on the      
Company's net income have not been materially adverse.                          

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PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                        

                                                                [Download Table]
                                                                                   
(a) The Exhibits listed on the accompanying Exhibit Index are filed as part of this
    report.                                                                        
(b) No reports on Form 8-K were filed during the quarter for which this report is  
    filed.                                                                         

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SIGNATURE 

   Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused this report to be signed on its behalf  
by the undersigned thereunto duly authorized.                                   

                                                                [Download Table]
                                                                
                   HOULIHAN'S RESTAURANT GROUP, INC.            
                   (Registrant)                                 

Date: May 7, 1996  By:    /s/  WILLIAM W. MORETON               
                   ---------------------------------------------
                                William W. Moreton              
                     Executive Vice President/Chief Financial   
                                      Officer                   
                   (Principal Financial and Accounting Officer) 

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PART II 

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS                              

Delaware General Corporation Law                                            

     Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a    
party or is threatened to be made a party to any threatened, pending or         
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by   
reason of the fact that he is or was a director, officer, employee or agent of  
the corporation, or is or was serving at the request of the corporation as a    
director, officer, employee or agent of another corporation, partnership, joint 
venture, trust or other enterprise, against expenses (including attorneys'      
fees), judgements, fines and amounts paid in settlement actually and reasonably 
incurred by him in connection with such action, suit or proceeding if he acted  
in good faith and in a manner he reasonably believed to be in or not opposed to 
the best interests of the corporation, and, with respect to any criminal action 
or proceeding, had no reasonable cause to believe his conduct was unlawful. The 
termination of any action, suit or proceeding by judgment, order, settlement,   
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of  
itself, create a presumption that the person did not act in good faith and in a 
manner which he reasonably believed to be in or not opposed to the best         
interests of the corporation, and, with respect to any criminal action or       
proceeding, had reasonable cause to believe that his conduct was unlawful.      

Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any         
threatened, pending or completed action or suit by or in the right of the       
corporation to procure a judgment in its favor by reason of the fact that he is 
or was a director, officer, employee or agent of the corporation, or is or was  
serving at the request of the corporation as a director, officer, employee or   
agent of another corporation, partnership, joint venture, trust or other        
enterprise against expenses (including attorneys' fees) actually and reasonably 
incurred by him in connection with the defense or settlement of such action or  
suit if he acted in good faith and in a manner he reasonably believed to be in  
or not opposed to the best interests of the corporation and except that no      
indemnification shall be made in respect of any claim, issue or matter as to    
which such person shall have been adjudged to be liable to the corporation      
unless and only to the extent that the Court of Chancery or the court in which  
such action or suit was brought shall determine upon application that, despite  
the adjudication of liability but in view of all the circumstances of the case, 
such person is fairly and reasonably entitled to indemnity for such expenses    
which the Court of Chancery or such other court shall deem proper.              

 Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in           
subsections (a) and (b) of Section 145, or in defense of any claim, issue or    
matter therein, he shall be indemnified against expenses (including attorneys'  
fees) actually and reasonably incurred by him in connection therewith.          

Section 145(d) of the DGCL states that any indemnification under      
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination 
that indemnification of the director, officer, employee or agent is proper in   
the circumstances because he has met the applicable standard of conduct set     
forth in subsections (a) and (b). Such determination shall be made (1) by the   
board of directors by a majority vote of a quorum consisting of directors who   
were not parties to such action, suit or proceeding, or (2) if such a quorum is 
not obtainable, or, even if obtainable, a quorum of disinterested directors so  
directs, by independent legal counsel in a written opinion, or (3) by the       
stockholders.                                                                   

 Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,      
administrative or investigative action, suit or proceeding may be paid by the   
corporation in advance of the final disposition of such action, suit or         
proceeding upon receipt of an                                                   

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undertaking by or on behalf of such director or officer to repay such amount if 
it shall ultimately be determined that he is not entitled to be indemnified by  
the corporation as authorized in Section 145. Such expenses (including          
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.      

    Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of       
Section 145 shall not be deemed exclusive of any other rights to which those    
seeking indemnification or advancement of expenses may be entitled under any    
bylaw, agreement, vote of stockholders or disinterested directors or otherwise, 
both as to action in his official capacity and as to action in another capacity 
while holding such office.                                                      

     Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a      
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of     
another corporation, partnership, joint venture, trust or other enterprise,     
against any liability asserted against him and incurred by him in any such      
capacity, or arising out of his status as such, whether or not the corporation  
would have the power to indemnify him against such liability under the          
provisions of Section 145.                                                      

    Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless      
otherwise provided when authorized or ratified, continue as to a person who has 
ceased to be a director, officer, employee or agent, and shall inure to the     
benefit of the heirs, executors and administrators of such a person.            

Restated Certificate of Incorporation                                       

    Zapata's Restated Certificate of Incorporation provides that a director of
Zapata shall not be personally liable to Zapata or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to Zapata or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct 
or a knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for  
any transaction from which the director derived an improper personal benefit.   
Any repeal or modification of such provision of the Restated Certificate of     
Incorporation by the stockholders of Zapata shall be prospective only, and shall
not adversely affect any limitation on the personal liability of a director of  
Zapata existing at the time of such repeal or modification.                     

By-laws                                                                     

    Zapata's By-laws provide that each person who was or is made a party or is
threatened to be made a party to any threatened, pending or completed action,   
suit or proceeding, whether civil, criminal, administrative or investigative    
(other than an action by or in the right of Zapata), by reason of the fact that 
he is or was a director or officer of Zapata or is or was serving or has agreed 
to serve at the request of Zapata as a director or officer of another           
corporation, partnership, joint venture, trust or other enterprise, shall,      
subject to certain limitations, be indemnified against expenses (including      
attorneys' fees), judgments, fines and amounts paid in settlement actually and  
reasonably incurred by such person in connection therewith, subject to certain  
conditions. Zapata's By-laws also provide, subject to certain limitations, that 
Zapata shall indemnify any person who was or is a party or is threatened to be  
made a party to any threatened, pending or completed action or suit by or in the
right of Zapata to procure a judgment in its favor by reason of the fact that   
such person is or was a director or officer of Zapata, or is or was serving at  
the request of Zapata as a director or officer of another corporation,          
partnership, joint venture, trust or other enterprise, against any expenses     
actually and reasonably incurred by such person in connection with the defense  
or settlement of such action or suit, if he acted in good faith and in a manner 
he reasonably believed to be in or not opposed to the best interests of Zapata. 
Zapata's By-laws further specify procedures for advancement of expenses by      
Zapata in certain circumstances. Zapata's By-laws also empower Zapata to        
purchase and maintain insurance that protects its officers, directors, employees
and agents against any liabilities incurred in connection with their service in 
such positions.                                                                 

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Indemnification Agreements                                                  

Zapata has entered into Indemnification Agreements with each of its   
directors and executive officers. The Indemnification Agreements provide for    
indemnification substantially consistent with the indemnification provisions of 
Zapata's By-laws. The Indemnification Agreements also provide for specific      
procedures regarding the right to indemnification and for the advancement of    
expenses, including procedures for the submission of claims for indemnification,
procedures for determining entitlement to indemnification (including the        
allocation of the burden of proof and selection of a reviewing party) and       
provisions for the enforcement of the indemnification rights established        
thereunder.                                                                     

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                             

(a) The following is a list of all exhibits filed as a part of the    
Registration Statement.                                                         

                                                        [Enlarge/Download Table]

      EXHIBIT                                                                                
        NO.                                          DOCUMENT                                
-------------------- ------------------------------------------------------------------------
                                                                                             
        2.1          -- Agreement and Plan of Merger dated as of June 4, 1996 among Zapata,  
                        Zapata Acquisition Corp. and Houlihan's (included as Annex A to the  
                        Joint Proxy Statement/Prospectus).                                   

        3.1*         -- Restated Certificate of Incorporation of Zapata filed with Secretary 
                        of State of Delaware on May 3, 1994 (filed as Exhibit 3(a) to Current
                        Report on Form 8-K dated April 27, 1994 (File No. 1-4219) and        
                        incorporated herein by reference).                                   

        3.2*         -- Certificate of Designation, Preferences and Rights of $1 Preference  
                        Stock (filed as Exhibit 3(c) to Zapata's Quarterly Report on Form    
                        10-Q for the fiscal quarter ended March 31, 1993 (File No. 1-4219)   
                        and incorporated herein by reference).                               

        3.3*         -- Certificate of Designation, Preferences and Rights of $100 Preference
                        Stock (filed as Exhibit 3(d) to Zapata's Quarterly Report on Form    
                        10-Q for the fiscal quarter ended March 31, 1993 (File No. 1-4219)   
                        and incorporated herein by reference).                               

        3.4*         -- By-laws of Zapata (filed as Exhibit 3(d) to Zapata's Annual Report on
                        Form 10-K for the fiscal year ended September 30, 1995 (File No.     
                        1-4219) and incorporated herein by reference).                       

        4.1*         -- Second Amended and Restated Master Restructuring Agreement, dated as 
                        of April 16, 1993, between Zapata and Nortex Drilling Ltd. (filed as 
                        Exhibit 12 to Zapata's Amendment No. 3 to Schedule 13D dated April   
                        30, 1993 and incorporated herein by reference).                      

        4.2*         -- First Amendment to Second Amended and Restated Master Restructuring  
                        Agreement dated as of May 17, 1993 between Zapata and Norex Drilling 
                        Ltd. (filed as Exhibit 4(c) to Zapata's Registration Statement on    
                        Form S-1 (File No. 33-68034) and incorporated herein by reference).  

        4.3*         -- Second Amendment to Second Amended and Restated Master Restructuring 
                        Agreement, dated as of December 17, 1993, between Zapata and Norex   
                        Drilling Ltd. (filed as Exhibit 4(c) to Zapata's Annual Report on    
                        Form 10-K for the fiscal year ended September 30, 1993 (File No.     
                        1-4219) and incorporated herein by reference).                       

        4.4*         -- Securities Liquidity Agreement, dated as of December 19, 1990, by and
                        among Zapata and each of the securities holders party thereto (filed 
                        as Exhibit 4(b) to Zapata's Annual Report on Form 10-K for the fiscal
                        year ended September 30, 1990 (File No. 1-4219) and incorporated     
                        herein by reference).                                                

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      EXHIBIT                                                                                
        NO.                                          DOCUMENT                                
-------------------- ------------------------------------------------------------------------
                                                                                             
        4.5*         -- Consent Letter and Waiver dated as of March 7, 1995, by and between  
                        Norex America, Inc. and Zapata (filed as Exhibit 4(e) to Zapata's    
                        Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 
                        1995 (File No. 1-4219) and incorporated herein by reference).        
     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.       
        5.1**        -- Opinion of Baker & Botts, L.L.P.                                     
        8.1**        -- Tax opinion of Baker & Botts, L.L.P.                                 
       10.1*         -- Zapata 1990 Stock Option Plan (filed as Exhibit 10(b) to Zapata's    
                        Annual Report on Form 10-K for the fiscal year ended September 30,   
                        1990 (File No. 1-4219) and incorporated herein by reference).        
       10.2*         -- First Amendment to Zapata 1990 Stock Option Plan (filed as Exhibit   
                        10(c) to Zapata's Registration Statement on Form S-1 (Registration   
                        No. 33-40286) and incorporated herein by reference).                 
       10.3*         -- Zapata Special Incentive Plan, as amended and restated effective     
                        February 6, 1992 (filed as Exhibit 10(a) to Zapata's Quarterly Report
                        on Form 10-Q for the quarter ended March 31, 1992 (File No. 1-4219)  
                        and incorporated herein by reference).                               
       10.4*         -- Zapata 1981 Stock Incentive Plan, as amended and restated effective  
                        February 12, 1986 (filed as Exhibit 19(a) to Zapata's Quarterly      
                        Report on Form 10-Q for the fiscal quarter ended March 31, 1986 (File
                        No. 1-4219) and incorporated herein by reference).                   
       10.5*         -- Zapata Supplemental Pension Plan effective as of April 1, 1992 (filed
                        as Exhibit 10(b) to Zapata's Quarterly Report on Form 10-Q for the   
                        quarter ended March 31, 1992 (File No. 1-4219) and incorporated      
                        herein by reference).                                                
       10.*6         -- Zapata Annual Incentive Plan effective January 1, 1991 (filed as     
                        Exhibit 10(h) to Zapata's Registration Statement on Form S-1         
                        (Registration No. 33-40286) and incorporated herein by reference).   
       10.7*         -- Cimarron Gas Companies, Inc. Incentive Appreciation Plan, effective  
                        as of September 30, 1992 (filed as Exhibit 2(c) to Zapata's Current  
                        Report on Form 8-K dated November 24, 1992 (File No. 1-4219) and     
                        incorporated herein by reference).                                   
       10.8*         -- Noncompetition Agreement dated as of November 9, 1993 by and among   
                        Zapata and Peter M. Holt and Benjamin D. Holt, Jr. (filed as Exhibit 
                        10(q) to Zapata's Annual Report on Form 10-K for the fiscal year     
                        ended September 30, 1994 (File No. 1-4219) and incorporated herein by
                        reference).                                                          
       10.9*         -- Termination Agreement between Cimarron Gas Companies, Inc. and James 
                        C. Jewett dated as of January 24, 1994 (filed as Exhibit 10(a) to    
                        Zapata's Quarterly Report on Form 10-Q for the fiscal quarter ended  
                        December 31, 1993 (File No. 1-4219) and incorporated herein by       
                        reference).                                                          
       10.10*        -- Consulting Agreement dated as of July 1, 1994 between Zapata         
                        Corporation and Thomas H. Bowersox (filed as Exhibit 10(w) to Zapata 
                        Annual Report on Form 10-K for the fiscal year ended September 30,   
                        1994 (File No. 1-4219) and incorporated herein by reference).        

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      EXHIBIT                                                                                
        NO.                                          DOCUMENT                                
-------------------- ------------------------------------------------------------------------
                                                                                             
       10.11*        -- Consulting Agreement between Ronald C. Lassiter and Zapata dated as  
                        of July 15, 1994 (filed as Exhibit 10(a) to Zapata's Quarterly Report
                        on Form 10-Q for the fiscal quarter ended June 30, 1994 (File No.    
                        1-4219) and incorporated herein by reference).                       
       10.12*        -- Employment Agreement between Lamar C. McIntyre and Zapata dated as of
                        October 1, 1994 (filed as Exhibit 10(v) to Zapata's Annual Report on 
                        Form 10-K for the fiscal year ended September 30, 1994 (File No.     
                        1-4219) and incorporated herein by reference).                       
       10.13*        -- Purchase Agreement dated as of April 10, 1995 by and between Norex   
                        America, Inc. and Zapata relating to 2,250,000 shares of Zapata      
                        Common Stock (filed as Exhibit 10(c) to Zapata's Quarterly Report on 
                        Form 10-Q for the fiscal quarter ended March 31, 1995 (File No.      
                        1-4219) and incorporated herein by reference).                       
       10.14*        -- Assignment and Assumption of Consulting Agreement effective as of    
                        July 1, 1995 by and between Zapata and Zapata Protein, Inc. (filed as
                        Exhibit 10(b) to Zapata's Quarterly Report on Form 10-Q for the      
                        fiscal quarter ended June 30, 1995 (File No. 1-4219) and incorporated
                        herein by reference).                                                
       10.15*        -- Stock Purchase Agreement dated as of August 7, 1995 between Zapata   
                        Corporation and Malcolm I. Glazer (filed as Exhibit 10(o) to Zapata's
                        Annual Report on Form 10-K for the fiscal year ended September 30,   
                        1994 (File No. 1-4219) and incorporated herein by reference).        
       10.16*        -- Mutual Release Agreement dated as of December 1, 1995 by and among   
                        Zapata Corporation, Cimarron Gas Holding Company, Robert W. Jackson, 
                        and the Robert W. Jackson Trust (filed as Exhibit 10(P) to Zapata's  
                        Annual Report on Form 10-K for the fiscal year ended September 30,   
                        1994 (File No. 1-4219) and incorporated herein by reference).        
       10.17**       -- Employment Agreement between Zapata and William W. Moreton.          
       10.18         -- Standstill Agreement dated April 30, 1996 between Zapata and Malcolm 
                        I. Glazer.                                                           
       10.19         -- Irrevocable proxy dated June 4, 1996 granted by Malcolm I. Glazer to 
                        members of the Zapata Special Committee.                             
       10.20         -- Supplemental Agreement dated June 4, 1996 between Malcolm I. Glazer  
                        and Zapata.                                                          
       10.21         -- 1996 Long-Term Incentive Plan of Zapata (included as Annex E to the  
                        Joint Proxy Statement/Prospectus).                                   
       10.22         -- Form of Indemnification Agreement between Zapata and each of its     
                        directors and executive officers.                                    
       21            -- Subsidiaries of the Registrant.                                      
       23.1          -- Consent of Arthur Andersen LLP.                                      
       23.2          -- Consents of Coopers & Lybrand L.L.P.                                 
       23.3          -- Consent of Deloitte & Touche LLP.                                    
       23.4**        -- Consent of Baker & Botts, L.L.P. (contained in Exhibit 5.1).         
       23.5**        -- Consent of Richards, Layton & Finger.                                
       23.6**        -- Consent of CS First Boston Corporation.                              
       23.7**        -- Consent of Donaldson, Lufkin & Jenrette Securities Corporation.      
       23.8**        -- Consent of Warren H. Gfeller, as nominee for directorship.           

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      EXHIBIT                                                                                
        NO.                                          DOCUMENT                                
-------------------- ------------------------------------------------------------------------
                                                                                             
       23.9**        -- Consent of Frederick R. Hipp, as nominee for directorship.           

       24            -- Powers of Attorney.                                                  

       99.1          -- Form of Zapata Proxy.                                                

       99.2          -- Form of Houlihan's Proxy.                                            

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

* Incorporated by reference as indicated.                                     

** To be filed by amendment.                                                    

     Zapata will furnish a copy of any exhibit described above to any beneficial
holder of Zapata's securities upon receipt of a written request therefor        
provided that such request sets forth a good faith representation that as of    
July 17, 1996, the record date for the Zapata Annual Meeting, such beneficial   
owner is entitled to vote at such meeting, and provided further that such holder
pays to Zapata a fee compensating Zapata for its reasonable expenses in         
furnishing such exhibits.                                                       

ITEM 22. UNDERTAKINGS                                                           

(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the  
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the    
Securities Exchange Act of 1934 (and, where applicable, each filing of an       
employee benefit plan's annual report pursuant to Section 15(d) of the          
Securities Exchange Act of 1934) that is incorporated by reference in the       
registration statement shall be deemed to be a new registration statement       
relating to the securities offered therein, and the offering of such securities 
at that time shall be deemed to be the initial bona fide offering thereof.      

     (b) (1) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or     
party who is deemed to be an underwriter within the meaning of Rule 145(c), the 
issuer undertakes that such reoffering prospectus will contain the information  
called for by the applicable registration form with respect to reofferings by   
persons who may be deemed underwriters, in addition to the information called   
for by the other items of the applicable form.                                  

(2) The Registrant hereby undertakes that every prospectus (i) that is
filed pursuant to Paragraph (1) immediately preceding, or (ii) that purports to 
meet the requirements of Section 10(a)(3) of the Act and is used in connection  
with an offering of securities subject to Rule 415, will be filed as a part of  
an amendment to the registration statement and will not be used until such      
amendment is effective, and that, for purposes of determining any liability     
under the Securities Act of 1933, each post-effective amendment shall be deemed 
to be a new registration statement relating to the securities offered therein,  
and the offering of such securities at that time shall be deemed to be the      
initial bona fide offering thereof.                                             

     (c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of  
the Registrant pursuant to the foregoing provisions, or otherwise, the          
Registrant has been advised that in the opinion of the Securities and Exchange  
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification 
against such liabilities (other than the payment by the Registrant of expenses  
incurred or paid by a director, officer or controlling person of the Registrant 
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being 
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate     
jurisdiction the question whether such indemnification by it is against public  
policy as expressed in the Act and will be governed by the final adjudication of
such issue.                                                                     

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INDEX TO EXHIBITS 

                                                        [Enlarge/Download Table]

      EXHIBIT                                                                                
        NO.                                          DOCUMENT                                
-------------------- ------------------------------------------------------------------------
                                                                                             
        2.1          -- Agreement and Plan of Merger dated as of June 4, 1996 among Zapata,  
                        Zapata Acquisition Corp. and Houlihan's (included as Annex A to the  
                        Joint Proxy Statement/Prospectus).                                   
        3.1*         -- Restated Certificate of Incorporation of Zapata filed with Secretary 
                        of State of Delaware on May 3, 1994 (filed as Exhibit 3(a) to Current
                        Report on Form 8-K dated April 27, 1994 (File No. 1-4219) and        
                        incorporated herein by reference).                                   
        3.2*         -- Certificate of Designation, Preferences and Rights of $1 Preference  
                        Stock (filed as Exhibit 3(c) to Zapata's Quarterly Report on Form    
                        10-Q for the fiscal quarter ended March 31, 1993 (File No. 1-4219)   
                        and incorporated herein by reference).                               
        3.3*         -- Certificate of Designation, Preferences and Rights of $100 Preference
                        Stock (filed as Exhibit 3(d) to Zapata's Quarterly Report on Form    
                        10-Q for the fiscal quarter ended March 31, 1993 (File No. 1-4219)   
                        and incorporated herein by reference).                               
        3.4*         -- By-laws of Zapata (filed as Exhibit 3(d) to Zapata's Annual Report on
                        Form 10-K for the fiscal year ended September 30, 1995 (File No.     
                        1-4219) and incorporated herein by reference).                       
        4.1*         -- Second Amended and Restated Master Restructuring Agreement, dated as 
                        of April 16, 1993, between Zapata and Nortex Drilling Ltd. (filed as 
                        Exhibit 12 to Zapata's Amendment No. 3 to Schedule 13D dated April   
                        30, 1993 and incorporated herein by reference).                      
        4.2*         -- First Amendment to Second Amended and Restated Master Restructuring  
                        Agreement dated as of May 17, 1993 between Zapata and Norex Drilling 
                        Ltd. (filed as Exhibit 4(c) to Zapata's Registration Statement on    
                        Form S-1 (File No. 33-68034) and incorporated herein by reference).  
        4.3*         -- Second Amendment to Second Amended and Restated Master Restructuring 
                        Agreement, dated as of December 17, 1993, between Zapata and Norex   
                        Drilling Ltd. (filed as Exhibit 4(c) to Zapata's Annual Report on    
                        Form 10-K for the fiscal year ended September 30, 1993 (File No.     
                        1-4219) and incorporated herein by reference).                       
        4.4*         -- Securities Liquidity Agreement, dated as of December 19, 1990, by and
                        among Zapata and each of the securities holders party thereto (filed 
                        as Exhibit 4(b) to Zapata's Annual Report on Form 10-K for the fiscal
                        year ended September 30, 1990 (File No. 1-4219) and incorporated     
                        herein by reference).                                                
        4.5*         -- Consent Letter and Waiver dated as of March 7, 1995, by and between  
                        Norex America, Inc. and Zapata (filed as Exhibit 4(e) to Zapata's    
                        Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 
                        1995 (File No. 1-4219) and incorporated herein by reference).        
     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.           
        5.1**        -- Opinion of Baker & Botts, L.L.P.                                     
        8.1**        -- Tax opinion of Baker & Botts, L.L.P.                                 
       10.1*         -- Zapata 1990 Stock Option Plan (filed as Exhibit 10(b) to Zapata's    
                        Annual Report on Form 10-K for the fiscal year ended September 30,   
                        1990 (File No. 1-4219) and incorporated herein by reference).        

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      EXHIBIT                                                                                
        NO.                                          DOCUMENT                                
-------------------- ------------------------------------------------------------------------
                                                                                             
       10.2*         -- First Amendment to Zapata 1990 Stock Option Plan (filed as Exhibit   
                        10(c) to Zapata's Registration Statement on Form S-1 (Registration   
                        No. 33-40286) and incorporated herein by reference).                 
       10.3*         -- Zapata Special Incentive Plan, as amended and restated effective     
                        February 6, 1992 (filed as Exhibit 10(a) to Zapata's Quarterly Report
                        on Form 10-Q for the quarter ended March 31, 1992 (File No. 1-4219)  
                        and incorporated herein by reference).                               
       10.4*         -- Zapata 1981 Stock Incentive Plan, as amended and restated effective  
                        February 12, 1986 (filed as Exhibit 19(a) to Zapata's Quarterly      
                        Report on Form 10-Q for the fiscal quarter ended March 31, 1986 (File
                        No. 1-4219) and incorporated herein by reference).                   
       10.5*         -- Zapata Supplemental Pension Plan effective as of April 1, 1992 (filed
                        as Exhibit 10(b) to Zapata's Quarterly Report on Form 10-Q for the   
                        quarter ended March 31, 1992 (File No. 1-4219) and incorporated      
                        herein by reference).                                                
       10.*6         -- Zapata Annual Incentive Plan effective January 1, 1991 (filed as     
                        Exhibit 10(h) to Zapata's Registration Statement on Form S-1         
                        (Registration No. 33-40286) and incorporated herein by reference).   
       10.7*         -- Cimarron Gas Companies, Inc. Incentive Appreciation Plan, effective  
                        as of September 30, 1992 (filed as Exhibit 2(c) to Zapata's Current  
                        Report on Form 8-K dated November 24, 1992 (File No. 1-4219) and     
                        incorporated herein by reference).                                   
       10.8*         -- Noncompetition Agreement dated as of November 9, 1993 by and among   
                        Zapata and Peter M. Holt and Benjamin D. Holt, Jr. (filed as Exhibit 
                        10(q) to Zapata's Annual Report on Form 10-K for the fiscal year     
                        ended September 30, 1994 (File No. 1-4219) and incorporated herein by
                        reference).                                                          
       10.9*         -- Termination Agreement between Cimarron Gas Companies, Inc. and James 
                        C. Jewett dated as of January 24, 1994 (filed as Exhibit 10(a) to    
                        Zapata's Quarterly Report on Form 10-Q for the fiscal quarter ended  
                        December 31, 1993 (File No. 1-4219) and incorporated herein by       
                        reference).                                                          
       10.10*        -- Consulting Agreement dated as of July 1, 1994 between Zapata         
                        Corporation and Thomas H. Bowersox (filed as Exhibit 10(w) to Zapata 
                        Annual Report on Form 10-K for the fiscal year ended September 30,   
                        1994 (File No. 1-4219) and incorporated herein by reference).        
       10.11*        -- Consulting Agreement between Ronald C. Lassiter and Zapata dated as  
                        of July 15, 1994 (filed as Exhibit 10(a) to Zapata's Quarterly Report
                        on Form 10-Q for the fiscal quarter ended June 30, 1994 (File No.    
                        1-4219) and incorporated herein by reference).                       
       10.12*        -- Employment Agreement between Lamar C. McIntyre and Zapata dated as of
                        October 1, 1994 (filed as Exhibit 10(v) to Zapata's Annual Report on 
                        Form 10-K for the fiscal year ended September 30, 1994 (File No.     
                        1-4219) and incorporated herein by reference).                       
       10.13*        -- Purchase Agreement dated as of April 10, 1995 by and between Norex   
                        America, Inc. and Zapata relating to 2,250,000 shares of Zapata      
                        Common Stock (filed as Exhibit 10(c) to Zapata's Quarterly Report on 
                        Form 10-Q for the fiscal quarter ended March 31, 1995 (File No.      
                        1-4219) and incorporated herein by reference).                       

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      EXHIBIT                                                                                
        NO.                                          DOCUMENT                                
-------------------- ------------------------------------------------------------------------
                                                                                             
       10.14*        -- Assignment and Assumption of Consulting Agreement effective as of    
                        July 1, 1995 by and between Zapata and Zapata Protein, Inc. (filed as
                        Exhibit 10(b) to Zapata's Quarterly Report on Form 10-Q for the      
                        fiscal quarter ended June 30, 1995 (File No. 1-4219) and incorporated
                        herein by reference).                                                
       10.15*        -- Stock Purchase Agreement dated as of August 7, 1995 between Zapata   
                        Corporation and Malcolm I. Glazer (filed as Exhibit 10(o) to Zapata's
                        Annual Report on Form 10-K for the fiscal year ended September 30,   
                        1994 (File No. 1-4219) and incorporated herein by reference).        
       10.16*        -- Mutual Release Agreement dated as of December 1, 1995 by and among   
                        Zapata Corporation, Cimarron Gas Holding Company, Robert W. Jackson, 
                        and the Robert W. Jackson Trust (filed as Exhibit 10(P) to Zapata's  
                        Annual Report on Form 10-K for the fiscal year ended September 30,   
                        1994 (File No. 1-4219) and incorporated herein by reference).        
       10.17**       -- Employment Agreement between Zapata and William W. Moreton.          
       10.18         -- Standstill Agreement dated April 30, 1996 between Zapata and Malcolm 
                        I. Glazer.                                                           
       10.19         -- Irrevocable proxy dated June 4, 1996 granted by Malcolm I. Glazer to 
                        members of the Zapata Special Committee.                             
       10.20         -- Supplemental Agreement dated June 4, 1996 between Malcolm I. Glazer  
                        and Zapata.                                                          
       10.21         -- 1996 Long-Term Incentive Plan of Zapata (included as Annex E to the  
                        Joint Proxy Statement/Prospectus).                                   
       10.22         -- Form of Indemnification Agreement between Zapata and each of its     
                        directors and executive officers.                                    
       21            -- Subsidiaries of the Registrant.                                      
       23.1          -- Consent of Arthur Andersen LLP.                                      
       23.2          -- Consents of Coopers & Lybrand L.L.P.                                 
       23.3          -- Consent of Deloitte & Touche LLP.                                    
       23.4**        -- Consent of Baker & Botts, L.L.P. (contained in Exhibit 5.1).         
       23.5**        -- Consent of Richards, Layton & Finger.                                
       23.6**        -- Consent of CS First Boston Corporation.                              
       23.7**        -- Consent of Donaldson, Lufkin & Jenrette Securities Corporation.      
       23.8**        -- Consent of Warren H. Gfeller, as nominee for directorship.           
       23.9**        -- Consent of Frederick R. Hipp, as nominee for directorship.           
       24            -- Powers of Attorney.                                                  
       99.1          -- Form of Zapata Proxy.                                                
       99.2          -- Form of Houlihan's Proxy.                                            

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

* Incorporated by reference as indicated.                                     

** To be filed by amendment.