TRANSAMERICAN REFINING CORP, 10-K405, 1997-05-01

TRANSAMERICAN REFINING CORP
10-K405, 1997-05-01
PETROLEUM REFINING

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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

FOR THE FISCAL YEAR ENDED JANUARY 31, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

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

REGISTRATION NUMBER 33-85930

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

<TABLE>
<S> <C>
TEXAS 76-0229632
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)

1300 NORTH SAM HOUSTON PARKWAY EAST
SUITE 320
HOUSTON, TEXAS 77032
(Address of principal executive offices) (Zip code)
</TABLE>

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 986-8811

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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. [X]

The number of shares of common stock and common stock purchase warrants of
the registrant outstanding on April 30, 1997, was 30,000,000 and 7,495,313,
respectively.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 6
Item 3. Legal Proceedings........................................... 6
Item 4. Submission of Matters to a Vote of Security Holders......... 6
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 7
Item 6. Selected Financial Data..................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 8
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 14
Item 8. Financial Statements and Supplementary Data................. 15
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 37
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 38
Item 11. Executive Compensation...................................... 39
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 40
Item 13. Certain Relationships and Related Transactions.............. 41
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 43
Signatures............................................................ 46
</TABLE>
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PART I

ITEM 1. BUSINESS

GENERAL

TransAmerican Refining Corporation (the "Company" or "TARC") was formed in
1987 to hold and operate the refinery assets of TransAmerican Natural Gas
Corporation (together with its predecessors, "TransAmerican") and is engaged in
the refining and storage of crude oil and petroleum products.

TransAmerican Energy Corporation ("TEC") is a limited-purpose holding
company formed in 1994 to hold certain shares of common stock of TransTexas Gas
Corporation ("TransTexas") and all of the outstanding capital stock of TARC.
TARC, TransTexas and TEC are all direct or indirect subsidiaries of
TransAmerican. The address of TARC's principal executive offices is 1300 North
Sam Houston Parkway East, Suite 320, Houston, Texas 77032, and its telephone
number at that address is (281) 986-8811.

BACKGROUND

Founded in 1958 by John R. Stanley with a single gas station, TransAmerican
grew rapidly and by the mid-1970s had developed into a chain of over 200
independent gasoline stations in New England and New York. In the early 1970s,
TransAmerican sought to vertically integrate its retail gasoline operations by
purchasing a refinery in Louisiana. During this period, TransAmerican also
entered the exploration and production business by acquiring certain oil and gas
properties in South Texas.

In 1974, TransAmerican began construction of a $140 million ammonia plant
that would use natural gas from its South Texas drilling operations as
feedstock. Primarily as a result of a collapse in ammonia prices, TransAmerican
was unable to obtain sufficient financing to complete construction of the plant.
Unable to meet its obligations, TransAmerican and its affiliates filed a
voluntary bankruptcy petition in October 1975. TransAmerican began operating
pursuant to a confirmed plan of reorganization in May 1980.

In 1979, TransAmerican began an expansion and modernization program at the
refinery. However, in January 1983, before completion of the construction
program and after expenditures of over $900 million, financial difficulties
prevented completion of certain units of the refinery and forced a shutdown of
operations. As a result, TransAmerican filed a voluntary bankruptcy petition.
TransAmerican emerged from bankruptcy in October 1987. As a condition of the
bankruptcy plan, TransAmerican formed TARC as a wholly owned subsidiary and
transferred its refinery's net assets to TARC. From 1983 to August 1993,
TransAmerican and TARC spent approximately $125 million on maintenance and
capital expenditures at the refinery.

In February 1995, TARC issued $340 million aggregate principal amount of
18 1/2% Guaranteed First Mortgage Discount Notes due 2002 and $100 million
aggregate principal amount of 16 1/2% Guaranteed First Mortgage Notes due 2002
(together with the First Mortgage Discount Notes, the "TARC Notes"). The net
proceeds from this offering were used to fund the expansion and upgrading of
TARC's refinery, for working capital requirements, including construction costs
incurred prior to the offering and repayment of intercompany debt to
TransAmerican.

The TARC Notes are unconditionally guaranteed on a senior secured basis
(the "Guarantee") by TEC. The Guarantee and the TARC Notes are currently
collateralized by TEC's only assets, which consist of 100% of the outstanding
capital stock of TARC and 40 million shares of common stock (54% of the
currently outstanding capital stock) of TransTexas held by TEC. In addition,
5.45 million shares of common stock (7.4% of the currently outstanding capital
stock) of TransTexas held by TARC are pledged to collateralize the TARC Notes
and the Guarantee. Under certain circumstances, shares of TransTexas common
stock pledged to collateralize the Guarantee may be released from such pledge.
If required to honor the Guarantee, TEC has no current ability to do so without
selling its shares of capital stock of TransTexas or TARC.

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BUSINESS OF TARC

TARC's refinery is located in the Gulf Coast region along the Mississippi
River, approximately 20 miles from New Orleans, Louisiana. TARC's business
strategy is to modify, expand and reactivate its refinery and to maximize
refining margins by converting low-cost, heavy, sour crude oils into high-value,
light petroleum products including primarily gasoline and heating oil.

In February 1995, TARC began a construction and expansion program designed
to reactivate the refinery and increase its complexity (the "Capital Improvement
Program"). From February 1995 through March 1997, TARC spent approximately $238
million on the Capital Improvement Program, procured a majority of the equipment
required and completed substantially all of the process design engineering and a
substantial portion of the remaining engineering necessary to complete this
project.

Primarily because additional financing was not available, TARC was unable
to meet the construction completion timetable for the Capital Improvement
Program as required under the TARC Notes Indenture. In February 1997, TARC
solicited and received from the holders of the TARC Notes consents to certain
waivers under and amendments to the Indenture governing the TARC Notes. Pursuant
to this consent solicitation, the holders of the TARC Notes waived, until July
15, 1997, the default under the TARC Notes Indenture which would have occurred
on February 15, 1997 as a result of TARC's failure to meet the required
completion timetable. The waiver of this default will cease to be effective on
July 15, 1997. Unless the default has been further waived, or the Company
completes a recapitalization that satisfies the holders of the TARC Notes, such
holders would then be entitled to pursue remedies available under the TARC Notes
Indenture, including acceleration of the maturity of the TARC Notes.

TARC must obtain substantial additional financing to fund any additional
expansion or modification of the refinery. It is likely that the scope,
completion schedule and other aspects of the Capital Improvement Program will be
modified in connection with obtaining additional financing. The scope,
completion schedule, amount of additional expenditures required and other
aspects of additional expansion and modification of the refinery will depend
upon, among other factors, the availability and timing of such financing. TEC
and its operating subsidiaries are considering various financing alternatives,
including a recapitalization of TEC, TARC and TransTexas. The Company expects
that these recapitalizations can be completed by July 15, 1997. However, there
can be no assurance that TARC will obtain the required additional financing.

CURRENT OPERATIONS

In March 1994, TARC commenced partial operations at the refinery with the
start up of the No. 2 Vacuum Unit and has operated this unit intermittently
since then based on operating margins. In addition, modifications and tie-ins to
the No. 2 Crude Unit have been completed. Although both units are operational,
TARC is not currently operating these units due to the low level of operating
margins obtainable for these units on a stand-alone basis.

TARC believes that the No. 2 Vacuum Unit has a capacity in excess of
200,000 BPD. TARC reactivated the No. 2 Vacuum Unit in March 1994. When the No.
2 Crude Unit is placed into operation, the No. 2 Vacuum Unit will process
bottoms from the No. 2 Crude Unit into vacuum gas oil ("VGO") and, with the
addition of cutterstocks, into No. 6 residual fuel oil. The No. 2 Crude Unit was
designed to process heavy, sour crude oil and, prior to the 1983 shutdown,
demonstrated a capacity of 175,000 BPD.

Subsequent to year end, TARC entered into a commitment to purchase 0.6
million barrels of feedstock at $24.68 per barrel plus interest at 8.25%,
demurrage, bank fees and other related costs. Based on a market value of
approximately $18.15 per barrel at April 29, 1997, the loss on the feedstock is
estimated to range between $4 and $5 million.

CAPITAL IMPROVEMENT PROGRAM

The Capital Improvement Program is designed to increase the capacity and
complexity of the refinery. From February 1995 through March 1997, TARC spent
approximately $238 million on the Capital

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Improvement Program, procured a majority of the equipment required and completed
substantially all of the process design engineering and a substantial portion of
the remaining engineering necessary to complete this project. Substantial
additional expenditures are necessary to complete the Capital Improvement
Program. TARC must obtain additional financing to fund any additional expansion
or modification of the refinery. TEC and its operating subsidiaries are
considering various financing alternatives, including a recapitalization of TEC,
TARC and TransTexas. The Company expects that these financing alternatives will
provide the funds necessary to complete construction and expansion of the
refinery. However, there can be no assurance that TARC will obtain additional
financing.

The expansion and modification of the refinery is expected to include the
following significant projects: (i) conversion of the visbreaker unit into a
delayed coking unit to process vacuum tower bottoms into lighter petroleum
products, (ii) modernization and upgrade of a fluid catalytic cracking unit to
increase gasoline production capacity and allow the direct processing of low
cost atmospheric residual feedstocks, and (iii) upgrading and expanding
hydrotreating, alkylation and sulfur recovery units to increase sour crude
processing capacity. The Capital Improvement Program includes expenditures which
TARC believes are necessary to ensure that the refinery is in compliance with
certain existing air and water discharge regulations and that gasoline produced
will comply with federal standards. It is likely that the scope and other
aspects of the Capital Improvement Program will be modified in connection with
obtaining additional financing for the refinery. The scope, completion schedule,
amount of additional expenditures required and other aspects of additional
expansion and modification of the refinery will depend upon, among other
factors, the availability and timing of such financing.

FINANCING ARRANGEMENTS AND PROCESSING AGREEMENTS

TARC historically has entered into financing arrangements in order to
maintain an available supply of feedstocks. Typically, TARC enters into an
agreement with a third party to acquire a cargo of feedstock which is scheduled
for delivery to TARC's refinery. TARC pays through the third party all
transportation costs, related taxes and duties and letter of credit fees for the
cargo, plus a negotiated commission. Prior to arrival at the refinery, another
third party purchases the cargo, and TARC commits to purchase, at a later date,
the cargo at an agreed price plus commission and costs. TARC also places margin
deposits with the third party to permit the third party to hedge its price risk.
TARC purchases these cargos in quantities sufficient to maintain expected
operations and is obligated to purchase all of the cargos delivered pursuant to
these arrangements. In the event the refinery is not operating, these cargos may
be sold on the spot market. During the year ended January 31, 1997,
approximately 1.1 million barrels of feedstocks with a cost of $23 million were
sold by a third party on the spot market prior to delivery to TARC without a
material gain or loss to TARC.

In March 1996, TARC entered into a processing agreement with a third party
for the processing of various feedstocks at the refinery. Under the terms of the
agreement, the processing fee earned by TARC is based on the margin earned by
the third party, if any, after deducting all of its related costs such as
feedstock acquisition, hedging, transportation, processing and inspections plus
a commission for each barrel processed. For the year ended January 31, 1997,
TARC processed approximately 1.1 million barrels of feedstock pursuant to this
agreement. TARC incurred a loss of approximately $2.6 million related to this
processing agreement primarily as a result of low margins and price management
activities.

In April 1996, TARC entered into a similar processing agreement with
another third party to process feedstocks. As of January 31, 1997, TARC had
completed processing approximately 6.4 million barrels of feedstocks and is
storing approximately 1.0 million barrels of intermediate and refined products
under this agreement. TARC also entered into a processing agreement with this
third party to process approximately 0.8 million barrels of the third party's
feedstocks for a fixed price per barrel. Under the terms of this fixed price
agreement, TARC met all quantity and quality yields earning the full price per
barrel. For the year ended January 31, 1997, TARC recorded a net loss of
approximately $4.5 million related to these processing arrangements primarily as
a result of low margins and price management activities.

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PRICE MANAGEMENT ACTIVITIES

In order to mitigate the commodity price risks associated with the refining
business, TARC has previously entered, and may in the future enter, into futures
contracts, options on futures, swap agreements and forward sale agreements
commensurate with its inventory levels and feedstock requirements and as
permitted under the Indenture. If TARC believes it can capitalize on favorable
market conditions, it will attempt to utilize the futures market to fix a
portion of its crude oil costs and refined products values. This hedging
strategy is designed to retain the value of a portion of its work-in-process
inventory.

CRUDE OIL AND FEEDSTOCK SUPPLY

TARC purchases feedstocks on the spot market but has no long-term supply
contracts. TARC believes that it will have access to adequate supplies of the
crude oil it intends to process. Upon completion of the expansion and
modification program, TARC expects to purchase heavy, sour crude oils produced
in countries such as Venezuela and Mexico. TARC also expects to be able to take
advantage of anticipated increases in production of sour crude oil from the Gulf
of Mexico or the Persian Gulf.

The refinery has a variety of supply channels. The Mississippi River
permits delivery of feedstocks from both barge and ocean-going vessels. TARC has
its own ship dock and barge dock. The ship dock can accommodate 100,000
deadweight ton ("dwt") tankers that draw less than 45 feet of water, or larger
vessels that have been partially offloaded and draw less than 45 feet of water.
The barge dock provides access to smaller cargos of intermediate feedstocks such
as vacuum gas oil or atmospheric residuals. An adjacent storage terminal has
four ship docks to which TARC has access for loading or unloading of feedstocks.
TARC has executed a letter agreement for the exclusive use of one of these docks
on a long-term basis for shipping petroleum coke and other refinery products.
Additionally, TARC is connected to a Shell Oil Company crude pipeline that
provides access to Louisiana Offshore Oil Port's 24-inch pipeline network,
thereby permitting TARC to receive large quantities of foreign crude oil. This
pipeline also provides access to domestic crudes.

TARC has no crude oil reserves and is not engaged in the exploration for
crude oil, and plans to obtain all its crude oil requirements from unaffiliated
sources. TARC believes that it will be able to obtain adequate supplies of crude
oil and feedstocks at generally competitive prices for the foreseeable future.
Crude oil prices are affected by a variety of factors beyond the control of
TARC. The principal factors currently influencing prices include the pricing and
production policies of members of the Organization of Petroleum Exporting
Countries, the availability to world markets of production from Kuwait, Iraq and
Russia and the worldwide and domestic demand for oil and refined products. Oil
pricing will continue to be unpredictable and greatly influenced by governmental
and political forces.

PRODUCT DISTRIBUTION

TARC previously sold its refined products pursuant to a processing
agreement with a third party, but currently has no long-term sales contracts.
Major market areas for TARC's refined products will include the Gulf Coast
region, the Mississippi River Valley and the East Coast of the United States as
well as foreign markets. TARC's refined products will be transported by
pipeline, train, ocean-going vessel and truck. TARC's refinery is connected,
through third-party pipelines, to two major Gulf Coast common carrier pipelines,
the Colonial and the Plantation, which will permit transportation of the
refinery's products to East Coast markets. TARC is also connected to several
pipelines designed to transfer refined products to a nearby refinery operated by
Shell Oil Company. Railroad lines serve the refinery and adjacent industries.
TARC's barge and ship docks, together and an adjacent terminal facility, provide
access to the Mississippi River and the intracoastal waterway.

FOREIGN TRADE ZONE

The refinery is approved for purposes of processing foreign crude to
operate as a foreign trade zone. This allows the refinery to realize the
benefits of processing foreign crude and exporting the products duty free or
deferring the duty on products sold domestically.

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INSURANCE

TARC maintains insurance in accordance with customary industry practices to
cover some, but not all, risks. TARC currently maintains property insurance for
the refinery in an amount and with deductibles that management believes will
allow TARC to survive damage to the refinery. TARC plans to increase insurance
coverage amounts from time to time as it completes certain portions of the
expansion and modification program.

SEASONALITY

TARC anticipates that its operations will be subject to significant
fluctuations in seasonal demand. In TARC's markets, demand for gasoline is
typically higher during the first and second quarters of TARC's fiscal year.
During winter months, demand for heating oil increases. The refinery is
designed, upon completion of the expansion and modification program, to change
its product yields to take advantage of seasonal demands.

FLUCTUATION IN PRICES

Factors that are beyond the control of TARC may cause the cost of crude oil
purchased by TARC and the price of refined products sold by TARC to fluctuate
widely. Although prices of crude oil and refined petroleum products generally
move in the same direction, prices of refined products often do not respond
immediately to changes in crude oil costs. An increase in market prices for
crude oil or a decrease in market prices for refined products could have an
adverse impact on TARC's earnings and cash flow.

COMPETITION

The industry in which TARC operates is highly competitive. TARC primarily
competes with refiners in the Gulf Coast region, many of which are owned by
large, integrated oil companies which, because of their more diverse operations,
stronger capitalizations or crude oil supply arrangements, are better able than
TARC to withstand volatile industry conditions, including shortages or excesses
of crude oil or refined products or intense price competition. The principal
competitive factors affecting TARC's refining operations are the quality,
quantity and delivered costs of crude oil and other refinery feedstocks,
refinery processing efficiency, mix of refined products, refined product prices
and the cost of delivering refined products to markets. Competition also exists
between the petroleum refining industry and other industries supplying energy
and fuel to industrial, commercial and individual consumers.

EMPLOYEES

As of April 1, 1997, TARC had approximately 150 employees and will employ
additional personnel as required by its operations and may engage the services
of engineering and other consultants from time to time. Currently, none of
TARC's employees is a party to a collective bargaining agreement. The Equal
Employment Opportunity Commission ("EEOC") has initiated an investigation into
the employment practices of TARC and Southeast Contractors (as defined),
alleging discriminatory hiring and promotion practices. See Note 11 to the Notes
to Financial Statements included elsewhere herein.

Since July 1994, Southeast Louisiana Contractors of Norco, Inc. ("Southeast
Contractors"), a subsidiary of TransAmerican, has provided construction
personnel to TARC in connection with TARC's expansion and modification program.
Southeast Contractors will provide construction personnel to TARC as required to
expand and modify the refinery. These construction workers are temporary
employees, and the number and composition of the workforce will vary throughout
the reactivation at the refinery during the expansion and modification program.
Southeast Contractors charges TARC for the direct costs it incurs, which consist
solely of employee payroll and benefits, plus administrative costs and fees;
such administrative costs and fees charged to TARC are $1.2 million per year.

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ENVIRONMENTAL MATTERS

For a discussion of environmental matters affecting TARC, see Note 11 of
Notes to Financial Statements included elsewhere herein.

OTHER GOVERNMENTAL REGULATIONS

TARC must also comply with federal and state laws and regulations
promulgated by the Department of Transportation for the movement of volatile and
flammable materials, the U.S. Coast Guard for marine operations and oil spill
prevention and the Occupational Safety and Health Administration ("OSHA") for
worker and job site safety. To comply with OSHA regulations, TARC must conduct
extensive Process Safety Management and Hazardous Operations reviews prior to
placing units into service.

ITEM 2. PROPERTIES

TARC owns the approximately 215-acre site on which the refinery is located.
TARC also has available, through ownership, lease agreement or other appropriate
arrangements, the use of storage tanks, loading racks and other related
facilities at the refinery site. TARC leases office space in Houston, Texas from
TransTexas.

TITLE INSURANCE

The title insurance policy to insure against certain claims made against
title to the refinery parcel site currently consists of a $440 million lender's
title insurance policy for the benefit of the trustee under the TARC Notes
Indenture. The title insurance policy has been reinsured through various title
insurance companies in the United States. The ability to successfully recover
under the policies is dependent on the creditworthiness of the title company and
its reinsurers at the time of the claim and any defenses that the title insurers
and its reinsurers may have. There can be no assurance that the amount of title
insurance will be sufficient to cover any losses incurred by TARC or the trustee
under the TARC Notes Indenture as a result of a title defect impairing the
ability to use the refinery site or that the title insurers will be able to
fulfill their financial obligations under the title insurance policy. The title
policy contains customary exceptions to coverage, including taxes not yet due
and payable, riparian rights and numerous servitudes, rights of way, rights of
access and other encroachments in favor of utilities, railroads, pipelines and
adjacent refineries and tank farms, as well as exceptions for (i) government
claims with respect to, and public rights to use, TARC's property located
between the Mississippi River and the road upon which pipe racks and TARC's
docking facilities are located, (ii) a right of first refusal in favor of an
adjacent landowner with respect to a certain portion of property which, in the
event exercised, may require TARC to relocate at its expense certain pipelines
that connect various refinery parcels, (iii) tax benefits that have been
conveyed to certain tax lessors, (iv) the priority of liens that may be filed by
materialmen and mechanics in connection with the expansion and modification
program, and (v) certain rights of creditors pursuant to Federal or state
bankruptcy and insolvency laws, which rights may affect the enforceability of
the mortgage securing the TARC Notes.

ITEM 3. LEGAL PROCEEDINGS

See Note 11 and Note 12 of Notes to Financial Statements included elsewhere
herein for a discussion of TARC's legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of TARC's security holders during
the fourth quarter of the fiscal year ended January 31, 1997.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

There is no established public trading market for TARC's common stock or
its common stock purchase warrants. On April 30, 1997, there was one record
holder of TARC's common stock purchase warrants and one holder of TARC's common
stock.

TARC has not paid any cash dividends on its capital stock since inception.
TARC's ability to pay dividends is restricted by the TARC Notes Indenture and
will depend in part upon TARC's debt levels. In determining whether to declare
and pay a dividend, the Board of Directors will consider various other factors,
including TARC's capital requirements and financial condition.

ITEM 6. SELECTED FINANCIAL DATA

On January 29, 1996, TARC changed its fiscal year end for financial
reporting purposes from July 31 to January 31. The following table sets forth
selected financial data of TARC as of and for each of the four years ended July
31, 1995, the six months ended January 31, 1995 and 1996 and each of the two
years ended January 31, 1997. This data has been derived from the financial
statements of TARC and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto. The financial data for fiscal years
ended July 31, 1992 and 1993 represent the results of operations and financial
position of TARC prior to the partial reactivation of the refinery and
initiation of the Capital Improvement Program. During these periods, TARC had
only maintenance expenses and lease income from storage facilities. The data for
the year ended July 31, 1994 reflects the limited operations of the refinery
since March 1994 and expenses related to reactivation of portions of the
refinery. Subsequent to March 1994, TARC has operated the No. 2 Vacuum Unit
intermittently. TARC does not consider its historical results to be indicative
of future results.

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31, YEAR ENDED JULY 31,
--------------------- ------------------- -----------------------------------------
1997 1996 1996 1995 1995 1994 1993 1992
--------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS OF DOLLARS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Refining revenues................. $ 10,857 $176,229 $107,237 $ 71,035 $140,027 $174,143 $ -- $ --
Storage and other income.......... -- -- -- 551 552 3,035 5,178 3,179
Operating expenses................ 54,004 206,798 121,770 86,383 171,411 187,208 13,238 11,693
General and administrative
expenses(1)..................... 11,848 12,610 7,438 8,442 13,614 4,496 11,341 7,057
Equity in income (loss) before
extraordinary item of
TransTexas...................... 12,325 (2,584) (156) -- (2,428) -- -- --
Other income (expense)(7)......... 52,076(5) (9,998) (3,944) 89 (5,966) (2,827) 28 666
Extraordinary item(2)............. -- (11,497) -- -- (11,497) -- -- --
Net income (loss)................. 9,406 (67,258) (26,071) (23,150) (64,337) (17,353) (19,373) (14,905)
Net income (loss) per common
share(3)........................ 0.25 (2.24) (0.87) (0.77) (2.14) (0.58) (0.65) (0.50)
Weighted average number of common
shares outstanding (in
thousands)(3)................... 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000
BALANCE SHEET DATA:
Working capital (deficit)(6)...... $(407,018) $(17,707) $(17,707) $(35,509) $ 5,965 $(16,838) $ (1,494) $ (949)
Long-term debt proceeds held in
collateral account(4)........... -- 24,405 24,405 -- 140,857 -- -- --
Total assets...................... 564,241 518,323 518,323 229,462 499,879 176,327 70,900 70,579
Total long-term liabilities(6).... 74,571 368,091 368,091 112,719 352,696 45,373 64,512 45,636
Stockholder's equity.............. 81,363 71,957 71,957 77,250 87,837 100,400 4,253 23,626
</TABLE>

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(1) Includes litigation accruals of $2.0 million for the six months ended
January 31, 1996, and $4.5 million and $9.0 million for the years ended July
31, 1995 and 1993, respectively.

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(2) Represents TARC's equity in the early extinguishment of debt at TransTexas.

(3) Gives retroactive effect to a 30,000-for-1 stock split effected in July
1994.

(4) Includes $14.7 million and $7.9 million at January 31, 1996 and July 31,
1995, respectively, which is classified as a current asset.

(5) Includes a gain of $56.2 million related to the sale of 4.55 million shares
of TransTexas common stock in March 1996.

(6) The TARC Notes are classified as a current liability at January 31, 1997.
The working capital deficit would have been $41,288 at January 31, 1997 if
the TARC Notes had not been reclassified as of such date.

(7) Net of capitalized interest of $68.8 million, $41.5 million, $26.2 million,
$3.5 million and $18.9 million for the years ended January 31, 1997 and
1996, the six months ended January 31, 1996 and 1995 and the year ended July
31, 1995, respectively.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion should be read in conjunction with TARC's
financial statements and notes thereto.

RESULTS OF OPERATIONS

General

TARC's refinery was inoperative from January 1983 through February 1994.
During this period, TARC's revenues were derived primarily from tank rentals and
its expenses consisted of maintenance and repairs, tank rentals, general and
administrative expenses and property taxes. TARC commenced partial operations at
the refinery in March 1994 and has operated the No. 2 Vacuum Unit intermittently
since that time. TARC could operate the No. 2 Crude Unit and/or the No. 2 Vacuum
Unit if market conditions become favorable. TARC's decision to commence or
suspend operations is based on the availability of financing, current operating
margins and the need to tie-in units as they are completed. TARC does not
consider its historical results to be indicative of future results.

TARC's results of operations are dependent on the operating status of
certain units within its refinery, which determines the types of feedstocks
processed and refined product yields. The results are also affected by the unit
costs of purchased feedstocks and the unit prices of refined products, which can
vary significantly. The Capital Improvement Program is designed to significantly
change TARC's throughput capacity, the feedstocks processed, and refined product
yields.

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets to be Disposed Of ("SFAS 121"). As of February 1, 1996, TARC
adopted the requirements of SFAS No. 121. TARC currently believes, based on
estimates of refining margins and current estimates for costs of the expansion
and modification of the refinery, that future undiscounted cash flows will be
sufficient to recover the cost of the refinery over its estimated useful life as
well as the costs of related identifiable intangible assets. Management believes
there have been no events or changes in circumstances that would require the
recognition of an impairment loss. However, due to the inherent uncertainties in
estimating future refining margins, in constructing and operating a large scale
refinery and the uncertainty regarding TARC's ability to complete the Capital
Improvement Program, there can be no assurance that TARC will ultimately recover
the cost of the refinery. Management believes that the book value of the
refinery is in excess of its current estimated fair market value. See Note 4 to
Financial Statements.

Year Ended January 31, 1997, Compared with the Year Ended January 31, 1996

Total revenues for the year ended January 31, 1997 decreased to $10.9
million from $176.2 million for the same period in 1996, due primarily to a
significant drop in the processing of purchased feedstocks for sale to third
parties compared to the prior year.

8
<PAGE> 11

Cost of products sold for the year ended January 31, 1997 decreased to
$11.5 million from $185.3 million for the same period in 1996, due primarily to
a significant drop in the purchase of feedstocks for processing compared to the
prior year.

Losses from processing arrangements of $7.1 million, discussed below in
"Liquidity and Capital Resources," for the year ended January 31, 1997, were
primarily due to price management activities.

Operations and maintenance expense for the year ended January 31, 1997
increased to $23.9 million from $12.5 million for the same period in 1996,
primarily due to a write-off of approximately $6.5 million for assets included
in construction work in process that will not be used in the overall Capital
Improvement Program, an increase in fuel costs during the first six months of
fiscal 1997, and higher contract labor costs.

Depreciation and amortization expense for the year ended January 31, 1997
increased $0.9 million to $7.2 million from $6.3 million for the same period in
1996, primarily due to the reclassification of construction work in process to
depreciable assets during 1997.

Taxes other than income taxes for the year ended January 31, 1997 increased
to $4.2 million from $2.7 million for the same period in 1996, primarily due to
increased property tax expense.

General and administrative expense for the year ended January 31, 1997
decreased to $11.8 million from $12.6 million for the same period in 1996,
primarily due to decreased litigation expense.

Interest income for the year ended January 31, 1997 decreased by $6.1
million as compared to the same period in 1996, primarily due to interest earned
in 1996 on a higher balance held in the Collateral Account. Interest expense,
net, for the year ended January 31, 1997 decreased $13.8 million, primarily due
to a larger portion of interest being capitalized as well as a reduction of
product financing costs in 1997 versus 1996 due to lower volumes of feedstock
purchases. During the year ended January 31, 1997, TARC capitalized
approximately $68.8 million of interest related to construction activities at
TARC's refinery, compared to $41.5 million for the year ended January 31, 1996.

The equity in income of TransTexas for the year ended January 31, 1997 of
$12.3 million reflects TARC's 20.3% equity interest in TransTexas until TARC's
sale of 4.55 million shares of TransTexas stock in March 1996 and its 14.1%
interest thereafter. This compares to $2.6 million equity in loss of TransTexas
for the year ended January 31, 1996. The increase is a result of higher gas
prices and a favorable litigation settlement at TransTexas.

Other income for the year ended January 31, 1997 was $56.5 million, which
was primarily a result of the $56.2 million gain on the sale of 4.55 million
shares of TransTexas stock in March 1996. Other income for the year ended
January 31, 1996 was $2.1 million, primarily resulting from trading gains on
futures contracts.

Six Months Ended January 31, 1996, Compared with the Six Months Ended January
31, 1995

Total revenues for the six months ended January 31, 1996 increased $35.6
million to $107.2 million from $71.6 million in the same period in 1995,
primarily due to an increase in the volume of products sold to 6.1 million
barrels in 1996 from 4.2 million barrels in 1995. In addition, $1.2 million of
the increase was due to an increase in the average product sales price of $0.19
per barrel in 1996 over 1995.

Cost of products sold for the six months ended January 31, 1996 increased
$36.2 million to $110.1 million from $73.9 million for the same period in 1995,
primarily due to an increase in the volume of products sold, partially offset by
a decrease in the average price of feedstocks purchased.

Operations and maintenance expense for the six months ended January 31,
1996 increased $0.2 million to $7.9 million from $7.7 million for the same
period in 1995, primarily due to an increase in the number of days the vacuum
unit was operating.

Depreciation and amortization expense for the six months ended January 31,
1996 increased $0.5 million to $3.2 million from $2.7 million for the same
period in 1995, primarily due to the transfer of certain terminal facilities and
tankage equipment from construction in progress to depreciable assets during the
1996 period.

9
<PAGE> 12

General and administrative expense for the six months ended January 31,
1996, decreased $1.0 million to $7.4 million from $8.4 million for the same
period in 1995, primarily as a result of a $2.5 million reduction in litigation
accruals, partially offset by an increase in payroll of $1.1 million arising
from operations support requirements.

Taxes other than income taxes for the six months ended January 31, 1996
decreased $1.4 million to $0.7 million from $2.1 million for the same period in
1995, primarily due to lower property tax expense for the six months ended
January 31, 1996.

Interest income for the six month period ended January 31, 1996 increased
$2.3 million compared to the same period in 1995 due primarily to interest
earned on long-term debt proceeds held in the Collateral Account. Interest
expense for the six month period ended January 31, 1996 increased $28.6 million
due to interest accrued on long-term debt issued in February 1995, amortization
of debt issue costs and financing costs associated with product purchases.
During the six months ended January 31, 1996, TARC capitalized $26.2 million of
interest related to construction activities associated with the Capital
Improvement Program.

Year Ended July 31, 1995, Compared with the Year Ended July 31, 1994

Total revenues for the year ended July 31, 1995 decreased $36.6 million to
$140.6 million from $177.2 million in the same period in 1994, primarily due to
a decrease in the volume of products sold which was partially offset by an
increase in the average price of products sold.

Cost of products sold for the year ended July 31,1995 decreased $19.8
million to $149.1 million from $168.9 million for the same period in 1994,
primarily as a result of a decrease in volume of products sold, partially offset
by an increase in the average price of feedstocks purchased, and a contract
cancellation loss of approximately $3.8 million.

Operations and maintenance expense for the year ended July 31, 1995
increased $0.2 million to $12.3 million from $12.1 million for the same period
in 1994, primarily as a result of an increase in the number of days the No. 2
Vacuum Unit was operating.

Depreciation and amortization expense for the year ended July 31, 1995
increased $3.3 million to $5.9 million from $2.6 million for the same period in
1994, primarily as a result of increased depreciation expense being recorded for
refinery assets which were taken out of discontinued operations during 1994.

General and administrative expense for the year ended July 31, 1995
increased $9.1 million to $13.6 million from $4.5 million in the same period in
1994, primarily as a result of a litigation accrual of $4.5 million and
increases in legal and consulting fees and insurance costs as a result of
expanded refinery operations.

Taxes other than income taxes for the year ended July 31, 1995 increased
$0.5 million to $4.2 million from $3.7 million for the same period in 1994,
primarily as a result of an increase in property taxes assessed.

Interest income for the year ended July 31, 1995 increased $4.1 million
compared to the same period in 1994 due primarily to interest earned on
long-term debt proceeds held in the Collateral Account. Interest expense for the
year ended July 31, 1995 increased $31.3 million due to interest accrued on
long-term debt issued during 1995, amortization of debt issue costs and
financing costs associated with product purchases. During the year ended July
31, 1995, TARC capitalized $18.9 million of interest related to construction
activities associated with TARC's Capital Improvement Program.

Other income for the year ended July 31, 1995 was $2.5 million compared to
other expense of $2.9 million for the same period in 1994 primarily as a result
of trading gains on futures contracts in 1995.

For the year ended July 31, 1995, the loss before an extraordinary item
increased $35.5 million over the same period in 1994, primarily due to interest
associated with TARC's long-term debt and amortization of debt issue costs.

In February 1995, TransAmerican contributed 55 million shares of TransTexas
common stock to TEC. TEC then contributed 15 million of these shares of
TransTexas common stock to TARC. The equity in loss of

10
<PAGE> 13

TransTexas for the year ended July 31, 1995 reflects TARC's 20.3% equity
interest in TransTexas' loss before an extraordinary item from the date of
acquisition. The equity in extraordinary loss of TransTexas represents TARC's
equity in a charge recorded by TransTexas in the fourth quarter for the early
retirement of $500 million of its 10 1/2% Senior Secured Notes due 2000 from the
proceeds of the issuance by TransTexas in June 1995 of $800 million in 11 1/2%
Senior Secured Notes due 2002.

LIQUIDITY AND CAPITAL RESOURCES

In connection with the issuance of the TARC Notes in February 1995,
proceeds of $173 million were deposited into a cash collateral account,
designated for use in the Capital Improvement Program. TARC sold 4.55 million
shares of TransTexas common stock in March 1996, and deposited approximately
$26.6 million in proceeds into the cash collateral account in accordance with
the requirements of the TARC Notes Indenture. As of January 31, 1997, TARC had
spent all amounts deposited in the cash collateral account. As of January 31,
1997, TARC had commitments for refinery construction and maintenance of
approximately $53.0 million.

In March 1997, TARC issued $36 million principal amount of 15% senior
secured notes due 1998 to unaffiliated third parties. These notes are secured by
a pledge of 5 million shares of TransTexas common stock, which were released
from the lien securing the TARC Notes. Proceeds from the issuance of these notes
have been or will be used for construction at the refinery and general corporate
purposes.

Primarily because additional financing was not available, TARC was unable
to meet the construction completion timetable for the Capital Improvement
Program as required under the TARC Notes Indenture. In February 1997, TARC
solicited and received from the holders of the TARC Notes consents to certain
waivers under and amendments to the TARC Notes Indenture. Pursuant to this
consent solicitation, the holders of the TARC Notes waived, until July 15, 1997,
the default under the TARC Notes Indenture which would have occurred on February
15, 1997 as a result of TARC's failure to meet the required completion
timetable. The waiver of this default will cease to be effective on July 15,
1997. Unless the default has been further waived, or the Company completes a
recapitalization that satisfies the holders of the TARC Notes, such holders
would then be entitled to pursue remedies available under the TARC Notes
Indenture, including acceleration of the maturity of the TARC Notes.

TARC has incurred losses and negative cash flow from operations as a result
of limited refining operations that did not cover the fixed costs of maintaining
the refinery, increased working capital requirements and losses on refined
product sales and processing arrangements. Such losses are due to financing
costs, low margins and price management activities. In addition the TARC Notes
are classified as a current liability as of January 31, 1997. Primarily as a
result of these factors and accounts payable related to the Capital Improvement
Program, TARC had negative working capital of $407.0 million at January 31,
1997. In order to operate the refinery at expected levels after completion of
expansion and modification of the refinery, TARC will require additional working
capital and ultimately must achieve profitable operations.

TARC is not currently operating the completed units of the refinery because
market conditions make limited operations uneconomic. If market conditions
become favorable, TARC could resume limited processing operations. TARC,
however, anticipates that in the near term and until additional operating units
come on line, its capital needs will be limited to expenditures for the
expansion and modification of the refinery, and for general and administrative
and refinery maintenance costs.

11
<PAGE> 14

operations, TARC's investment in the refinery may not be recovered. Without
additional funding to complete expansion and modification of the refinery, and
to provide working capital for operations and debt service, there is substantial
doubt about TARC's continuation as a going concern. The financial statements do
not include any adjustments for such uncertainties.

Under certain circumstances, TransAmerican, TransAmerican Exploration
Corporation, TARC or TEC may sell or otherwise dispose of shares of common stock
of TransTexas. If, as a result of any sale or other disposition of TransTexas
common stock, the aggregate ownership of TransTexas by TransAmerican and certain
of its affiliates (the "TNGC Consolidated Group") is less than 80% (measured by
voting power and value), TransTexas will no longer be a member of the TNGC
Consolidated Group and, with certain exceptions, will no longer be obligated
under the terms and conditions of, or entitled to the benefits of, the Tax
Allocation Agreement among TransAmerican and certain of its affiliates,
including TEC, TARC and TransTexas. Further, if TEC or TARC sells or otherwise
transfers any stock of TARC, or issues any options, warrants or other similar
rights relating to such stock, outside of the TNGC Consolidated Group, which
when aggregated with the outstanding TARC Warrants represents more than 20% of
the voting power or equity value of TARC, then a deconsolidation of both TARC
and TransTexas from the TNGC Consolidated Group would occur. An event that
results in deconsolidation of TARC from the TNGC Consolidated Group for federal
income tax purposes could result in the acceleration of payment of a substantial
amount of federal income taxes by TransAmerican. The tax liability to
TransAmerican that would result from deconsolidation is estimated to be
approximately $15 million at January 31, 1997. Each member of a consolidated
group filing a consolidated federal income tax return is severally liable for
the consolidated federal income tax liability of the consolidated group. There
can be no assurance that TransAmerican will have the ability to satisfy the
above tax obligation at the time due and, therefore, TARC, or other members of
the group may be required to pay the tax.

In July 1996, TARC executed a promissory note to TransAmerican for up to
$25 million. The note bears interest at a rate of 15% per annum, payable
quarterly beginning October 31, 1996, and matures on July 31, 1998. As of
January 31, 1997, the entire $25 million was outstanding under the note. On
November 1, 1996, TARC executed an additional $25 million promissory note to
TransAmerican which bears interest at 15% per annum, payable quarterly beginning
December 31, 1996, and which matures on September 30, 1998 (together with the
first promissory note, the "TransAmerican Notes"). At January 31, 1997, TARC had
approximately $44.4 million outstanding under both of these notes. TransAmerican
has waived any defaults arising from TARC's failure to make the scheduled
interest payments provided for in these notes. In February 1997, the November
1996 promissory note was replaced with a $50 million note bearing interest at an
annual rate of 15% and which matures on July 31, 2002. Interest payments are due
quarterly commencing on April 30, 1997. The debt represented by the new note is
subordinate in right of payment to the TARC Notes. As of April 25, 1997,
approximately $31.4 million had been advanced under the new note. These and
additional borrowings have been used by TARC to fund construction at the
refinery, as well as working capital needs, pending additional financing from
other sources. There can be no assurance that TransAmerican will make additional
advances to TARC.

TARC enters into financing arrangements in order to maintain an available
supply of feedstocks. Typically, TARC enters into an agreement with a third
party to acquire a cargo of feedstock which is scheduled for delivery to TARC's
refinery. TARC pays through the third party all transportation costs, related
taxes and duties and letter of credit fees for the cargo, plus a negotiated
commission. Prior to arrival at the refinery, another third party purchases the
cargo, and TARC commits to purchase, at a later date, the cargo at an agreed
price plus commission and costs. TARC also places margin deposits with the third
party to permit the third party to hedge its price risk. TARC purchases these
cargos in quantities sufficient to maintain expected operations and is obligated
to purchase all of the cargos delivered pursuant to these arrangements. In the
event the refinery is not operating, these cargos may be sold on the spot
market. During the year ended January 31, 1997, approximately 1.1 million
barrels of feedstocks with a cost of $23 million were sold by a third party on
the spot market prior to delivery to TARC without a material gain or loss to
TARC.

12
<PAGE> 15

based on the margin earned by the third party, if any, after deducting all of
its related costs such as feedstock acquisition, hedging, transportation,
processing and inspections plus a commission for each barrel processed. For the
year ended January 31, 1997, TARC processed approximately 1.1 million barrels of
feedstock pursuant to this agreement. TARC incurred a loss of approximately $2.6
million related to this processing agreement primarily as a result of low
margins and price management activities.

Environmental compliance and permitting issues are an integral part of the
capital expenditures anticipated in connection with the expansion and
modification of the refinery. TARC does not expect to incur any additional
significant expenses for environmental compliance during fiscal 1998 or fiscal
1999 other than those budgeted for the Capital Improvement Program. There is no
assurance, however, that costs incurred to comply with environmental laws will
not have a material adverse effect on TARC's future results of operations, cash
flows or financial condition. TARC also has contingent liabilities with respect
to litigation matters as more fully described in Note 11 of Notes to Financial
Statements.

INFLATION AND CHANGES IN PRICES

TARC's revenues and feedstock costs have been, and will continue to be,
affected by changes in the prices of petroleum and petroleum products. TARC's
ability to obtain additional capital is also substantially dependent on refined
product prices and refining margins, which are subject to significant seasonal,
cyclical and other fluctuations beyond TARC's control.

From time to time, TARC enters into futures contracts, options on futures,
swap agreements and forward sale agreements for crude and refined products
intended to protect against a portion of the price risk associated with price
declines from holding inventory of feedstocks and refined products, or for fixed
price purchase commitments. TARC's policy is not to enter into fixed price or
other purchase commitments in excess of anticipated processing requirements.
TARC believes that these current and anticipated futures transactions do not and
will not constitute speculative trading as specified under and prohibited by the
Indenture.

RECENTLY ISSUED PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128") and
Statement of Financial Accounting Standards No. 129, Disclosure of Information
about Capital Structure ("SFAS 129"). These statements will be adopted by the
Company effective January 31, 1998. SFAS 128 simplifies the computation of
earnings per share by replacing primary and fully diluted presentations with the
new basic and diluted disclosures. SFAS 129 establishes standards for disclosing
information about an entity's capital structure. The Company has not determined
the impact of these pronouncements on its financial statements.

In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1, Environmental Remediation Liabilities ("SOP
96-1"), which establishes new accounting and reporting standards for the
recognition and disclosure of environmental remediation liabilities. The Company
does not believe the effect of adoption of SOP 96-1 in 1998 will have a material
impact on the Company's financial position, results of operations or cash flows.

13
<PAGE> 16

FORWARD-LOOKING STATEMENTS

Forward-looking statements, within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
are included throughout this report. All statements other than statements of
historical facts included in this Annual Report on Form 10-K regarding the
Company's financial position, business strategy, plans and objectives of
management for future operations and expansion and modification of the refinery,
including but not limited to words such as "anticipates," "expects," "believes,"
"estimates," "intends," "projects" and "likely" indicate forward-looking
statements. TARC's management believes that its current views and expectations
are based on reasonable assumptions; however, there are significant risks and
uncertainties that could significantly affect expected results. Factors that
could cause actual results to differ materially from those in the
forward-looking statements include, without limitation, TARC's success in
raising additional capital to complete expansion and modification of the
refinery, engineering problems, work stoppages, cost overruns, personnel or
materials shortages, fluctuations in commodity prices for petroleum and refined
products, casualty losses, conditions in the capital markets and competition.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

14
<PAGE> 17

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants....... 16
Financial Statements:
Balance Sheet......................... 17
Statement of Operations............... 18
Statement of Stockholder's Equity..... 19
Statement of Cash Flows............... 20
Notes to Financial Statements......... 21
</TABLE>

15
<PAGE> 18

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholder and Board of Directors
TransAmerican Refining Corporation:

We have audited the accompanying balance sheet of TransAmerican Refining
Corporation ("TARC") as of January 31, 1997 and 1996 and the related statements
of operations, stockholder's equity and cash flows for the year ended January
31, 1997, the six months ended January 31, 1996 and each of the two years in the
period ended July 31, 1995. These financial statements are the responsibility of
TARC'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 financial position of TransAmerican Refining
Corporation as of January 31, 1997 and 1996, and the results of its operations
and its cash flows for the year ended January 31, 1997, the six months ended
January 31, 1996 and each of the two years in the period ended July 31, 1995, in
conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that TARC
will continue as a going concern. TARC is required to obtain additional funds to
amend or refinance the TARC Notes, expand its refinery and to fund its ongoing
working capital requirements. There is no assurance that the TARC Notes can be
amended or refinanced or that the necessary additional funding for the refinery
expansion and working capital can be obtained or that profitable operations will
be ultimately achieved. As a result there is substantial doubt about TARC's
ability to continue as a going concern. Management's plans are described in Note
2. The financial statements do not contain any adjustments that might result
from the outcome of this uncertainty.

COOPERS & LYBRAND L.L.P.

Houston, Texas
April 25, 1997

16
<PAGE> 19

TRANSAMERICAN REFINING CORPORATION

BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
JANUARY 31,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 613 $ 2,779
Long-term debt proceeds held in
collateral account................. -- 14,840
Accounts receivable................... -- 121
Receivable from affiliates............ 22 118
Inventories........................... -- 37,231
Other................................. 654 5,479
--------- ---------
Total current assets.......... 1,289 60,568
--------- ---------
Property and equipment.................. 555,816 430,858
Less accumulated depreciation and
amortization.......................... 16,930 10,244
--------- ---------
Net property and equipment.... 538,886 420,614
--------- ---------
Long-term debt proceeds held in
collateral account.................... -- 9,565
Receivable from affiliates.............. 393 --
Other assets, net....................... 23,673 27,576
--------- ---------
$ 564,241 $ 518,323
========= =========

LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities:
Accounts payable...................... $ 20,033 $ 23,552
Payable to affiliates................. 7,094 2,957
Accrued liabilities................... 15,450 14,560
Product financing arrangements........ -- 37,206
Long-term debt........................ 365,730 --
--------- ---------
Total current liabilities..... 408,307 78,275
--------- ---------
Payable to affiliates................... 6,674 3,799
Notes payable to affiliate.............. 46,589 --
Long-term debt.......................... -- 316,538
Investment in TransTexas................ 20,706 46,586
Other................................... 602 1,168
Commitments and contingencies (Note
11)................................... -- --
Stockholder's equity:
Common stock, $0.01 par value,
100,000,000 shares authorized,
30,000,000 shares issued and
outstanding........................ 300 300
Additional paid-in capital............ 248,513 248,513
Accumulated deficit................... (167,450) (176,856)
--------- ---------
Total stockholder's equity.... 81,363 71,957
--------- ---------
$ 564,241 $ 518,323
========= =========
</TABLE>

The accompanying notes are an integral part of the financial statements.

17
<PAGE> 20

TRANSAMERICAN REFINING CORPORATION

STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JULY 31,
---------------------- ---------------------- -------------------
1997 1996 1996 1995 1995 1994
-------- ----------- -------- ----------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales.................. $ 10,857 $176,229 $107,237 $ 71,035 $140,027 $174,143
Tank rentals................... -- 1 -- 551 552 3,035
-------- -------- -------- -------- -------- --------
Total revenues......... 10,857 176,230 107,237 71,586 140,579 177,178
-------- -------- -------- -------- -------- --------
Costs and expenses:
Cost of products sold.......... 11,544 185,277 110,052 73,862 149,087 168,855
Processing arrangements, net... 7,090 -- -- -- -- --
Operations and maintenance..... 23,945 12,482 7,910 7,727 12,299 12,103
Depreciation and
amortization................ 7,225 6,308 3,159 2,706 5,855 2,589
General and administrative..... 11,848 12,610 7,438 8,442 13,614 4,496
Taxes other than income
taxes....................... 4,200 2,731 649 2,088 4,170 3,661
-------- -------- -------- -------- -------- --------
Total costs and
expenses............. 65,852 219,408 129,208 94,825 185,025 191,704
-------- -------- -------- -------- -------- --------
Operating loss................. (54,995) (43,178) (21,971) (23,239) (44,446) (14,526)
-------- -------- -------- -------- -------- --------
Other income (expense):
Interest income................ 204 6,346 2,263 4 4,087 37
Interest expense............... (73,503) (59,994) (32,180) (3,540) (31,354) (13)
Interest capitalized........... 68,840 41,543 26,202 3,509 18,850 --
Equity in income (loss) before
extraordinary item of
TransTexas.................. 12,325 (2,584) (156) -- (2,428) --
Other income (expense)......... 56,535 2,106 (229) 116 2,451 (2,851)
-------- -------- -------- -------- -------- --------
Total other income
(expense)............ 64,401 (12,583) (4,100) 89 (8,394) (2,827)
-------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item.......... 9,406 (55,761) (26,071) (23,150) (52,840) (17,353)
Extraordinary item:
Equity in extraordinary loss of
TransTexas.................. -- (11,497) -- -- (11,497) --
-------- -------- -------- -------- -------- --------
Net income (loss)................ $ 9,406 $(67,258) $(26,071) $(23,150) $(64,337) $(17,353)
======== ======== ======== ======== ======== ========
Net income (loss) per share:
Income (loss) before
extraordinary item.......... $ 0.25 $ (1.86) $ (0.87) $ (0.77) $ (1.76) $ (0.58)
Extraordinary item............. -- (0.38) -- -- (0.38) --
-------- -------- -------- -------- -------- --------
$ 0.25 $ (2.24) $ (0.87) $ (0.77) $ (2.14) $ (0.58)
======== ======== ======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of the financial statements.

18
<PAGE> 21

TRANSAMERICAN REFINING CORPORATION

STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- ADDITIONAL ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT PAID-IN CAPITAL DEFICIT EQUITY
------ ------ --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, July 31, 1993........... 30,000 $300 $ 73,048 $ (69,095) $ 4,253
Net loss......................... -- -- -- (17,353) (17,353)
Equity contribution by
TransAmerican.................. -- -- 113,500 -- 113,500
------ ---- -------- --------- ---------
Balance, July 31, 1994........... 30,000 300 186,548 (86,448) 100,400
Net loss......................... -- -- -- (64,337) (64,337)
Issuance of warrants............. -- -- 23,300 -- 23,300
Equity contribution by
TransAmerican.................. -- -- 71,170 -- 71,170
Contribution of TransTexas stock
by TEC......................... -- -- (32,505) -- (32,505)
------ ---- -------- --------- ---------
Balance, July 31, 1995........... 30,000 300 248,513 (150,785) 98,028
Net loss......................... -- -- -- (26,071) (26,071)
------ ---- -------- --------- ---------
Balance, January 31, 1996........ 30,000 300 248,513 (176,856) 71,957
Net income....................... -- -- -- 9,406 9,406
------ ---- -------- --------- ---------
Balance, January 31, 1997........ 30,000 $300 $248,513 $(167,450) $ 81,363
====== ==== ======== ========= =========
</TABLE>

The accompanying notes are an integral part of the financial statements.

19
<PAGE> 22

TRANSAMERICAN REFINING CORPORATION

STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JULY 31,
---------------------- ----------------------- --------------------
1997 1996 1996 1995 1995 1994
-------- ----------- --------- ----------- --------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)..................... $ 9,406 $(67,258) $ (26,071) $(23,150) $ (64,337) $(17,353)
Adjustments to reconcile net income
(loss) to net cash used by operating
activities:
Depreciation and amortization....... 7,225... 6,308 3,159 2,706 5,855 2,694
Litigation.......................... -- 2,000 2,000 4,500 4,500 --
Amortization of discount on
long-term debt.................... 83 11,062 3,389 -- 7,673 --
Amortization of debt issue costs.... 6 790 238 -- 552 --
Equity in net (income) loss of
TransTexas........................ (12,325) 14,081 156 -- 13,925 --
Inventory write down................ -- 5,671 4,406 -- 1,265 79
Gain on sale of TransTexas stock.... (56,162) -- -- -- -- --
Loss on disposition of equipment.... 6,513 -- -- -- -- --
Changes in assets and liabilities:
Accounts receivable............... 121 1,340 3,671 6,901 4,570 (8,558)
Inventories....................... 25 (4,070) 7,242 3,063 (8,249) (4,577)
Prepayments and other............. 4,825 (5,258) 1,765 (221) (7,244) --
Accounts payable.................. 4,000 (4,260) (1,675) (105) (2,690) 5,194
Payable to affiliate, net......... 6,077 1,530 1,979 (765) (1,214) 1,239
Accrued liabilities............... 1,427 (886) (3,132) (4,871) (2,625) 11,391
Other assets...................... 63 (2,818) (130) 562 (2,126) (1,088)
Other liabilities................. -- (157) -- (102) (259) (96)
-------- -------- --------- -------- --------- --------
Net cash used by operating
activities...................... (28,716) (41,925) (3,003) (11,482) (50,404) (11,075)
-------- -------- --------- -------- --------- --------
Investing activities:
Capital expenditures.................. (86,581) (174,633) (119,565) (52,306) (107,374) (57,209)
Proceeds from sale of TransTexas
stock............................... 42,607 -- -- -- -- --
-------- -------- --------- -------- --------- --------
Net cash used by investing
activities...................... (43,974) (174,633) (119,565) (52,306) (107,374) (57,209)
-------- -------- --------- -------- --------- --------
Financing activities:
Issuance of long-term debt and
warrants............................ -- 300,750 -- -- 300,750 --
Advances from TransAmerican and
affiliates.......................... 49,152 17,333 16,698 86,925 87,560 68,523
Repayment of advances from
TransAmerican and affiliates........ (1,925) (53,450) (13,450) (20,000) (60,000) --
Long-term debt proceeds held in
collateral account.................. (26,549) (173,000) -- -- (173,000) --
Withdrawals from collateral account... 50,949 148,595 116,452 -- 32,143 --
Debt issue costs...................... -- (20,479) -- (3,126) (23,605) (220)
Principal payments on capital lease
obligations......................... (1,103) (458) (458) -- -- --
-------- -------- --------- -------- --------- --------
Net cash provided by financing
activities...................... 70,524 219,291 119,242 63,799 163,848 68,303
-------- -------- --------- -------- --------- --------
Increase (decrease) in cash and
cash equivalents................ (2,166) 2,733 (3,326) 11 6,070 19
Beginning cash and cash equivalents..... 2,779 46 6,105 35 35 16
-------- -------- --------- -------- --------- --------
Ending cash and cash equivalents........ $ 613 $ 2,779 $ 2,779 $ 46 $ 6,105 $ 35
======== ======== ========= ======== ========= ========
Cash paid for:
Interest, net of amounts
capitalized......................... 2,426 1,365 836 -- 1,282 --
Noncash financing and investing
activities:
Forgiveness of advances from
TransAmerican (including $25.0
million for property, plant and
equipment transferred from
TransAmerican at net book value in
1994)............................... -- 71,170 -- -- 71,170 100,000
Contribution of TransTexas stock...... -- 37,176 -- -- 37,176 --
TransTexas assumption of litigation
liabilities......................... -- -- -- -- -- 13,500
Accounts payable for property and
equipment........................... (7,519) 14,082 10,591 8,293 11,784 10,429
Capital lease obligations and other
liabilities incurred for property
and equipment....................... -- 2,544 1,643 66 967 1,336
Interest accretion on notes and
discount notes capitalized in
property and equipment.............. 49,109 29,306 18,186 -- 11,120 --
Product financing arrangements........ (37,206) 37,206 37,206 -- 27,671 --
</TABLE>

The accompanying notes are an integral part of the financial statements.

20
<PAGE> 23

TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE YEAR ENDED JANUARY 31, 1996 AND
INTERIM PERIOD ENDED JANUARY 31, 1995 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Formation of TARC

TransAmerican Refining Corporation (the "Company" or "TARC") is engaged in
the refining and storage of crude oil and petroleum products. TARC's refinery is
located in the Gulf Coast region along the Mississippi River approximately 20
miles from New Orleans, Louisiana. TARC was incorporated in September 1987 for
the purpose of holding and eventually operating certain refinery assets
previously held by TransAmerican Natural Gas Corporation ("TransAmerican") and
its subsidiaries. TransAmerican emerged from a proceeding under Chapter 11 of
the Bankruptcy Code on October 19, 1987, pursuant to a confirmed plan of
reorganization. In 1987, TransAmerican transferred substantially all of its
refinery assets at net book value to TARC.

From 1987 through 1993, TARC incurred operating losses principally as a
result of maintaining its idled refinery. TARC recommenced partial operations of
the refinery in March 1994. The refinery has operated intermittently since then
based on operating margins and has continued to incur operating losses. TARC
plans major expansion and modifications which would significantly change the
refinery's throughput capacity, feedstocks used and refined product yields.
Funds for construction have historically been provided by TransAmerican;
however, as more fully described in Note 7, TARC's issuance of long-term debt
during 1995 provided $173 million for refinery construction. As discussed in
Note 2, additional financing is required to complete the refinery expansion.

In 1994, TransAmerican formed TransAmerican Energy Corporation ("TEC"), a
limited-purpose holding company, to hold 55 million shares of common stock
(74.3% of outstanding shares) of TransTexas Gas Corporation ("TransTexas") and
all of TARC's capital stock. In February 1995, in connection with a public
offering of debt securities by TARC, TransAmerican transferred 55 million shares
of TransTexas' common stock to TEC. TEC then transferred 15 million of the
shares (20.3% of the total outstanding) to TARC. In March 1996, TARC sold 4.55
million shares of TransTexas common stock (6.2% of the total outstanding) in a
public offering, for proceeds of $42.7 million, $26.6 million of which were
deposited in the cash collateral account. TARC recognized a $56.2 million gain
on the March 1996 sale of TransTexas stock. An aggregate of 50.45 million shares
of TransTexas common stock held by TEC and TARC are currently pledged as
collateral for TARC's debt securities.

Change in Fiscal Year

On January 29, 1996, the Board of Directors approved a change in TARC's
fiscal year end for financial reporting purposes from July 31 to January 31. The
financial statements include presentation of the year ended January 31, 1997,
the six months ended January 31, 1996 (the "Transition Period") and the
comparable prior year and six month periods which are unaudited.

Cash and Cash Equivalents

TARC considers all highly liquid investments purchased with an original
maturity of three months or less to be a cash equivalent.

Inventories

TARC's inventories, consisting primarily of feedstocks and refined
products, are stated at the lower of average cost or market. TARC wrote down the
value of its inventories by approximately $4.4 million and $1.3 million at
January 31, 1996 and July 31, 1995, respectively, to reflect existing market
prices.

21
<PAGE> 24

TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Price Management Activities

From time to time, TARC enters into commonly traded refinery feedstocks and
finished goods related futures contracts, options on futures, swap agreements
and forward sale agreements with the intent to protect against a portion of the
price risk associated with price declines from holding inventory, or fixed price
purchase commitments. Commitments involving future settlement give rise to
market risk, which represents the potential loss that can be caused by a change
in the market value of a particular instrument and credit risk, which represents
the potential loss if a counterparty is unable to perform. Under the guidelines
of Statement of Financial Accounting Standards No. 80 ("SFAS 80"), gains and
losses associated with such transactions that meet the hedge criteria in SFAS 80
will be deferred until realized. Those transactions which do not meet the
hedging criteria in SFAS 80 are recorded at market value resulting in a gain or
a loss which is recorded in other income in the period in which a change in
market value occurs.

Property and Equipment

Property and equipment acquired subsequent to 1983, including assets
transferred from TransAmerican in 1994, are stated at TransAmerican's or TARC's
historical cost. During the period from 1987 through August 1993, property and
equipment acquired prior to 1983 were carried at estimated net realizable value
and no depreciation expense was charged. New or refurbished units are
depreciated as placed in service. Depreciation of refinery equipment and other
buildings and equipment is computed by the straight-line method at rates which
will amortize the unrecovered cost of depreciable property and equipment
including assets acquired under capital leases, over their estimated useful
lives. Costs of improving leased property are amortized over the estimated
useful lives of the assets or the terms of the leases, whichever is shorter.

The cost of repairs and minor replacements is charged to operating expense
while the cost of renewals and improvements is capitalized. At the time
depreciable assets are retired, or otherwise disposed of, the cost and related
accumulated depreciation or amortization are removed from the accounts. Gains or
losses on dispositions in the ordinary course of business are included in the
statement of operations. Impairment of property and equipment is reviewed
whenever events or changes in circumstances indicate that the carrying amount of
assets may not be recoverable. Events or circumstances that may indicate
impairment may include, among others, a prolonged shutdown of the refinery or a
prolonged period of negative or low refining margins.

Turnarounds

A turnaround consists of a complete shutdown, inspection and maintenance of
a unit. The estimated costs of turnarounds are accrued over the period to the
next scheduled turnaround, which is generally greater than one year.

Environmental Remediation Costs

Environmental expenditures are expensed or capitalized as appropriate,
depending on their future economic benefit. Expenditures relating to an existing
condition caused by past operations that do not have future economic benefits
are expensed. Liabilities for these expenditures are provided when the
responsibility to remediate is probable and the amount of associated cost is
reasonably estimable.

22
<PAGE> 25

TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Stockholder's Equity

Stockholder's equity was retroactively adjusted to reflect a 30,000-for-1
stock split which was effective in July 1994. In July 1994, TARC increased its
authorized capital to 100,000,000 shares and decreased the par value of its
common stock from $1.00 to $0.01.

Defined Contribution Plan

TARC, through its parent company, TransAmerican, maintains a defined
contribution plan, which incorporates a "401(k) feature" as allowed under the
Internal Revenue Code. All investments are made through Massachusetts Mutual
Life Insurance Company. Employees who are at least 21 years of age and have
completed one year of credited service are eligible to participate on the next
semiannual entry date. TARC matches 10%, 20% or 50% of employee contributions up
to a maximum of 3% of the participant's compensation, based on years of plan
participation. All contributions are currently funded. TARC recognized
approximately $75,000, $32,000, $41,000 and $43,000 of expense related to the
Defined Contribution Plan for the year ended January 31, 1997, the six months
ended January 31, 1996 and the years ended July 31, 1995 and 1994, respectively.

Revenue Recognition

TARC recognizes revenue from sales of refined products in the period of
delivery.

Concentration of Credit Risk

Financial instruments which potentially expose TARC to credit risk consist
principally of cash, trade receivables and forward contracts. TARC selects
depository banks based upon management's review of the financial stability of
the institution. Balances periodically exceed the $100,000 level covered by
federal deposit insurance. To date, there have been no losses incurred due to
excess deposits in any financial institution. Trade accounts receivable are
generally from companies with significant petroleum activities, who would be
impacted by conditions or occurrences affecting that industry. All futures
contracts were with major brokerage firms and, in the opinion of management, did
not expose TARC to any undue credit risks. In addition, as of January 31, 1996,
TARC had deposited cash totaling $5.1 million with two third parties to permit
the third parties to hedge their price risk in connection with TARC's product
financing arrangements. See Note 11.

TARC performs ongoing credit evaluations and, generally, requires no
collateral from its customers. For the year ended January 31, 1997, TARC had two
customers which accounted for 96% of total revenues. For the six months ended
January 31, 1996, TARC had three customers which accounted for 41% of total
revenues. For the year ended July 31, 1995, TARC had two customers which
accounted for 56% of total revenues. For the year ended July 31, 1994, TARC had
two customers which accounted for 46% of total revenues.

Income Taxes

TARC files a consolidated tax return with TransAmerican. Income taxes are
due from or payable to TransAmerican in accordance with a tax allocation
agreement. It is TARC's policy to record income tax expense as though TARC had
filed separately. Deferred income taxes are recognized, at enacted tax rates, to
reflect the future effects of tax carryforwards and temporary differences
arising between the tax bases of assets and liabilities and their financial
reporting amounts in accordance with Statement of Financial Accounting Standards
No. 109 and the Tax Allocation Agreement between TARC, TransAmerican, and
TransAmerican's other direct and indirect subsidiaries. Income taxes include
federal and state income taxes.

23
<PAGE> 26

TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Fair Value of Financial Instruments

TARC includes fair value information in the notes to the financial
statements when the fair value of its financial instruments is different from
the book value. TARC uses quoted market prices or, to the extent that there are
no available quoted market prices, market prices for similar instruments. When
the book value approximates fair value, no additional disclosure is made.

Net Income (Loss) Per Share

Net income (loss) per share is calculated by dividing net income available
for common shareholders by the weighted average number of shares of common stock
and common stock equivalents. Warrants are regarded as common stock equivalents
and are therefore considered in net income (loss) per share calculations, if
dilutive. The number of common stock equivalents is determined using the
treasury stock method.

Reclassifications

Certain reclassifications have been made in the prior years' financial
statements to conform to the current year's presentation. The reclassifications
did not affect net loss or stockholder's equity.

Debt Issue Costs

TARC defers costs associated with issuing long-term debt. Capitalized debt
costs are amortized to interest expense over the scheduled maturity of the debt
utilizing the interest method.

Management Estimates

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, the
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.

Recently Issued Pronouncements

2. ADDITIONAL FINANCING REQUIREMENTS

24
<PAGE> 27

TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

February 1997, TARC solicited and received from the holders of the TARC Notes
consents to certain waivers under and amendments to the TARC Notes Indenture.
Pursuant to this consent solicitation, the holders of the TARC Notes waived,
until July 15, 1997, the default under the TARC Notes Indenture which would have
occurred on February 15, 1997 as a result of TARC's failure to meet the required
completion timetable. The waiver of this default will cease to be effective on
July 15, 1997. Unless the default has been further waived, or the Company
completes a recapitalization that satisfies the holders of the TARC Notes, such
holders would then be entitled to pursue remedies available under the TARC Notes
Indenture, including acceleration of the maturity of the TARC Notes.

TARC has incurred losses and negative cash flow from operations as a result
of limited refinery operations which did not cover the fixed costs of
maintaining the refinery, increased working capital requirements including debt
service and losses on refined product sales and processing arrangements. In
order to operate the refinery at expected levels after completion of expansion
and modification of the refinery, TARC will require additional working capital
and ultimately must achieve profitable operations.

If TARC (i) does not obtain additional financing, (ii) does not complete a
recapitalization that satisfies the holders of the TARC Notes, or (iii) does not
complete construction of a refinery capable of profitable operations, TARC's
investment in the refinery may not be recovered (See Note 4). Without additional
funding to complete expansion and modification of the refinery and to provide
working capital for operations and debt service, there is substantial doubt
about TARC's continuation as a going concern. The financial statements do not
include any adjustments as a result of such uncertainties.

3. INVENTORIES AND OTHER CURRENT ASSETS

The major components of inventories are as follows (in thousands of
dollars):

<TABLE>
<CAPTION>
JANUARY 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Refinery feedstocks and blendstocks......................... $ -- $ 4,395
Intermediate and refined products........................... -- 32,836
------- -------
$ -- $37,231
======= =======
</TABLE>

The major components of other current assets are as follows (in thousands
of dollars):

<TABLE>
<CAPTION>
JANUARY 31,
--------------
1997 1996
---- ------
<S> <C> <C>
Insurance prepayments....................................... $603 $1,027
Prepaid product charges..................................... 51 4,452
---- ------
$654 $5,479
==== ======
</TABLE>

25
<PAGE> 28

TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. PROPERTY AND EQUIPMENT

The major components of property and equipment are as follows (in thousands
of dollars):

<TABLE>
<CAPTION>
ESTIMATED JANUARY 31,
USEFUL LIFE --------------------
(YEARS) 1997 1996
----------- -------- --------
<S> <C> <C> <C>
Land....................................................... $ 9,362 $ 9,362
Refinery................................................... 20 to 30 532,428 411,650
Other...................................................... 3 to 10 14,026 9,846
-------- --------
$555,816 $430,858
======== ========
</TABLE>

Approximately $45 million of refinery assets were being depreciated at
January 31, 1997 and 1996. The remaining refinery and other assets are
considered construction in process. Approximately $90.4 million of property,
plant and equipment represents assets transferred by TransAmerican at net
realizable value and $465.4 million represents additions recorded at historical
cost. As of January 31, 1997, the Company changed the estimated useful lives of
the refinery equipment currently under construction from 10 years to a range of
20 to 30 years. The change in estimate was not material to 1997 net income. TARC
recognized $6.7 million, $2.9 million, $5.9 million and $2.7 million in
depreciation expense for the year ended January 31, 1997, the six months ended
January 31, 1996 and the years ended July 31, 1995 and 1994, respectively.

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ("SFAS 121"). As
of February 1, 1996, TARC adopted the requirements of SFAS No. 121. TARC
currently believes, based on estimates of refining margins and current estimates
for costs of the Capital Improvement Program, that future undiscounted cash
flows will be sufficient to recover the cost of the refinery over its estimated
useful life as well as the costs of related identifiable intangible assets.
Management believes there have been no events or changes in circumstances that
would require the recognition of an impairment loss. However, due to the
inherent uncertainties in estimating future refining margins, in constructing
and operating a large scale refinery and the uncertainty regarding TARC's
ability to complete the Capital Improvement Program, there can be no assurance
that TARC will ultimately recover the cost of the refinery. Management believes
that the book value of the refinery is in excess of its current estimated fair
market value.

5. OTHER ASSETS

The major components of other assets are as follows (in thousands of
dollars):

<TABLE>
<CAPTION>
JANUARY 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Debt issue costs, net of accumulated amortization of $6,445
at January 31, 1997 and $2,819 at January 31, 1996........ $17,482 $20,786
Contractual rights and licenses, net of accumulated
amortization of $992 at January 31, 1997 and $1,464 at
January 31, 1996.......................................... 5,979 6,516
Other....................................................... 212 274
------- -------
$23,673 $27,576
======= =======
</TABLE>

TARC uses the straight-line method to amortize intangibles over the periods
estimated to be benefited.

To the extent that TARC's participation in the recapitalization described
in Note 2 results in extinguishment of the TARC Notes, the debt issue costs
relating thereto will be charged to income in the period of the extinguishment.

26
<PAGE> 29

TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. ACCRUED LIABILITIES

The major components of accrued liabilities are as follows (in thousands of
dollars):

<TABLE>
<CAPTION>
JANUARY 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Interest.................................................... $ 7,608 $ 7,609
Litigation accrual.......................................... -- 2,500
Taxes other than income taxes............................... 3,365 321
Maintenance turnarounds..................................... 1,909 1,145
Payroll..................................................... 599 1,321
Insurance................................................... 1,222 380
Other....................................................... 747 1,284
------- -------
$15,450 $14,560
======= =======
</TABLE>

7. LONG-TERM DEBT

TARC's long-term debt is as follows (in thousands of dollars):

<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1997 1996
----------- -----------
<S> <C> <C>
Guaranteed First Mortgage Discount Notes due 2002........... $269,606 $221,155
Guaranteed First Mortgage Notes due 2002.................... 96,124 95,383
-------- --------
$365,730 $316,538
======== ========
</TABLE>

On February 23, 1995, TARC issued 340,000 A Units consisting of $340
million aggregate principal amount of Guaranteed First Mortgage Discount Notes
due 2002 ("Discount Mortgage Notes") and 5,811,773 Common Stock Purchase
Warrants ("Warrants"), and 100,000 B Units consisting of $100 million aggregate
principal amount of Guaranteed First Mortgage Notes due 2002 ("Mortgage Notes"
and, together with the Discount Mortgage Notes, the "TARC Notes") and 1,683,540
Warrants. The TARC Notes are senior obligations of TARC, collateralized as of
January 31, 1997 by a first priority lien on substantially all of TARC's
property and assets and pledges of 50.45 million shares of common stock of
TransTexas and all of TARC's outstanding common stock. The Warrants entitle
holders to purchase in the aggregate 7,495,313 shares of TARC's common stock,
representing 19.99% of TARC's common stock assuming the exercise of all of the
Warrants, at an exercise price of $0.01 per share. The Warrants are immediately
exercisable and expire on February 15, 2002. TARC allocated $23.3 million of the
proceeds from the issuance of the TARC Notes to the Warrants based on their
estimated fair value.

The Discount Mortgage Notes and the Mortgage Notes initially bear interest
at rates of 18 1/2% and 16 1/2%, respectively. Interest is payable semi-annually
with the first interest payment on the Discount Mortgage Notes due August 15,
1998. Interest payments on the Mortgage Notes began August 15, 1995. TARC is
required to redeem $110 million of the principal amount of the TARC Notes on
each of February 15, 2000 and 2001. The TARC Notes mature on February 15, 2002.
Upon the occurrence of a change of control, TARC is required to offer to
purchase all outstanding TARC Notes at a price equal to 101% of the principal
amount thereof plus accrued and unpaid interest. In addition, TARC is required,
subject to certain conditions, to make an offer to purchase the TARC Notes with
the net proceeds of certain asset sales or dispositions of assets, with a
percentage of excess cash (as defined), or if, at the end of each of any two
consecutive quarters, commencing with the quarter ending January 31, 1998,
TARC's Net Worth is less than $75 million and TARC's Consolidated Fixed Charge
Coverage Ratio as of the end of each of such quarters is less than 1.25 to 1.
TARC

27
<PAGE> 30

TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

will be required to generate net income or increase its present capital before
January 1998, to comply with certain of these covenants. The indenture governing
the TARC Notes ("TARC Notes Indenture") contains certain covenants which limit
TARC's ability to incur additional indebtedness, transfer or sell assets, pay
dividends or make certain other restricted payments, enter into certain
transactions with affiliates, or consummate a merger, consolidation or sale of
all or substantially all of its assets.

TARC received approximately $301 million from the sale of A Units and B
Units. Net proceeds received by TARC approximated $92 million after deducting
approximately $16 million for underwriting discounts, commissions, fees and
expenses, approximately $20 million for the repayment of the balance of a loan
from TransAmerican ("TransAmerican Loan"), and $173 million which was deposited
into a cash collateral account ("Collateral Account") to fund the expansion and
upgrading of TARC's refinery.

Pursuant to a Disbursement Agreement, funds in the Collateral Account are
held and invested by the Disbursement Agent until needed from time to time to
fund the Capital Improvement Program. The Disbursement Agent disburses funds
from the Collateral Account in accordance with a budget prepared by TARC and
approved by the Construction Supervisor, a third party approved by the trustee
and compensated by TARC. The Construction Supervisor is required to review each
request by TARC for a disbursement from the Collateral Account to pay for the
Capital Improvement Program. All funds in the Collateral Account are pledged as
security for the repayment of the TARC Notes and are classified as "long-term
debt proceeds held in collateral account" in the financial statements. To the
extent TARC has current liabilities related to the Capital Improvement Program,
the corresponding amount in the Collateral Account is classified as a current
asset. As of January 31, 1997, TARC had expended all amounts deposited in the
Collateral Account.

In March 1997, TARC issued $36 million principal amount of 15% senior
secured notes due 1998 to unaffiliated third parties. These notes are secured by
a pledge of the 5 million shares of TransTexas common stock, which were released
from the lien securing the TARC Notes. Proceeds from the issuance of these notes
were deposited in a cash collateral account to be used for refinery construction
and general corporate purposes.

TARC's capitalized lease obligations were approximately $1.3 million and
$2.4 million at January 31, 1997 and 1996, respectively. Maturities of such
obligations are approximately $0.8 million, $0.3 million and $0.2 million in the
years ending January 31, 1998, 1999 and 2000, respectively. The fair value of
the TARC Notes, based on quoted market prices, was approximately $404 million
and $295 million as of January 31, 1997 and 1996, respectively.

8. INCOME TAXES

Long-term deferred tax assets and liabilities are comprised of the
following (in thousands of dollars):

<TABLE>
<CAPTION>
JANUARY 31,
---------------------
1997 1996
--------- --------
<S> <C> <C>
Deferred tax assets:
Receivable from TransAmerican in lieu of Federal net
operating loss carryforwards........................... $ 72,268 $ 63,997
Safe harbor leases........................................ 81,976 85,283
Other..................................................... 355 10,897
--------- --------
Gross deferred tax assets.............................. 154,599 160,177
Deferred tax liabilities:
Depreciation.............................................. 4,331 6,617
--------- --------
Net deferred tax assets................................... 150,268 153,560
Valuation allowance....................................... (150,268) (153,360)
--------- --------
$ -- $ --
========= ========
</TABLE>

28
<PAGE> 31

TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The net deferred tax asset valuation allowance for each respective period
represents the amounts for which utilization is not assured due to the
uncertainty of realizing deferred tax assets. Changes in the net deferred tax
asset valuation allowance were primarily attributable to increases in tax loss
carryforwards.

On a separate return basis, TARC has incurred approximately $206.5 million
of regular tax net operating losses from inception through January 31, 1997.
TARC's regular tax net operating losses incurred from inception through January
31, 1997 would generally expire from 2004 through 2013. Under TARC's tax
allocation agreement with TransAmerican and TransAmerican's other subsidiaries,
as long as TARC remains in the consolidated group for tax purposes, TARC may
receive benefits in the future for loss carryforwards in the form of reduced
current taxes payable to the extent (i) its losses incurred are available for
and utilized by TransAmerican and (ii) TransAmerican has the ability to pay its
taxes without contributions from TARC. As of January 31, 1996, all of TARC's
NOLs had been used by TransAmerican's consolidated group. At January 31, 1997,
TARC had NOL carryforwards of approximately $32.6 million which have not been
used by TransAmerican which would expire in 2013.

A change of control or other event that results in deconsolidation of TARC
from TransAmerican's consolidated group for federal income tax purposes could
result in the acceleration of payment of a substantial amount of federal income
taxes by TransAmerican. The tax liability to TransAmerican that would result
from deconsolidation is estimated to be approximately $15 million at January 31,
1997. Each member of a consolidated group filing a consolidated federal income
tax return is severally liable for the consolidated federal income tax liability
of the consolidated group. There can be no assurance that TransAmerican will
have the ability to satisfy the above tax obligation at the time due and,
therefore, TARC, or other members may be required to pay all or a portion of the
tax. A decision by TEC or TARC to sell TransTexas shares could result in
deconsolidation of TransTexas for tax purposes.

In the event TARC is not allowed to file a consolidated return with
TransAmerican, the receivable in lieu of federal net operating loss
carryforwards would not be available and the related valuation allowance would
decrease by $72.3 million.

Total income tax expense differs from amounts computed by applying the
statutory federal income tax rate to income before income taxes as follows (in
thousands of dollars):

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JULY 31,
-------------------- --------------------- ------------------
1997 1996 1996 1995 1995 1994
------ ----------- ------- ----------- -------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Federal income tax expense (benefit)
at the statutory rate............. $3,292 $(23,540) $(9,125) $(8,103) $(22,518) $(6,074)
Increase (decrease) in tax resulting
from:
Net operating losses (utilized)
not utilizable................. (3,292) 23,540 9,125 8,103 22,518 6,074
------ -------- ------- ------- -------- -------
$ -- $ -- $ -- $ -- $ -- $ --
====== ======== ======= ======= ======== =======
</TABLE>

9. INVESTMENT IN TRANSTEXAS

TARC uses the equity method to account for its investment in TransTexas and
initially recorded this investment at TransAmerican's historical basis. The sale
of TransTexas stock in March 1996 by TARC reduced TARC's interest in TransTexas
from 20.3% to 14.1%. TARC recognized a gain of $56.2 million on the sale of
TransTexas stock in March 1996. TARC continues to record its pro rata share of
losses due to the common control of TransTexas and TARC by TransAmerican and
TEC. The equity in extraordinary loss of TransTexas for the year ended July 31,
1995 represents TARC's equity in a charge by TransTexas for the early retirement
of $500 million of its 10 1/2% Senior Secured Notes due 2000 from the proceeds
of the issuance by

29
<PAGE> 32

TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

TransTexas in June 1995 of $800 million in 11 1/2% Senior Secured Notes due
2002. The closing price of TransTexas' common stock on January 31, 1997 was
$17.00.

Summary financial information of TransTexas is as follows (in thousands of
dollars):

<TABLE>
<CAPTION>
JANUARY 31,
-----------------------
1997 1996
---------- ---------
<S> <C> <C>
ASSETS
Total current assets........................................ $ 188,934 $ 159,438
Property and equipment, net................................. 846,393 715,340
Other assets................................................ 17,825 64,049
---------- ---------
$1,053,152 $ 938,827
========== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Total current liabilities................................... $ 117,348 $ 115,836
Total noncurrent liabilities................................ 1,086,599 977,431
Total stockholders' deficit................................. (150,795) (154,440)
---------- ---------
$1,053,152 $ 938,827
========== =========
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JANUARY 31, JANUARY 31, YEAR ENDED JULY 31,
----------------------- ------------------- -------------------
1997 1996 1996 1995 1995 1994
---------- ---------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues........................... $406,347 $291,338 $141,156 $162,517 $312,699 $335,919
Operating costs and expenses....... 219,068 229,284 101,908 133,833 261,209 256,628
-------- -------- -------- -------- -------- --------
Operating income................. 187,279 62,054 39,248 28,684 51,490 79,291
Other expense...................... (91,463) (77,174) (40,436) (29,059) (65,797) (50,155)
Income tax (expense) benefit....... (12,491) 2,700 416 131 2,415 (5,380)
-------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item............ 83,325 (12,420) (772) (244) (11,892) 23,756
Extraordinary item................. -- (56,637) -- -- (56,637) --
-------- -------- -------- -------- -------- --------
Net income (loss)................ $ 83,325 $(69,057) $ (772) $ (244) $(68,529) $ 23,756
======== ======== ======== ======== ======== ========
</TABLE>

10. TRANSACTIONS WITH AFFILIATES

TransAmerican and its affiliates have provided TARC with substantially all
of its corporate services requirements, including insurance, legal, accounting
and treasury functions pursuant to a Services Agreement. TransAmerican and
TransTexas charged TARC approximately $0.3 million, $0.2 million, $0.2 million
and $0.1 million for the year ended January 31, 1997, the six months ended
January 31, 1996 and the years ended July 31, 1995 and 1994, respectively, to
cover its costs of providing these services, which management believes to be
reasonable based on the limited services provided. Pursuant to this agreement,
TARC is currently charged $26,000 per month for additional corporate services.
In addition, third party charges incurred by TransAmerican and its affiliates
have been charged directly or allocated to TARC on usage or other methods that
management believes are reasonable. All significant transactions with affiliates
are recorded in the payable to affiliates account.

30
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TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

TARC for the direct costs it incurs (which consist solely of employee payroll
and benefits) plus administrative costs and fees of $1.2 million per year. Total
labor costs charged by Southeast Contractors were approximately $14.1 million,
$20.2 million and $15.5 million for the year ended January 31, 1997, the six
months ended January 31, 1996 and the year ended July 31, 1995, respectively.
Amounts payable to Southeast Contractors were $1.8 million and $2.3 million at
January 31, 1997 and 1996, respectively. No labor costs were charged by
Southeast Contractors in prior years.

TARC purchases natural gas from TransTexas on an interruptible basis. The
total cost of natural gas purchased for the year ended January 31, 1997, the six
months ended January 31, 1996 and years end July 31, 1995 and 1994 was
approximately $2.7 million, $1.4 million, $2.5 million and $2.3 million,
respectively, of which approximately $2.7 million and $0.1 million was payable
at January 31, 1997 and 1996.

During 1995, TransAmerican acquired an office building which it
subsequently sold to TransTexas in February 1996 for $4 million. In February
1996, TransAmerican advanced $4 million of the proceeds from this sale to TARC
for working capital.

In July 1996, TARC executed a promissory note to TransAmerican for up to
$25 million. The note bears interest at a rate of 15% per annum, payable
quarterly beginning October 31, 1996, and matures on July 31, 1998. As of
January 31, 1997, the entire $25 million was outstanding under the note. On
November 1, 1996, TARC executed an additional $25 million promissory note to
TransAmerican which bears interest at 15% per annum, payable quarterly beginning
December 31, 1996, and which matures on September 30, 1998 (together with the
first promissory note, the "TransAmerican Notes"). At January 31, 1997, TARC had
approximately $44.4 million outstanding under both of these notes. TransAmerican
has waived any default occurring as a result of TARC's failure to make the
scheduled interest payment provided for in the notes. In February 1997, the
November 1996 promissory note was replaced with a $50 million note bearing
interest at an annual rate of 15% and which matures on July 31, 2002. Interest
payments are due quarterly commencing on April 30, 1997. The debt represented by
the new note is subordinate in right of payment to the TARC Notes. As of April
25, 1997, approximately $31.4 million had been advanced under the new note.

Prior to the sale of the TARC Notes, TARC participated in TransAmerican's
centralized cash management program. Funds required by TARC for daily operations
and capital expenditures were advanced by TransAmerican. In October 1994,
TransAmerican sold 5.25 million shares of TransTexas common stock. TransAmerican
advanced approximately $50 million of the proceeds from these stock sales to
TARC, of which approximately $20 million was used by TARC to repay a portion of
the intercompany debt owed to TransAmerican, and the remaining $30 million was
used for working capital and general corporate purposes. TARC used approximately
$30 million of the net proceeds of the sale of the TARC Notes to repay
additional intercompany debt to TransAmerican. TransAmerican contributed to the
capital of TARC (through TEC) all but $10 million of the remainder of TARC's
intercompany debt owed to TransAmerican. In April 1995, TARC repaid the
remaining $10 million of intercompany indebtedness owed to TransAmerican. In
August 1995, TARC received an advance of $3 million from TransTexas which TARC
used to settle its remaining portion of certain litigation. In September 1995,
TARC received an advance of $1.7 million from TransAmerican which TARC used to
purchase feedstock. In October 1995, TARC repaid these advances without
interest. Additionally in October 1995, TARC received an advance of
approximately $4 million from TransAmerican for working capital, which has not
been repaid.

In September 1995, TARC received an advance of $1 million from TransTexas
which TARC used to purchase feedstock. This advance was repaid by TARC without
interest. In December 1995, TARC advanced $1 million to TransTexas. This advance
was repaid to TARC with interest.

TransAmerican, its existing subsidiaries, including TARC, TEC, and
TransTexas, entered into a Tax Allocation Agreement, the general terms of which
require TransAmerican and all of its subsidiaries to file federal income tax
returns as members of a consolidated group to the extent permitted by law.
Filing on a

31
<PAGE> 34

TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

consolidated basis allows income and tax of one member to be offset by losses
and credits of another and allows deferral of certain intercompany gains;
however, each member is severally liable for the consolidated federal income tax
liability of the consolidated group.

The Tax Allocation Agreement requires each of TransAmerican's subsidiaries
to pay to TransAmerican each year its allocable share of the federal income tax
liabilities of the consolidated group ("Allocable Share"). The Tax Allocation
Agreement provides for a reallocation of the group's consolidated federal income
tax liabilities among the members if the IRS or the courts ultimately
re-determine the group's regular tax or alternative minimum tax liability. In
the event of an IRS audit or examination, the Tax Allocation Agreement generally
gives TransAmerican the authority to compromise or settle disputes and to
control litigation, subject to the approval of TARC, TEC or TransTexas, as the
case may be, where such compromise or settlement affects the determination of
the separate tax liability of that company.

Under the Tax Allocation Agreement, each subsidiary's Allocable Share for
each tax year will generally equal the amount of federal income tax it would
have owed had it filed a separate federal income tax return for each year except
that each subsidiary will be able to utilize net operating losses and credits of
TransAmerican and the other members of the TransAmerican consolidated group
effectively to defer payment of tax liabilities that it would have otherwise
owed had it filed a separate federal income tax return. Each subsidiary will
essentially pay the deferred taxes at the time TransAmerican (or the member
whose losses or credits are utilized by such subsidiary) begins generating
taxable income or tax. This will have the effect of deferring a portion of such
subsidiary's tax liability to future years.

The TARC Notes Indenture requires that, with certain exceptions,
transactions between TARC and certain related parties be on terms no less
favorable to TARC than would be available from an unrelated party and that are
fair and reasonable to TARC. This standard will apply to future transactions, if
any, with entities in which Mr. Stanley or members of his family may have an
interest. A similar covenant is in the indentures governing notes issued by
TransTexas.

11. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

The following is a description of the legal proceedings of TARC.

EEOC. On August 31, 1995, the U.S. Equal Employment Opportunity Commission
("EEOC") issued a Commissioner's Charge against TARC and Southeast Contractors
(the "Commissioner's Charge") pursuant to Sections 706 and 707 of Title VII of
the Civil Rights Act of 1964, as amended, 42 U.S.C. sec. 2000e et seq. ("Title
VII"). In the Commissioner's Charge, the EEOC charged TARC and Southeast
Contractors with engaging in unlawful discriminatory hiring and promotion
practices based on race and gender. Each violation of Title VII, if proven,
potentially could subject TARC and/or Southeast Contractors to liability for (i)
monetary damages for backpay and/or front pay in an undetermined amount, and for
compensatory damages and/or punitive damages in an amount that should not exceed
$300,000, (ii) injunctive relief, (iii) attorney's fees, and/or (iv) interest.
During the period covered by the Commissioner's Charge, TARC and Southeast
Contractors estimate that they received a combined total of approximately 15,000
to 22,000 employment applications and hired (or rehired) a combined total of
approximately 1,500 to 2,200 workers. TARC and Southeast Contractors have
responded to the Commissioner's Charge and have denied engaging in any unlawful
employment practices. TARC and Southeast Contractors have been cooperating fully
with the EEOC in connection with its investigation. TARC and Southeast
Contractors intend to vigorously defend against the allegations contained in the
Commissioner's Charge in all proceedings before the EEOC and in any subsequent
litigation. If TARC and/or Southeast Contractors are found liable for violations
of Title VII based on the matters asserted in the Commissioner's Charge, TARC
can make no assurance that such liability

32
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TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

would not have a material adverse effect on the financial condition of TARC or
TARC's ability to pay interest or principal on the TARC Notes or the
TransAmerican Notes.

Rineheart. On October 8, 1996, Carlton Gene Rineheart, et al., and as
representative of a class of persons similarly situated, filed suit against
eighty-four individuals and corporations, including TARC, in the U.S. District
Court, Middle District of Louisiana alleging negligent and improper storage,
handling, treatment, and disposal of hazardous materials from 1976 to the
present at two sites in Iberville Parish, Louisiana. The suit claims damages for
physical, mental, and property damage in the communities of Bayou Sorrel, Bayou
Pigeon and Indian Village. TARC intends to vigorously defend this claim.

Shell Oil. On September 27, 1996, Shell Oil Company filed a third party
suit against TARC in the U.S. District Court, Eastern District of Louisiana for
contribution and/or indemnity relating to alleged contamination of the waters
and water bottoms of Bayou Trepagnier. Shell dismissed this suit without
prejudice.

General. TARC is also named a defendant in other ordinary course, routine
litigation incidental to its business. While the outcome of these other lawsuits
cannot be predicted with certainty, TARC does not expect these matters to have a
material adverse effect on its financial position, operations or cash flow.

Environmental Matters

Compliance Matters. TARC is subject to federal, state, and local laws,
regulations, and ordinances ("Pollution Control Laws"), which regulate
activities such as discharges to air and water, as well as handling and disposal
practices for solid and hazardous wastes. TARC believes that it is in
substantial compliance with applicable Pollution Control Laws. However, newly
enacted Pollution Control Laws, as well as increasingly strict enforcement of
existing Pollution Control Laws, may require TARC to make capital expenditures
in order to comply with such laws and regulations. To ensure continuing
compliance, TARC has made environmental compliance and permitting issues an
integral part of its refinery's start-up plans and has budgeted for such capital
expenditures in the Capital Improvement Program.

TARC uses (and in the past has used) certain materials, and generates (and
in the past has generated) certain substances or wastes that are or may be
deemed hazardous substances or wastes. In the past, the refinery has been the
subject of certain environmental enforcement actions, and incurred certain
fines, as a result of certain of TARC's operations. TARC also was previously
subject to enforcement proceedings relating to its prior production of leaded
gasoline and air emissions. TARC believes that, with minor exception, all of
these past matters were resolved prior to or in connection with the resolution
of the bankruptcy proceedings of its predecessor in interest, TransAmerican, or
are no longer applicable to TARC's operations. As a result, TARC believes that
such matters will not have a material adverse effect on TARC's future results of
operations, cash flows or financial position.

Requirements Under the Federal Clean Air Act. The National Emission
Standards for Hazardous Air Pollutants for Benzene Waste Operations (the
"Benzene Waste NESHAPS"), promulgated in January 1993 pursuant to the Clean Air
Act, regulate benzene emissions from numerous industries, including petroleum
refineries. The Benzene Waste NESHAPS require all existing, new, modified, or
reconstructed sources to reduce benzene emissions to a level that will provide
an ample margin of safety to protect public health. TARC will be required to
comply with the Benzene Waste NESHAPS as its refinery operations start up. TARC
believes that compliance with the Benzene Waste NESHAPS will not have a material
adverse effect on TARC's financial position, results of operations or cash flow.
However, until the refinery is in full operation, there can be no assurance that
the regulations will not have such an effect.

In addition, the Environmental Protection Agency ("EPA") promulgated
National Emission Standards for Hazardous Air Pollutants for Hazardous Organics
(the "Hazardous Organics NESHAPS") regulations for petroleum refineries under
the Clean Air Act in 1995, and subsequently has amended such regulations. These
regulations set "Maximum Achievable Control Technology" ("MACT") standards for
petroleum

33
<PAGE> 36

TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

refineries. The Louisiana Department of Environmental Quality (the "LDEQ") has
incorporated MACT Standards into TARC's air permits under federal and state air
pollution prevention laws. TARC believes that compliance with the Hazardous
Organics NESHAPS will not have a material adverse effect on TARC's financial
position, results of operations or cash flow. However, until the refinery is in
full operation, there can be no assurance that the regulations will not have
such an effect.

The EPA recently promulgated federal regulations pursuant to the Clean Air
Act to control fuels and fuel additives (the "Gasoline Standards") that could
have a material adverse effect on TARC. Under the new regulations, only
reformulated gasoline can be sold in certain domestic geographic areas in which
the EPA has mandated or approved its use. Reformulated gasoline must contain a
minimum amount of oxygen, have a lower vapor pressure, and have reduced sulfur,
olefins, benzene and aromatics compared to the average 1990 gasoline. The number
and extent of the areas subject to reformulated gasoline standards may increase
in the future if the EPA's National Ambient Air Quality Standards ("NAAQS")
proposals for particulate matter and ozone are implemented Conventional gasoline
may be used in all other domestic markets; however, a refiner's post-1994
average conventional gasoline must not be more polluting than it was in 1990.
With limited exceptions, to determine its compliance as of January 1, 1995, a
refiner must compare its post-1994 and 1990 average values of controlled fuel
parameters and emissions. The Gasoline Standards recognize that many gasoline
producers may not be able to develop an individual 1990 baseline for a number of
reasons, including, for example, lack of adequate data or the absence or limited
scope of operations in 1990. Under such circumstances, the refiner must use a
statutory baseline reflecting the 1990 industry average. The EPA has authority,
upon a showing of extenuating circumstances by a refiner, to grant an individual
adjusted baseline or other appropriate regulatory relief to that refiner.

TARC filed a petition with the EPA requesting an individual baseline
adjustment or other appropriate regulatory relief based on extenuating
circumstances. The extenuating circumstances upon which TARC relied in its
petition include the fact that the refinery was not in operation in 1990 (and
thus there is no 1990 average for purposes of the necessary comparison) and the
fact that the start-up of the refinery is to occur on a phased-in basis. The EPA
has denied TARC's request for an individual baseline adjustment and other
appropriate regulatory relief. TARC will continue to pursue regulatory relief
with the EPA. There can be no assurance that any action taken by the EPA will
not have a material adverse effect on TARC's future results of operations, cash
flows or financial position.

Title V of the Clean Air Act requires states to implement an Operating
Permit Program that codifies all federally enforceable limitations that are
applicable to a particular source. The EPA has approved Louisiana's Title V
Operating Permit Program. The deadline for a refinery to submit an Operating
Permit Application under the Louisiana program was October 12, 1996. TARC timely
submitted its Title V Operating Permit application and the LDEQ has designated
the application as being administratively complete. As yet, the LDEQ has not
responded further regarding the status of TARC's Title V Operating Permit. TARC
believes that its application will be approved. However, there can be no
assurance that additional expenditures required pursuant to Title V Operating
Permit obligations will not have a material adverse effect on TARC's financial
position, results of operations or cash flow.

Cleanup Matters. TARC also is subject to federal, state and local laws,
regulations and ordinances that impose liability for the costs of clean up
relating to, and certain damages resulting from, past spills, disposals or other
releases of hazardous substances ("Hazardous Substance Cleanup Laws"). Over the
past several years, TARC has been, and to a limited extent continues to be,
engaged in environmental cleanup or remedial work relating to or arising out of
operations or activities at the refinery. In addition, TARC has been engaged in
upgrading its solid waste facilities, including the closure of several waste
management units. Similar to numerous other industrial sites in the state, the
refinery has been listed by the LDEQ on the Federal Comprehensive Environmental
Response, Compensation and Liability Information System, as a result of TARC's
prior waste management activities (as discussed below).

34
<PAGE> 37

TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

In 1991, the EPA performed a facility assessment at the refinery pursuant
to the Federal Resource Conservation and Recovery Act ("RCRA"). The EPA
performed a follow up assessment in March 1996, but has not yet issued a report
of its investigations. In July 1996, the EPA and LDEQ agreed that the LDEQ would
serve as the lead agency with respect to the investigation and remediation of
areas of concern identified in the investigations. TARC, under a voluntary
initiative approved by the LDEQ, has submitted a work plan to the LDEQ to
determine which areas may require further investigation and remediation. The
LDEQ has not yet responded to TARC's submission or issued any further requests
relating to this matter. As a result, TARC is unable at this time to estimate
what the costs, if any, will be if the LDEQ does require further investigation
or remediation of the areas identified.

TARC has been identified as a potentially responsible party ("PRP") under
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended ("CERCLA" or "Superfund"), for the cleanup of contamination
from hazardous substances at three Superfund sites (i.e. sites on the National
Priorities List ("NPL")), to which it has been alleged that TARC, or its
predecessors, sent hazardous substances in the past. CERCLA requires cleanup of
sites from which there has been a "release" or threatened release of "hazardous
substances" (as such terms are defined under CERCLA). CERCLA requires the EPA to
include sites needing long-term study and cleanup on the NPL based on their
potential effect on public health or the environment. CERCLA authorizes the EPA
to take any necessary response actions at NPL sites and, in certain
circumstances, to order PRPs liable for the release to take such actions. PRPs
are broadly defined under CERCLA to include past and present owners and
operators of a site, as well as generators and transporters of wastes to a site
from which hazardous substances are released.

The EPA may seek reimbursement of expenditures of federal funds from PRPs
under Superfund. Courts have interpreted CERCLA to impose strict, joint and
several liability upon all persons liable for the entire amount of necessary
cleanup costs. As a practical matter, at sites where there are multiple PRPs for
a cleanup, the costs of cleanup typically are allocated according to a
volumetric or other standard among the parties. CERCLA also provides that
responsible parties generally may recover a portion of the costs of cleaning up
a site from other responsible parties. Thus, if one party is required to clean
up an entire site, that party can seek contribution or recovery of such costs
from other responsible parties. A number of states have laws similar to
Superfund, pursuant to which cleanup obligations, or the costs thereof, also may
be imposed.

At one Superfund site, TARC has submitted information to the EPA indicating
that it should have no liability for this matter, and negotiations with the EPA
are continuing. With respect to the remaining two sites, TARC's liability for
each such matter has not been determined, and TARC anticipates that it may incur
costs related to the cleanup (and possibly including additional costs arising in
connection with any recovery action brought pursuant to such matters) at each
such site. After a review of the data available to TARC regarding the basis of
TARC's alleged liability at each site, and based on various factors, which
depend on the circumstances of the particular Superfund site (including, for
example, the relationship of TARC to each such site, the volume of wastes TARC
is alleged to have contributed to each such site in comparison to other PRPs
without giving effect to the ability of any other PRPs to contribute to or pay
for any liabilities incurred and the range of likely cleanup costs at each such
site) TARC does not believe its ultimate liability will be significant; however,
it is not possible to determine the ultimate environmental liabilities, if any,
that may arise from the matters discussed above.

Purchase Commitments

TARC has various purchase commitments for materials, supplies and services
incidental to the ordinary course of business and for the Capital Improvement
Program. As of January 31, 1997, TARC had commitments for refinery construction
and maintenance of approximately $53.0 million. TARC is acting as general
contractor and can generally cancel or postpone capital projects.

35
<PAGE> 38

TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Price Management Activities

TARC enters into futures contracts, options on future, swap agreements and
forward sales agreements with the intent to protect against a portion of the
price risk associated with price declines from holding inventory of feedstocks
and refined products or fixed price purchase commitments. At January 31, 1997,
TARC's position in open futures contracts, options on futures, swap agreements
and forward sales agreements was not significant. A net trading gain of
approximately $2.3 million and a trading loss of approximately $3.1 million were
reflected in other income (expense) for the years ended July 31, 1995 and 1994,
respectively. These transactions did not qualify for hedge accounting treatment
under the guidelines of SFAS 80; therefore, gains or losses associated with
these futures contracts were not deferred.

Financing Arrangements and Processing Agreements

36
<PAGE> 39

TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Operating Leases

As of January 31, 1997, TARC has long-term leases covering land and other
property and equipment. Rental expense was approximately $4.2 million, $1.9
million, $4 million and $3 million for the year ended January 31, 1997, the six
months ended January 31, 1996, and the years ended July 31, 1995 and 1994.
Future minimum rental payments required under operating leases that have initial
or remaining noncancellable lease terms in excess of one year as of January 31,
1997, are as follows (in thousands of dollars):

<TABLE>
<S> <C>
1998........................................................ $3,236
1999........................................................ 2,969
2000........................................................ 183
2001........................................................ 183
2002........................................................ 183
Later years................................................. 522
------
$7,276
======
</TABLE>

12. LITIGATION SETTLEMENTS

GATX. On May 14, 1996, GATX Terminals Corporation ("GATX") filed suit
against TARC in the U.S. District Court, Eastern District of Louisiana alleging
breach of an operating agreement to pay GATX $122,500 per month during 1996.
TARC settled this litigation in November 1996.

NLRB Proceeding. On July 13, 1994, the Oil, Chemical and Atomic Workers
International Union ("OCAW") filed unfair labor practices charges against TARC
with the New Orleans Regional Office of the National Labor Relations Board
("NLRB"). These charges allege that TARC refused to reinstate 22 former
employees because of their union membership. The NLRB refused to issue a
complaint and the OCAW appealed the decision to the NLRB General Counsel. The
decision of the NLRB was upheld in November 1996.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable

37
<PAGE> 40

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

TARC's directors and executive officers are as follows:

<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
Donald B. Henderson.................. Director 46
Thomas B. McDade..................... Director 73
John R. Stanley...................... Director, Chairman of the Board, President and 58
Chief Executive Officer
Gary L. Karr......................... Vice President of Refining 48
R. Glenn McGinnis.................... Vice President of Manufacturing 48
John R. Stanley, Jr.................. Vice President of Administration 35
Ed Donahue........................... Vice President and Secretary 46
</TABLE>

Set forth below is a description of the backgrounds of the directors and
executive officers of TARC.

Donald B. Henderson has been a director of TARC and of TEC since July 1994.
Mr. Henderson is a partner in the law firm of Blackburn & Henderson and is a
director of Colonial Casualty Insurance Co. From 1972 to 1978, Mr. Henderson was
a member of the Texas House of Representatives. Mr. Henderson was a member of
the Texas Senate from 1982 through 1986. Mr. Henderson has been a director of
TransAmerican from 1985 until his resignation in February 1995.

Thomas B. McDade has been a director of TARC and of TEC since July 1994. He
is also a director of TransTexas. Mr. McDade is primarily engaged in managing
his personal investments and in providing consulting services in Houston, Texas.
Mr. McDade served as a director of TransAmerican from 1985 until his resignation
in February 1995. Prior to 1989, he served as a consultant to Texas Commerce
Bancshares, Inc. and prior to July 1985 he served as Vice Chairman and Director
of Texas Commerce Bancshares, Inc. and Vice Chairman and Advisory Director of
Texas Commerce Bank. Mr. McDade is a former director and trustee of eleven
registered investment companies for which John Hancock Funds serves as
investment advisor in Boston, Massachusetts. Mr. McDade is a former director of
Houston Industries, Inc. and Houston Lighting & Power Company. He is also a
former member of the Board of Managers of the Harris County Hospital District
and former Chairman of the State Securities Board of Texas.

John R. Stanley has been a director and Chief Executive Officer of TARC
since September 1987 and a director and Chief Executive Officer of TEC since
July 1994. Mr. Stanley is the founder, Chairman of the Board, Chief Executive
Officer, and sole stockholder of TNGC Holdings Corporation, which is the sole
stockholder of TransAmerican. He has operated TransAmerican since 1958. Mr.
Stanley is the father of John R. Stanley, Jr.

Gary L. Karr has been the Vice President of Refining of TARC since January
1994 and served as Refinery Manager for approximately eight years prior thereto.
Mr. Karr has been with TransAmerican or a subsidiary of TransAmerican since 1971
in various positions.

R. Glenn McGinnis has been the Vice President of Manufacturing of TARC
since July 1995. Prior to joining TARC, Mr. McGinnis held senior refining and
supply positions in Canada with Imperial Oil Limited, an affiliate of Exxon
Corporation. Mr. McGinnis was with Imperial Oil Limited for 23 years.

John R. Stanley, Jr. has served as Vice President of Administration of TARC
since October 1995. From May 1992 until October 1995, he served as Manager of
Audit and Security for TARC. Mr. Stanley is the son of John R. Stanley.

Edwin B. Donahue has served as Vice President and Secretary of TARC since
February 1997. Mr. Donahue also serves as Vice President, Chief Financial
Officer and Secretary of TransTexas and TTC and

38
<PAGE> 41

as Vice President and Secretary of TransAmerican and TEC. Mr. Donahue has been
employed in various positions with TransAmerican for over 20 years.

COMMITTEES OF THE BOARD OF DIRECTORS

TARC has an Audit Committee and a Compensation Committee. The Audit
Committee is composed of Messrs. Henderson and McDade. The Audit Committee
reviews the scope of the independent auditors' examinations of TARC's financial
statements and receives and reviews their reports. The Audit Committee meets
with the independent auditors, receives recommendations or suggestions for
changes in accounting procedures, and initiates or supervises any special
investigations it may choose to undertake.

The Compensation Committee is composed of Messrs. Henderson and McDade. The
Compensation Committee determines the nature and amount of compensation of
TARC's executive officers.

DIRECTOR COMPENSATION

Each director, other than John R. Stanley, receives an annual director's
fee of $75,000, plus $750 for each board meeting and committee meeting attended
(other than committee meetings held on the same day as board meetings).

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the compensation paid during the fiscal
years ended July 31, 1994 and 1995, the transition period ended January 31,
1996, and the fiscal year ended January 31, 1997 to TARC's Chief Executive
Officer and each other executive officer of TARC whose total annual salary and
bonus exceeded $100,000 in the fiscal year ended January 31, 1997:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION FISCAL ANNUAL COMPENSATION ALL OTHER
IN TARC YEAR SALARY COMPENSATION(A)(B)
--------------------------- ------ ------------------- -------------------
<S> <C> <C> <C>
John R. Stanley(c)......................... 1997 $397,117 $5,154
Chief Executive Officer 1996* 175,000 807
1995 350,000 4,620
1994 350,000 4,620
Gary L. Karr............................... 1997 $140,192 $3,348
Vice President of Refining 1996* 67,500 311
1995 140,192 2,312
1994 125,577 4,228
R. Glenn McGinnis.......................... 1997 $233,653 $ 727
Vice President of Manufacturing 1996* 116,937 --
1995 8,654 --
John R. Stanley, Jr........................ 1997 $117,308 $3,519
Vice President of Administration 1996* 63,750 2,231
1995 94,058 2,270
1994 75,162 2,255
</TABLE>

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

* Six months ended January 31, 1996 (Transition Period)

(a) Certain of TARC's executive officers receive personal benefits in addition
to salary and cash bonuses. The aggregate amount of the personal benefits,
however, does not exceed the lesser of $50,000 or 10% of the total of the
annual salary and bonus reported for the named executive officer and
accordingly has been excluded from the table.

(b) Reflects the amount contributed under the Savings Plan (as defined below).

39
<PAGE> 42

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

TARC's compensation committee is composed of Messrs. Henderson and McDade.
During the year ended January 31, 1997, none of the members of the compensation
committee was an officer or employee of TARC, and none had any relationship with
TARC requiring disclosure under Item 404 of Regulation S-K. The TARC Notes
Indenture prohibits TARC and any Guarantor under the TARC Notes from paying
compensation to Mr. Stanley in excess of $1 million per year, in the aggregate.

SAVINGS PLAN

TransAmerican maintains a long-term savings plan (the "Savings Plan") in
which eligible employees of TARC and certain of its affiliates may elect to
participate. Each employee becomes eligible to participate in the Savings Plan
on January 1 or July 1 following the completion of one year of service with TARC
or its participating affiliates and attainment of age 21. The Savings Plan is
intended to constitute a qualified plan under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code") and contains a salary reduction
arrangement described in Section 401(k) of the Code.

Each participant may elect to reduce his compensation by a percentage equal
to 2% to 15% and TARC will contribute that amount to the Savings Plan on a
pre-tax basis on behalf of the participant. The Code limits the annual amount
that a participant may elect to have contributed on his behalf on a pre-tax
basis to the Savings Plan. For 1997, this limit is $9,500. TARC presently makes
a matching contribution in an amount equal to 10%, 20%, or 50% of the amount
elected to be contributed by each participant on a pre-tax basis, up to a
maximum of 3% of each participant's compensation, depending on whether the
employee has been a participant in the Savings Plan for one year, two years or
three years. Each participant also may elect to contribute up to 10% of his
compensation to the Savings Plan on an after-tax basis. The Code imposes
nondiscrimination tests on contributions made to the Savings Plan pursuant to
participant elections and on TARC's matching contributions, and limits amounts
which may be allocated to a participant's Savings Plan account each year. In
order to satisfy the nondiscrimination tests, contributions made on behalf of
certain highly compensated employees (as defined in the Code) may be limited.
Contributions made to the Savings Plan pursuant to participant elections and
matching contributions are at all times 100% vested. Contributions to the
Savings Plan are invested, according to specified investment options selected by
the participants, in investment funds maintained by the trustee of the Savings
Plan. Generally, a participant's vested benefits will be distributed from the
Savings Plan as soon as administratively practicable following a participant's
retirement, death, disability or other termination of employment. In addition, a
participant may elect to withdraw his after-tax contributions from the Savings
Plan prior to his termination of employment, and subject to certain strict
limitations and exceptions, the Savings Plan provides for withdrawals of a
participant's pre-tax contributions prior to a participant's termination of
employment in the event of the participant's severe financial hardship or
attainment of age 59 1/2. The Savings Plan may be amended or terminated by the
Board of Directors of TARC. As of January 31, 1997, approximately 194 employees
were eligible to participate in the Savings Plan, including Messrs. Karr,
McGinnis and Stanley.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

TEC owns 30 million shares (100%) of TARC's outstanding shares of common
stock. TEC's address is 1300 North Sam Houston Parkway East, Suite 200, Houston,
Texas 77032. Pursuant to the TARC Notes Indenture, all shares of TARC's common
stock are pledged as collateral and are held by the trustee under the TARC Notes
Indenture, First Union National Bank.

A foreclosure by the holders of TARC's debt securities on the shares of
TARC's common stock, under certain circumstances, constitutes a "change of
control" of TARC under the TARC Notes Indenture, which allows the holders
thereof to require TARC to repurchase the TARC Notes at a price equal to 101% of
the principal amount thereof plus accrued and unpaid interest.

40
<PAGE> 43

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Southeast Louisiana Contractors of NORCO, Inc. ("Southeast Contractors"), a
subsidiary of TransAmerican, provides construction personnel to TARC in
connection with TARC's expansion and construction program. These construction
workers are temporary employees, and the number and composition of the workforce
will vary throughout TARC's expansion and construction program. Southeast
Contractors charges TARC for the direct costs it incurs (which consist solely of
employee payroll and benefits) plus administrative costs and fees of $1.2
million per year. Total labor costs charged by Southeast Contractors were
approximately $14.1 million, $20.2 million and $15.5 million for the year ended
January 31, 1997, the six months ended January 31, 1996 and the year ended July
31, 1995, respectively. Amounts payable to Southeast Contractors were $1.8
million and $2.3 million at January 31, 1997 and 1996, respectively. No labor
costs were charged by Southeast Contractors in prior years.

In July 1996, TARC executed a promissory note to Trans American for up to
$25 million. The note bears interest at a rate of 15% per annum, payable
quarterly beginning October 31, 1996, and mature on July 31, 1998. As of January
31, 1997, the entire $25 million was outstanding under the note. On November 1,
1996, TARC executed an additional $25 million promissory note to TransAmerican
which bears interest at 15% per annum, payable quarterly beginning December 31,
1996, and which matures on September 30, 1998 (together with the first
promissory note, the "TransAmerican Notes"). At January 1, 1997, TARC had
approximately $44.4 million outstanding under the TransAmerican Notes.
TransAmerican has waived any default occurring as a result of TARC's failure to
make the scheduled interest payment provided for in these notes. In February
1997, the November 1996 promissory note was replaced with a $50 million note
bearing interest at an annual rate of 15% and which matures on July 31, 2002.
Interest payments are due quarterly commencing on April 30, 1997. The debt
represented by the new note is subordinate in right of payment to the TARC
Notes. As of April 25, 1997, approximately $31.4 million had been advanced under
the new note.

41
<PAGE> 44

In August 1995, TARC received an advance of $3 million from TransTexas which
TARC used to settle its remaining portion of certain litigation. In September
1995, TARC received an advance of $1.7 million from TransAmerican which TARC
used to purchase feedstock. In October 1995, TARC repaid these advances without
interest. Additionally in October 1995, TARC received an advance of
approximately $4 million from TransAmerican for working capital, which has not
been repaid.

TransAmerican, its existing subsidiaries, including TARC, TEC and
TransTexas, entered into a Tax Allocation Agreement, the general terms of which
require TransAmerican and all of its subsidiaries to file federal income tax
returns as members of a consolidated group to the extent permitted by law.
Filing on a consolidated basis allows income and tax of one member to be offset
by losses and credits of another and allows deferral of certain intercompany
gains; however, each member is severally liable for the consolidated federal
income tax liability of the consolidated group.

42
<PAGE> 45

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(1) Report of Independent Accountants....................... 16
Balance Sheet........................................... 17
Statement of Operations................................. 18
Statement of Stockholder's Equity....................... 19
Statement of Cash Flows................................. 20
Notes to Financial Statements........................... 21
</TABLE>

(2) All schedules have been omitted because the information is either not
required or is set forth in the financial statements or the notes
thereto.

(3) Exhibits

The following instruments are included as exhibits to this Annual Report on
Form 10-K and are filed herewith unless otherwise indicated. Exhibits
incorporated by reference are so indicated by parenthetical information.

43
<PAGE> 46
<TABLE>
<S> <C>

4.5 -- Cash Collateral and Disbursement Agreement dated as of
February 23, 1995, among TARC, First Fidelity Bank,
National Association, as Trustee, First Fidelity Bank,
N.A., as Disbursement Agent, and Baker & O'Brien, Inc.,
as Construction Supervisor (previously filed as Exhibit 7
to TARC's and TEC's Current Report on Form 8-K dated
March 14, 1995 and incorporated herein by reference)
4.6 -- Mortgage, Assignment of Leases and Rents, Security
Agreement and Financing Statement from TARC in favor of
First Fidelity Bank, National Association, as Trustee
(previously filed as Exhibit 8 to TARC's and TEC's
Current Report on Form 8-K dated March 14, 1995 and
incorporated herein by reference)
4.7 -- Registration Rights Agreement dated as of February 23,
1995, between TransTexas, TARC, and TEC (previously filed
as Exhibit 10 to TARC's and TEC's Current Report on Form
8-K dated March 14, 1995 and incorporated herein by
reference)
*4.8 -- First Supplemental Indenture dated as of February 24,
1997 among the Company, TEC and First Union National
Bank, f/k/a First Fidelity Bank, N.A.
*4.9 -- Indenture dated as of March 14, 1997, between TARC and
First Union National Bank, as Trustee, with respect to
the $36 million Senior Secured Notes due 1998, including
the form of Note as an exhibit.
*4.10 -- Pledge Agreement dated as of March 14, 1997, from TARC to
First Union National Bank, as Trustee.
*4.11 -- Security Agreement dated as of March 14, 1997, from TARC
to First Union National Bank, as Trustee.
*4.12 -- Cash Collateral and Disbursement Agreement dated as of
March 14, 1997, between TARC and First Union National
Bank, as Trustee and Disbursement Agent.
*4.13 -- First Amendment to Cash Collateral and Disbursement
Agreement dated as of April 3, 1997, between TARC and
First Union National Bank, as Trustee and Disbursement
Agent.
10.1 -- Services Agreement dated August 24, 1993, by and among
TARC, TEC, TransTexas and TransAmerican, as amended
(previously filed as Exhibit 10.1 to TARC's and TEC's
Registration Statement on Form S-1 (Registration No.
33-82200) and incorporated herein by reference)
10.2 -- Tax Allocation Agreement dated August 24, 1993, by and
among TransAmerican, TEC, TARC, TransTexas and the other
subsidiaries of TransAmerican, as amended (previously
filed as Exhibit 10.2 to TARC's and TEC's Registration
Statement on Form S-1 (Registration No. 33-82200) and
incorporated herein by reference)
10.3 -- Indemnification Agreement by and between TARC and each of
its directors (previously filed as Exhibit 10.3 to TARC's
and TEC's Registration Statement on Form S-1
(Registration No. 33-82200) and incorporated herein by
reference)
10.4 -- Interruptible Gas Sales Terms and Conditions dated
between TARC and TransTexas, as amended (previously filed
as Exhibit 10.4 to TARC's and TEC's Registration
Statement on Form S-1 (Registration No. 33-82200) and
incorporated herein by reference)
10.5 -- Intercompany Note dated as of August 12, 1994, executed
by TARC for the benefit of TransAmerican (previously
filed as Exhibit 10.5 to TARC's and TEC's Registration
Statement on Form S-1 (Registration No. 33-82200) and
incorporated herein by reference)
</TABLE>
44
<PAGE> 47

<TABLE>
<C> <S>
10.6 -- Processing Agreement dated March 20, 1996 by and between
TARC and J. Aron & Company (previously filed as an
exhibit to TARC's Form 10-K for the transition period
ended January 31, 1996, and incorporated herein by
reference)
10.7 -- Employment Agreement dated June 12, 1995, between TARC
and R. Glenn McGinnis (previously filed as an exhibit to
TARC's Form 10-K for the transition period ended January
31, 1996, and incorporated herein by reference)
10.8 -- Processing Agreement dated April 22, 1996 between TARC
and Glencore Ltd. (previously filed as an exhibit to
TARC's Form 10-Q for the quarter ended April 30, 1996,
and incorporated herein by reference)
*11.1 -- Statement of Computation of Net Income (Loss) Per Share.
21.1 -- Schedule of Subsidiaries (previously filed as Exhibit
21.1 to TARC's and TEC's Registration Statement on Form
S-1 (Registration No. 33-82200) and incorporated herein
by reference)
*27.1 -- Financial Data Schedule.
</TABLE>

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

* Filed herewith.

(b) Reports on Form 8-K.

There were no current reports on Form 8-K filed during the fourth quarter
of the fiscal year ended January 31, 1997.

45
<PAGE> 48

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, on May 1, 1997.

TRANSAMERICAN REFINING CORPORATION

By: /s/ JOHN R. STANLEY
-------------------------------------
John R. Stanley
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities indicated on May 1, 1997.

<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>

/s/ JOHN R. STANLEY Director, Chairman of the Board, President,
- ----------------------------------------------------- and Chief Executive Officer (Principal
John R. Stanley Executive Officer)

/s/ DONALD B. HENDERSON Director
- -----------------------------------------------------
Donald B. Henderson

/s/ THOMAS B. MCDADE Director
- -----------------------------------------------------
Thomas B. McDade

/s/ EDWIN B. DONAHUE Vice President and Secretary
- ----------------------------------------------------- (Principal Financial and
Edwin B. Donahue Accounting Officer
</TABLE>

46
<PAGE> 49

INDEX TO EXHIBITS

<TABLE>
<C> <S>
2.1 -- Stock Transfer Agreement dated as of February 23, 1995,
between TARC, TEC and TransAmerican (previously filed as
Exhibit 2 to TARC's and TEC's Current Report on Form 8-K
dated March 14, 1995 and incorporated herein by
reference)
3.1 -- Articles of Incorporation of TARC (previously filed as
Exhibit 3.1(i) to TARC's and TEC's Registration Statement
on Form S-1 (Registration No. 33-82200) and incorporated
herein by reference)
3.2 -- By-laws of TARC (previously filed as Exhibit 3.1(ii) to
TARC's and TEC's Registration Statement on Form S-1
(Registration No. 33-82200) and incorporated herein by
reference)
4.1 -- Indenture dated as of February 15, 1995, between TARC,
First Fidelity Bank, National Association, as Trustee and
TEC, with respect to the Guaranteed First Mortgage
Discount Notes and the Guaranteed First Mortgage Notes
(together, the "Notes"), including the forms of Notes as
exhibits (previously filed as Exhibit 3 to TARC's and
TEC's Current Report on Form 8-K dated March 14, 1995 and
incorporated herein by reference)
4.2 -- Warrant Agreement dated as of February 23, 1995, among
the Company, TEC and First Fidelity Bank, National
Association, as Warrant Trustee, with respect to the
Common Stock Purchase Warrants including the form of
Warrant as an exhibit (previously filed as Exhibit 4 to
TARC's and TEC's Current Report on Form 8-K dated March
14, 1995 and incorporated herein by reference)
4.3 -- Pledge Agreement dated as of February 23, 1995, from TARC
to First Fidelity Bank, National Association, as Trustee
(previously filed as Exhibit 5 to TARC's and TEC's
Current Report on Form 8-K dated March 14, 1995 and
incorporated herein by reference)
4.4 -- Security Agreement dated as of February 23, 1995, from
TARC to First Fidelity Bank, National Association, as
Trustee (previously filed as Exhibit 6 to TARC's and
TEC's Current Report on Form 8-K dated March 14, 1995 and
incorporated herein by reference)
4.5 -- Cash Collateral and Disbursement Agreement dated as of
February 23, 1995, among TARC, First Fidelity Bank,
National Association, as Trustee, First Fidelity Bank,
N.A., as Disbursement Agent, and Baker & O'Brien, Inc.,
as Construction Supervisor (previously filed as Exhibit 7
to TARC's and TEC's Current Report on Form 8-K dated
March 14, 1995 and incorporated herein by reference)
4.6 -- Mortgage, Assignment of Leases and Rents, Security
Agreement and Financing Statement from TARC in favor of
First Fidelity Bank, National Association, as Trustee
(previously filed as Exhibit 8 to TARC's and TEC's
Current Report on Form 8-K dated March 14, 1995 and
incorporated herein by reference)
4.7 -- Registration Rights Agreement dated as of February 23,
1995, between TransTexas, TARC, and TEC (previously filed
as Exhibit 10 to TARC's and TEC's Current Report on Form
8-K dated March 14, 1995 and incorporated herein by
reference)
*4.8 -- First Supplemental Indenture dated as of February 24,
1997 among the Company, TEC and First Union National
Bank, f/k/a First Fidelity Bank, N.A.
*4.9 -- Indenture dated as of March 14, 1997, between TARC and
First Union National Bank, as Trustee, with respect to
the $36 million Senior Secured Notes due 1998, including
the form of Note as an exhibit.
</TABLE>
<PAGE> 50

<TABLE>
<C> <S>
*4.10 -- Pledge Agreement dated as of March 14, 1997, from TARC to
First Union National Bank, as Trustee.
*4.11 -- Security Agreement dated as of March 14, 1997, from TARC
to First Union National Bank, as Trustee.
*4.12 -- Cash Collateral and Disbursement Agreement dated as of
March 14, 1997, between TARC and First Union National
Bank, as Trustee and Disbursement Agent.
*4.13 -- First Amendment to Cash Collateral and Disbursement
Agreement dated as of April 3, 1997, between TARC and
First Union National Bank, as Trustee and Disbursement
Agent.
10.1 -- Services Agreement dated August 24, 1993, by and among
TARC, TEC, TransTexas and TransAmerican, as amended
(previously filed as Exhibit 10.1 to TARC's and TEC's
Registration Statement on Form S-1 (Registration No.
33-82200) and incorporated herein by reference)
10.2 -- Tax Allocation Agreement dated August 24, 1993, by and
among TransAmerican, TEC, TARC, TransTexas and the other
subsidiaries of TransAmerican, as amended (previously
filed as Exhibit 10.2 to TARC's and TEC's Registration
Statement on Form S-1 (Registration No. 33-82200) and
incorporated herein by reference)
10.3 -- Indemnification Agreement by and between TARC and each of
its directors (previously filed as Exhibit 10.3 to TARC's
and TEC's Registration Statement on Form S-1
(Registration No. 33-82200) and incorporated herein by
reference)
10.4 -- Interruptible Gas Sales Terms and Conditions dated
between TARC and TransTexas, as amended (previously filed
as Exhibit 10.4 to TARC's and TEC's Registration
Statement on Form S-1 (Registration No. 33-82200) and
incorporated herein by reference)
10.5 -- Intercompany Note dated as of August 12, 1994, executed
by TARC for the benefit of TransAmerican (previously
filed as Exhibit 10.5 to TARC's and TEC's Registration
Statement on Form S-1 (Registration No. 33-82200) and
incorporated herein by reference)
10.6 -- Processing Agreement dated March 20, 1996 by and between
TARC and J. Aron & Company (previously filed as an
exhibit to TARC's Form 10-K for the transition period
ended January 31, 1996, and incorporated herein by
reference)
10.7 -- Employment Agreement dated June 12, 1995, between TARC
and R. Glenn McGinnis (previously filed as an exhibit to
TARC's Form 10-K for the transition period ended January
31, 1996, and incorporated herein by reference)
10.8 -- Processing Agreement dated April 22, 1996 between TARC
and Glencore Ltd. (previously filed as an exhibit to
TARC's Form 10-Q for the quarter ended April 30, 1996,
and incorporated herein by reference)
*11.1 -- Statement of Computation of Net Income (Loss) Per Share.
</TABLE>
<PAGE> 51
<TABLE>
<S> <C>
21.1 -- Schedule of Subsidiaries (previously filed as Exhibit
21.1 to TARC's and TEC's Registration Statement on Form
S-1 (Registration No. 33-82200) and incorporated herein
by reference)
*27.1 -- Financial Data Schedule.
</TABLE>
- ---------------

* Filed herewith.

<PAGE> 1
EXHIBIT 4.8

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

TRANSAMERICAN REFINING CORPORATION,
Issuer

and

TRANSAMERICAN ENERGY CORPORATION,
Guarantor

and

FIRST UNION NATIONAL BANK, f/k/a FIRST FIDELITY BANK, NATIONAL ASSOCIATION,
Trustee

_________________________

FIRST SUPPLEMENTAL INDENTURE

dated as of February 24, 1997

_________________________

$340,000,000 Guaranteed First Mortgage Discount Notes due 2002

and

$100,000,000 Guaranteed First Mortgage Notes due 2002

- --------------------------------------------------------------------------------
<PAGE> 2
THIS FIRST SUPPLEMENTAL INDENTURE, dated as of February 24, 1997 (the
"Supplemental Indenture"), is made and entered into by and among TRANSAMERICAN
REFINING CORPORATION, a Texas corporation (the "Company"), TRANSAMERICAN ENERGY
CORPORATION, a Delaware corporation ("TEC"), and FIRST UNION NATIONAL BANK,
formerly known as First Fidelity Bank, National Association, (the "Trustee"),
under an Indenture dated as of February 15, 1995, by and among the Company, TEC
and the Trustee (the "Current Indenture"). All capitalized terms used in this
Supplemental Indenture that are defined in the Current Indenture, either
directly or by reference therein, have the meanings assigned to them therein,
except to the extent such terms are defined in this Supplemental Indenture or
the context clearly requires otherwise.

WHEREAS, Section 9.2 of the Current Indenture provides, among other
things, that with the consent of the Holders of not less than a majority in
aggregate principal amount of then outstanding Notes or, with respect to
certain matters, 66-2/3% of the aggregate principal amount of the Mortgage
Notes and Discount Mortgage Notes at the time outstanding, the Obligors, when
authorized by Board Resolutions, and the Trustee may amend or supplement the
Current Indenture or the Securities or enter into an indenture supplemental
thereto for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of the Current Indenture or the Securities
or of modifying in any manner the rights of the Holders under the Current
Indenture or the Securities; and

WHEREAS, the Company has, upon the terms set forth in a Consent
Solicitation Statement dated February 3, 1997, as supplemented and amended by
that certain Supplement to Consent Solicitation Statement dated February 6,
1997 (collectively, the "Consent Solicitation Statement"), and in the related
form of Consent, solicited Consents from the Holders of the Notes to certain
amendments to the Current Indenture to modify certain of the covenants and
other provisions contained in the Current Indenture, as more particularly
described in the Consent Solicitation Statement and in this Supplemental
Indenture (the "Proposed Amendments"); and

WHEREAS, the Holders of at least 66-2/3% of the aggregate principal
amount of the Mortgage Notes and Discount Mortgage Notes have consented to the
Proposed Amendments pursuant to the Consent Solicitation Statement; and

WHEREAS, the Boards of Directors of the Obligors have adopted
resolutions authorizing and approving the Proposed Amendments and the Company,
the Guarantor and the Trustee are executing and delivering this Supplemental
Indenture in order to provide for such amendments;

NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Supplemental
Indenture hereby agree as follows:

ARTICLE I

AMENDMENTS TO CURRENT INDENTURE

Section 1.1. Section 1.1 of the Current Indenture. The definition of
Permitted Liens in Section 1.1 of the Current Indenture is hereby amended to
read in its entirety as follows:

"Permitted Liens" means (a) Liens imposed by governmental
authorities for taxes, assessments, or other charges not yet due or
which are being contested in good faith and by
<PAGE> 3
appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP; (b)
statutory Liens of landlords, carriers, warehousemen, mechanics,
materialmen, repairmen, mineral interest owners, or other like Liens
arising by operation of law in the ordinary course of business provided
that (i) the underlying obligations are not overdue for a period of more
than 60 days, or (ii) such Liens are being contested in good faith and
by appropriate proceedings and adequate reserves with respect thereto
are maintained on the books of the Company in accordance with GAAP; (c)
deposits to secure the performance of bids, trade contracts (other than
borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds, and other obligations of a like nature incurred in
the ordinary course of business; (d) easements, rights-of- way, zoning,
similar restrictions and other similar encumbrances or title defects
incurred in the ordinary course of business which, in the aggregate, are
not material in amount and which do not, in any case, materially detract
from the value of the property subject thereto (as such property is used
by the Company or any of its Subsidiaries) or interfere with the
ordinary conduct of the business of the Company or any of its
Subsidiaries; (e) Liens arising by operation of law in connection with
judgments, only to the extent, for an amount and for a period not
resulting in an Event of Default with respect thereto; (f) Liens
existing on the Issue Date not exceeding $2 million; (g) pledges or
deposits made in the ordinary course of business in connection with
worker's compensation, unemployment insurance, and other types of social
security legislation; (h) if the Company has obtained a Revolving Credit
Facility that satisfies the requirements of Section 4.13 and the Company
has deposited in the Collateral Account $50,000,000 of the proceeds of
Debt incurred pursuant to such Revolving Credit Facility, Liens on (i)
accounts receivable owned by the Company and its Subsidiaries or (ii)
inventory owned by the Company and its Subsidiaries, in either case,
securing Debt of the Company pursuant to such Revolving Credit Facility;
(i) Liens on the assets of any entity existing at the time such assets
are acquired by the Company or any of its Subsidiaries, whether by
merger, consolidation, purchase of assets or otherwise so long as such
Liens (i) are not created, incurred or assumed in contemplation of such
assets being acquired by the Company or such Subsidiary and (ii) do not
extend to any other assets of the Company or any of its Subsidiaries;
(j) Liens (including extensions and renewals thereof) on real or
personal property acquired after the Issue Date, except for property
acquired in whole or in part with the proceeds of this offering;
provided, however, that (i) such Lien is created solely for the purpose
of securing Debt Incurred to finance the cost (including the cost of
improvement or construction) of the item of property or assets subject
thereto and such Lien is created prior to, at the time of, or within six
months after the later of the acquisition, the completion of
construction, or the commencement of full operation of such property,
(ii) the principal amount of the Debt secured by such Lien does not
exceed 100% of such cost, and (iii) any such Lien shall not extend to or
cover any property or assets other than such item or property or assets
and any improvements on such item; (k) leases or subleases granted to
others that do not materially interfere with the ordinary course of
business of the Company and its Subsidiaries, taken as a whole; (l)
Liens in favor of the Company; (m) Liens securing reimbursement
obligations with respect to letters of credit that encumber documents
and other property relating to such letters of credit and the products
and proceeds thereof; (n) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs
duties in connection with the importation of goods; (o) Liens
encumbering customary initial deposits and margin deposits securing
Interest Swap Obligations or Permitted Hedging Transactions; (p) until
the Company obtains a Revolving Credit Facility, Liens on cash deposits
of up to $30,000,000 to secure reimbursement obligations with respect to
letters of credit; (q) Liens encumbering funds disbursed from the
collateral account in accordance with the Disbursement Agreement; (r)
Liens on up to 5,000,000 shares of Common Stock of TransTexas Gas
Corporation released pursuant to

2
<PAGE> 4
Section 12.6(b)(9) from the security interest created by the Pledge
Agreement to secure Debt of the Company described in Section 4.13(i);
and (s) any replacement of the Permitted Liens set forth in the
foregoing clauses (a) through (r) that is on substantially similar terms
and does not secure any additional Debt or encumber or otherwise affect
or relate to any additional property; provided, however, that the
aggregate amount of Debt secured by Liens pursuant to the foregoing
clauses (i), (j) and (p), shall not exceed $50 million plus the amount
of any Debt, not in excess of $10 million, incurred to finance the
acquisition of tank storage facilities.

Section 1.2. Section 4.13 of the Current Indenture. The first
paragraph of Section 4.13 of the Current Indenture is hereby amended to read in
its entirety as follows:

Limitation on Incurrences of Additional Debt and Issuances of
Disqualified Capital Stock.

Neither the Company nor any Guarantor shall, and neither the
Company nor any Guarantor shall permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume, guarantee, or otherwise
become liable for, contingently or otherwise (to "Incur" or, as
appropriate, an "Incurrence"), any Debt or issue any Disqualified
Capital Stock (other than Capital Stock of the Company issued to TEC),
except (a) Debt evidenced by the Notes pursuant to the Indenture; (b)
Subordinated Debt of the Company solely to any wholly owned Subsidiary
of the Company, or Debt of any wholly owned Subsidiary of the Company
solely to the Company or to any wholly owned Subsidiary of the Company,
provided that neither the Company nor any Subsidiary of the Company
shall become liable to any person other than the Company or another
wholly owned Subsidiary of the Company; (c) Debt of the Company pursuant
to a Revolving Credit Facility outstanding at any time in an aggregate
principal amount not to exceed the greater of (i) $70,000,000 or (ii)
the Borrowing Base, less, in each case, the amount of any Debt of the
Accounts Receivable Subsidiary; (d) Debt of the Company outstanding at
any time in an aggregate principal amount, or Disqualified Capital Stock
of the Company outstanding at any time with an aggregate liquidation
value, or any combination thereof, not to exceed $50,000,000 in the
aggregate, plus the amount of any Debt, not in excess of $10 million,
incurred to finance the acquisition of tank storage facilities; (e)
Subordinated Debt of the Company outstanding at any time in an aggregate
principal amount not to exceed $200,000,000 in the aggregate; (f) the
Company may Incur Debt as an extension, renewal, replacement, or
refunding of any of the Debt permitted to be Incurred by clause (a) or
(c) above, or this clause (f) (such Debt is collectively referred to as
"Refinancing Debt"), provided, that (i) the maximum principal amount of
Refinancing Debt (or, if such Refinancing Debt does not require cash
payments prior to maturity, the original issue price of such Refinancing
Debt) permitted under this clause (f) may not exceed the lesser of (x)
the principal amount of the Debt being extended, renewed, replaced, or
refunded plus reasonable financing fees and other associated reasonable
out-of-pocket expenses (including any premium and defeasance costs)
other than those paid to a Related Person (collectively, "Refinancing
Fees"), or (y) if such Debt being extended, renewed, replaced, or
refunded was issued at an original issue discount, the original issue
price, plus amortization of the original issue discount at the time of
the Incurrence of the Refinancing Debt plus Refinancing Fees, (ii) the
Refinancing Debt as a Weighted Average Life and a final maturity that is
equal to or greater than the Debt being extended, renewed, replaced, or
refunded at the time of such extension, renewal, replacement, or
refunding, (iii) the Refinancing Debt shall rank with respect to the
Notes to an extent no more favorable in respect thereof than the Debt
being refinanced, and (iv) Refinancing Debt Incurred pursuant to clause
(c) may be renewed, replaced, refunded or refinanced only with another
Revolving Credit Facility; (g) Debt of the Company represented by

3
<PAGE> 5
trade payables or accrued expenses, in each case, incurred on normal,
customary terms in the ordinary course of business, not overdue for a
period of more than 45 days (or, if overdue for a period of more than 45
days, being contested in good faith and by appropriate proceedings and
adequate reserves with respect thereto being maintained on the books of
the Company in accordance with GAAP) and not constituting any amounts
due to banks or other financial institutions; (h) Debt Incurred and
Disqualified Capital Stock issued by any Person at a time when that
Person is not a Subsidiary of the Company or a Guarantor, which Debt or
Disqualified Capital Stock is outstanding at the time such Person
becomes, or is merged into, or consolidated with, a Subsidiary of the
Company or a Guarantor, was not incurred or issued in contemplation of
such Person becoming or being merged into, or consolidated with, a
Subsidiary of the Company or a Guarantor, and is in an aggregate amount
not to exceed $25,000,000; and (i) Debt of the Company outstanding at
any time in an aggregate principal amount not to exceed $50,000,000 in
the aggregate. For the purpose of determining the amount of outstanding
Debt that has been Incurred pursuant to clause (c) above, there shall be
included in such clause the principal amount then outstanding of any
Debt originally Incurred pursuant to such clause and, after any
refinancing or refunding of such Debt, any outstanding Debt Incurred
pursuant to clause (e) above so as to refinance or refund such Debt
Incurred pursuant to clause (c) and any subsequent refinancings or
refundings thereof. For purposes of clause (h) above, Debt shall be
deemed to be incurred, and Disqualified Capital Stock shall be deemed to
be issued, as the case may be, at the time such Person becomes or is
merged into or consolidated with, a Subsidiary of the Company or a
Guarantor.

Section 1.3. Section 12.6(b) of the Current Indenture. Section 12.6(b)
of the Current Indenture is hereby amended to add the following clause (9)
following the end thereof, which clause (9) shall read in its entirety as
follows:

(9) Up to 5,000,000 shares of pledged TransTexas common stock
owned by the Company may be released from the security interest created
by the Company Pledge Agreement at any time upon the request of the
Company.

Section 1.4. Section 12.6(h) of the Current Indenture. Section 12.6(h)
of the Current Indenture is hereby amended to read in its entirety as follows:

(h) Notwithstanding the foregoing, no Collateral may be
released from the security interest created by the Security Documents if
at the time of such proposed release, a Default or Event of Default has
occurred and is continuing or would occur as a result of such release.
Any shares of TransTexas common stock that is released pursuant to this
Section 12.6 (other than subsection (b)(9) hereof) in connection with a
sale of such stock shall be sold for cash at prices no less favorable to
the seller than those that could be obtained in arms-length transactions
with unrelated persons.

ARTICLE II

GENERAL PROVISIONS

Section 2.1. Effectiveness. This Supplemental Indenture is effective
as of the date first above written.

4
<PAGE> 6
Section 2.2. Ratification of Indenture. The Current Indenture is in
all respects acknowledged, ratified and confirmed, and shall continue in full
force and effect in accordance with the terms thereof and as supplemented by
this Supplemental Indenture. The Current Indenture and this Supplemental
Indenture, shall be read, taken and construed as one and the same instrument.

Section 2.3. Certificate and Opinion as to Conditions Precedent.
Simultaneously with and as a condition to the execution of this Supplemental
Indenture, the Company is delivering to the Trustee

(a) an Officer's Certificate in the form attached hereto as Exhibit
A; and

(b) an Opinion of Counsel covering the matters described in Exhibit
B.

Section 2.4. Effect of Headings. The Article and Section headings in
this Supplemental Indenture are for convenience only and shall not affect the
construction of this Supplemental Indenture.

Section 2.5. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

Section 2.6. Counterparts. This Supplemental Indenture may be executed
in any number of counterparts, each of which so executed shall be deemed to be
an original, but all such counterparts shall together constitute the same
instrument.

IN WITNESS WHEREOF, the parties to this Supplemental Indenture have
caused this Supplemental Indenture to be duly executed, and their respective
corporate seals to be hereunto affixed and attested, on this 24th day of
February, 1997.

TRANSAMERICAN REFINING CORPORATION

Attest: /s/ Douglas Widlaski By: /s/ Ed Donahue
------------------------------ ---------------------------------
Douglas Widlaski Ed Donahue
Assistant Secretary Vice President

TRANSAMERICAN ENERGY CORPORATION

Attest: /s/ Douglas Widlaski By: /s/ Ed Donahue
------------------------------ ---------------------------------
Douglas Widlaski Ed Donahue
Assistant Secretary Vice President

5
<PAGE> 7
FIRST UNION NATIONAL BANK, f/k/a
FIRST FIDELITY BANK,
NATIONAL ASSOCIATION, Trustee

Attest: /s/ Diane M. Oelsh By: /s/ W. Jeffrey Kramer
---------------------------- ---------------------------------
Its: Vice President
-----------------------------

6
<PAGE> 8
EXHIBIT A

TRANSAMERICAN REFINING CORPORATION

OFFICERS' CERTIFICATE

The undersigned, John R. Stanley, President and Chief Executive Officer,
and Douglas Widlaski, Assistant Secretary, of TransAmerican Refining
Corporation, a Texas corporation (the "Company"), do hereby certify pursuant to
Section 2.3 of that certain First Supplemental Indenture, dated as of February
24, 1997, among the Company, TransAmerican Energy Corporation, a Delaware
corporation ("TEC"), and First Union National Bank, f/k/a First Fidelity Bank,
National Association (the "Trustee"), and Sections 7.2(b), 9.6 and 14.4 of that
certain Indenture, dated as of February 15, 1995, among the Company, TEC and
the Trustee (the "Indenture"), as follows:

1. The undersigned have read Article IX of the Indenture.

2. The undersigned have monitored the solicitation from the holders
of Notes (as defined in the Indenture) of consents to the Proposed Amendments
(as defined in the Supplemental Indenture). The Company has received consents
to the Proposed Amendments from the Holders (as defined in the Indenture) as of
the Record Date (as defined in the Consent Solicitation Statement of the
Company dated February 3, 1997, as modified by the Supplement thereto dated
February 6, 1997, copies of which are attached as Exhibit A hereto) of not less
than 66 2/3% of the aggregate principal amount of the Mortgage Notes (as
defined in the Indenture) and the Discount Mortgage Notes (as defined in the
Indenture) at the time outstanding, which is aggregate principal amount of the
Mortgage Notes and the Discount Mortgage Notes required by the Indenture to
approve the Proposed Amendments.

3. In our opinion, we have made such examination and investigation
as is necessary to enable us to express an informed opinion as to whether or
not the conditions precedent in the Indenture requiring compliance by the
Company and TEC prior to or concurrently with the execution and delivery by the
Company, TEC and the Trustee of the First Supplemental Indenture have been
complied with.

4. In our opinion, each of the conditions precedent in the Indenture
requiring compliance by the Company and TEC prior to or concurrently with the
execution and delivery by the Company, TEC and the Trustee of the First
Supplemental Indenture have been complied with, and the Company, TEC and the
Trustee are authorized or permitted, pursuant to Article IX of the Indenture,
to execute the First Supplemental Indenture.

IN WITNESS WHEREOF, we have executed this Certificate as of February
___, 1997.

----------------------------
John R. Stanley, President
and Chief Executive Officer

----------------------------
Douglas Widlaski
Assistant Secretary
<PAGE> 9
EXHIBIT B

Form of Gardere & Wynne, L.L.P. Opinion

Each of the conditions precedent in the Current Indenture requiring
compliance by the Company and TEC prior to or concurrently with the execution
and delivery by the Company, TEC and the Trustee of the First Supplemental
Indenture has been complied with, and the Company, TEC and the Trustee are
authorized or permitted by Article IX of the Current Indenture to execute the
First Supplemental Indenture.

<PAGE> 1
EXHIBIT 4.9

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

TRANSAMERICAN REFINING CORPORATION,
Issuer

and

FIRST UNION NATIONAL BANK
Trustee

______________

INDENTURE

Dated as of March 14, 1997

______________

$36,000,000 Senior Secured Notes due March 14, 1998

================================================================================
<PAGE> 2
TABLE OF CONTENTS

ARTICLE I

DEFINITIONS AND INCORPORATION BY REFERENCE
<TABLE>
<S> <C>
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Incorporation by Reference of TIA . . . . . . . . . . 15
Section 1.3 Rules of Construction . . . . . . . . . . . . . . . . 16

ARTICLE II

THE NOTES

Section 2.1 Form and Dating . . . . . . . . . . . . . . . . . . 16
Section 2.2 Execution and Authentication . . . . . . . . . . . . 16
Section 2.3 Registrar and Paying Agent . . . . . . . . . . . . . 17
Section 2.4 Paying Agent to Hold Assets in Trust . . . . . . . . 17
Section 2.5 Noteholder Lists . . . . . . . . . . . . . . . . . . 18
Section 2.6 Transfer and Exchange . . . . . . . . . . . . . . . . 18
Section 2.7 Replacement Notes . . . . . . . . . . . . . . . . . . 18
Section 2.8 Outstanding Notes . . . . . . . . . . . . . . . . . . 18
Section 2.9 Treasury Securities . . . . . . . . . . . . . . . . . 19
Section 2.10 Temporary Notes . . . . . . . . . . . . . . . . . . . 19
Section 2.11 Cancellation . . . . . . . . . . . . . . . . . . . . 19
Section 2.12 Defaulted Interest . . . . . . . . . . . . . . . . . 19

ARTICLE III

REDEMPTION

Section 3.1 Right of Redemption . . . . . . . . . . . . . . . . . 20
Section 3.2 Notices to Trustee . . . . . . . . . . . . . . . . . 21
Section 3.3 Notice of Redemption . . . . . . . . . . . . . . . . 21
Section 3.4 Effect of Notice of Redemption . . . . . . . . . . . 21
Section 3.5 Deposit of Redemption Price . . . . . . . . . . . . . 22

ARTICLE IV

COVENANTS
Section 4.1 Payment of Notes . . . . . . . . . . . . . . . . . . 22
Section 4.2 Maintenance of Office or Agency . . . . . . . . . . . 22
Section 4.3 Limitation on Use of Proceeds . . . . . . . . . . . . 23
Section 4.4 Construction . . . . . . . . . . . . . . . . . . . . 23
Section 4.5 Limitation on Restricted Payments . . . . . . . . . . 23
Section 4.6 Corporate Existence . . . . . . . . . . . . . . . . . 23
Section 4.7 Payment of Taxes and Other Claims . . . . . . . . . . 23
Section 4.8 Maintenance of Properties and Insurance . . . . . . . 24
Section 4.9 Compliance Certificate; Notice of Default . . . . . . 24
Section 4.10 SEC Reports . . . . . . . . . . . . . . . . . . . . . 24
Section 4.11 Limitation on Status as Investment Company or Public
Utility Company . . . . . . . . . . . . . . . . . . . 25
Section 4.12 Limitation on Transactions with Related Persons . . . 25
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 4.13 Limitation on Incurrences of Additional Debt and
Issuances of Disqualified Capital Stock . . . . . . . 26
Section 4.14 Limitation on Restricting Subsidiary Dividends . . . 27
Section 4.15 Limitation on Liens . . . . . . . . . . . . . . . . . 28
Section 4.16 Limitation on Asset Sales . . . . . . . . . . . . . . 28
Section 4.17 Waiver of Stay, Extension or Usury Laws . . . . . . . 30
Section 4.18 Restriction on Sale and Issuance of Subsidiary Stock 31
Section 4.19 Limitations on Line of Business . . . . . . . . . . . 31
Section 4.20 Limitation on Speculative Trading . . . . . . . . . . 31
Section 4.21 Accounts Receivable Subsidiary . . . . . . . . . . . 31
Section 4.22 Separate Existence and Formalities . . . . . . . . . 32
Section 4.23 Revolving Credit Facility . . . . . . . . . . . . . . 33
Section 4.24 Registration of Pledged Shares . . . . . . . . . . . 33
Section 4.25 Limitation on Sale/Leaseback Transactions . . . . . . 33

ARTICLE V

SUCCESSOR CORPORATION

Section 5.1 When Company May Merge, Etc. . . . . . . . . . . . . 33
Section 5.2 Successor Corporation Substituted . . . . . . . . . . 34

ARTICLE VI

EVENTS OF DEFAULT AND REMEDIES

Section 6.1 Events of Default . . . . . . . . . . . . . . . . . . 36
Section 6.2 Acceleration of Maturity Date; Rescission and
Annulment . . . . . . . . . . . . . . . . . . . . . . 37
Section 6.3 Collection of Indebtedness and Suits for
Enforcement by Trustee . . . . . . . . . . . . . . . 38
Section 6.4 Trustee May File Proofs of Claim . . . . . . . . . . 39
Section 6.5 Trustee May Enforce Claims Without Possession of
Notes . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 6.6 Priorities . . . . . . . . . . . . . . . . . . . . . 39
Section 6.7 Limitation on Suits . . . . . . . . . . . . . . . . . 40
Section 6.8 Unconditional Right of Holders to Receive Principal,
Premium and Interest . . . . . . . . . . . . . . . . 40
Section 6.9 Rights and Remedies Cumulative . . . . . . . . . . . 40
Section 6.10 Delay or Omission Not Waiver . . . . . . . . . . . . 41
Section 6.11 Control by Holders . . . . . . . . . . . . . . . . . 41
Section 6.12 Waiver of Past Default . . . . . . . . . . . . . . . 41
Section 6.13 Undertaking for Costs . . . . . . . . . . . . . . . . 41
Section 6.14 Restoration of Rights and Remedies . . . . . . . . . 42

ARTICLE VII

TRUSTEE

Section 7.1 Duties of Trustee . . . . . . . . . . . . . . . . . . 42
Section 7.2 Rights of Trustee . . . . . . . . . . . . . . . . . . 43
Section 7.3 Individual Rights of Trustee . . . . . . . . . . . . 43
Section 7.4 Trustee's Disclaimer . . . . . . . . . . . . . . . . 43
Section 7.5 Notice of Default . . . . . . . . . . . . . . . . . . 44
Section 7.6 Reports by Trustee to Holders . . . . . . . . . . . . 44
Section 7.7 Compensation and Indemnity . . . . . . . . . . . . . 44
Section 7.8 Replacement of Trustee . . . . . . . . . . . . . . . 45
</TABLE>

ii
<PAGE> 4
<TABLE>
<S> <C>
Section 7.9 Successor Trustee by Merger, Etc. . . . . . . . . . . 45

ARTICLE VIII

SATISFACTION AND DISCHARGE

Section 8.1 Satisfaction, Discharge of the Indenture and
Defeasance of the Notes . . . . . . . . . . . . . . . 46
Section 8.2 Termination of Obligations Upon Cancellation of the
Notes . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.3 Survival of Certain Obligations . . . . . . . . . . . 47
Section 8.4 Acknowledgment of Discharge by Trustee . . . . . . . 47
Section 8.5 Application of Trust Assets . . . . . . . . . . . . . 48
Section 8.6 Repayment to the Company . . . . . . . . . . . . . . 48
Section 8.7 Reinstatement . . . . . . . . . . . . . . . . . . . . 48

ARTICLE IX

AMENDMENTS, SUPPLEMENTS AND WAIVERS

Section 9.1 Supplemental Indentures Without Consent of Holders . 48
Section 9.2 Amendments, Supplemental Indentures and Waivers with
Consent of Holders . . . . . . . . . . . . . . . . . 49
Section 9.3 INTENTIONALLY OMITTED . . . . . . . . . . . . . . . . 50
Section 9.4 Revocation and Effect of Consents . . . . . . . . . . 50
Section 9.5 Notation on or Exchange of . . . . . . . . . . . . . 51
Section 9.6 Trustee to Sign Amendments, Etc. . . . . . . . . . . 51

ARTICLE X

MEETINGS OF NOTEHOLDERS

Section 10.1 Purposes for Which Meetings May Be Called . . . . . . 51
Section 10.2 Manner of Calling Meetings . . . . . . . . . . . . . 51
Section 10.3 Call of Meetings by Company or Holders . . . . . . . 52
Section 10.4 Who May Attend and Vote at Meetings . . . . . . . . . 52
Section 10.5 Regulations May Be Made by Trustee; Conduct of the
Meeting; Voting Rights; Adjournment . . . . . . . . . 52
Section 10.6 Voting at the Meeting and Record to Be Kept . . . . . 53
Section 10.7 Exercise of Rights of Trustee or Holders May Not Be
Hindered or Delayed by Call of Meeting . . . . . . . 53

ARTICLE XI

RIGHT TO REQUIRE REPURCHASE

Section 11.1 Repurchase of Notes at Option of the Holder Upon
Change of Control . . . . . . . . . . . . . . . . . . 53

ARTICLE XII

SECURITY

Section 12.1 Security Documents . . . . . . . . . . . . . . . . . 55
Section 12.2 INTENTIONALLY OMITTED . . . . . . . . . . . . . . . . 55
Section 12.3 Authorization of Actions to be Taken by the Trustee
Under the Security Documents . . . . . . . . . . . . 55
Section 12.4 Authorization of Receipt of Funds by the Trustee
Under the Security Documents . . . . . . . . . . . . 55
</TABLE>

iii
<PAGE> 5
<TABLE>
<S> <C><C>
Section 12.5 Termination of Security Interest . . . . . . . . . . 56
Section 12.6 Release of Collateral . . . . . . . . . . . . . . . . 56

ARTICLE XIII

MISCELLANEOUS

Section 13.1 TIA . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 13.2 Notices . . . . . . . . . . . . . . . . . . . . . . . 57
Section 13.3 INTENTIONALLY OMITTED . . . . . . . . . . . . . . . . 58
Section 13.4 Certificate and Opinion as to Conditions Precedent . 58
Section 13.5 Statements Required in Certificate or Opinion . . . . 58
Section 13.6 Rules by Trustee, Paying Agent, Registrar . . . . . . 59
Section 13.7 Legal Holidays . . . . . . . . . . . . . . . . . . . 59
Section 13.8 Governing Law . . . . . . . . . . . . . . . . . . . . 59
Section 13.9 No Adverse Interpretation of Other Agreements . . . . 60
Section 13.10 No Recourse against Others . . . . . . . . . . . . . 60
Section 13.11 Successors . . . . . . . . . . . . . . . . . . . . . 60
Section 13.12 Duplicate Originals . . . . . . . . . . . . . . . . . 60
Section 13.13 Severability . . . . . . . . . . . . . . . . . . . . 60
Section 13.14 Table of Contents, Headings, Etc. . . . . . . . . . . 60
</TABLE>

EXHIBITS

Exhibit A -- Form of Senior Secured Note . . . . . . . . . . . . . . . . . A-1
Exhibit B -- Form of Security Agreement . . . . . . . . . . . . . . . . . . B-1
Exhibit C -- Form of Pledge Agreement . . . . . . . . . . . . . . . . . . C-1
Exhibit D -- Form of Cash Collateral and Disbursement Agreement . . . . . . D-1

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<PAGE> 6
INDENTURE, dated as of March 14, 1997, between TRANSAMERICAN
REFINING CORPORATION, a Texas corporation (the "Company") and FIRST UNION
NATIONAL BANK, as Trustee.

Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Company's
Senior Secured Notes due March 14, 1998:

ARTICLE I

DEFINITIONS AND INCORPORATION BY REFERENCE

Section 1.1 Definitions.

"Acceleration Notice" shall have the meaning specified in Section
6.2.

"Acceptance Amount" shall have the meaning specified in Section
4.16(c).

"Accounts Receivable Subsidiary" means a subsidiary of the
Company designated as an Accounts Receivable Subsidiary for the purpose of
financing the accounts receivable of the Company.

"Accounts Receivable Subsidiary Notes" means the notes to be
issued by the Accounts Receivable Subsidiary for the purchase of accounts
receivable.

"Accumulated Amount" shall have the meaning specified in Section
4.16(a).

"Affiliate" means, with respect to any specified Person, (a) any
other Person directly or indirectly controlling or controlled by, or under
direct or indirect common control with, such specified Person or (b) any
officer, director or controlling shareholder of such other Person. For
purposes of this definition, the term "control" means (i) the power to direct
the management and policies of a Person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by
contract, or otherwise, or (ii) without limiting the foregoing, the beneficial
ownership of 5% or more of the voting power of the voting common equity of such
Person (on a fully diluted basis) or of warrants or other rights to acquire
such equity (whether or not presently exercisable).

"Agent" means any Registrar, Paying Agent or co-Registrar.

"Asset Sale" shall have the meaning specified in Section 4.16.

"Attributable Debt" in respect of a Sale/Leaseback Transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP
or, in the event that such rate of interest is not reasonably determinable,
discounted at the rate of interest borne by the Notes) of the obligation of the
lessee for net rental payments during the remaining term of the lease included
in such Sale/Leaseback Transaction (including any period for which such lease
has been extended or may, at the option of the lessor, be extended).

"Bankruptcy Law" means Title 11, U.S. Code or any similar
Federal, state or foreign law for the relief of debtors, as amended from time
to time.

"Board of Directors" means, with respect to any Person, the Board
of Directors of such Person or any committee of the Board of Directors of such
Person authorized, with respect to any particular matter, to exercise the power
of the Board of Directors of such Person.
<PAGE> 7
"Board Resolution" means, with respect to any Person, a duly
adopted resolution of the Board of Directors of such Person.

"Borrowing Base" means, as of any date, an amount equal to the
sum of (a) 85% of the book value of all accounts receivable owned by the
Company and its Subsidiaries (excluding any accounts receivable from a Related
Person or that are more than 90 days past due, less (without duplication) the
allowance for doubtful accounts attributable to such current accounts
receivable) calculated on a consolidated basis and in accordance with GAAP and
(b) 80% of the current market value of all inventory owned by the Company and
its Subsidiaries as of such date. To the extent that information is not
available as to the amount of accounts receivable as of a specific date, the
Company may utilize, to the extent reasonable, the most recent available
information for purposes of calculating the Borrowing Base.

"Business Day" means a day that is not a Legal Holiday.

"Capital Expenditures" of a Person means expenditures (whether
paid in cash or accrued as a liability) by such Person or any of its
Subsidiaries that, in conformity with GAAP, are or would be included in
"capital expenditures," "additions to property, plant or equipment" or
comparable items in the consolidated financial statements of such Person
consistent with prior accounting practices.

"Capital Improvement Program" means the proposed expansion and
modification of the Company's refinery in accordance with the Plans, including
Phase I and Phase II thereof.

"Capital Stock" means, with respect to any Person, any capital
stock of such Person and shares, interests, participation or other ownership
interests (however designated), of such Person and any rights (other than debt
securities convertible into corporate stock), warrants or options to purchase
any of the foregoing, including without limitation each class of common stock
and preferred stock of such Person if such Person is a corporation and each
general and limited partnership interest of such Person if such Person is a
partnership.

"Capitalized Lease Obligation" means obligations under a lease
that are required to be capitalized for financial reporting purposes in
accordance with GAAP (including Statement of Financial Accounting Standards No.
13 of the Financial Accounting Standards Board as in effect on the Issue Date)
and the amount of Debt represented by such obligations shall be the capitalized
amount of such obligations, as determined in accordance with GAAP, unless such
obligations arise as a result of a Sale/Leaseback Transaction, in which case
the amount of debt represented by such obligation shall be the Attributable
Debt in respect of such Sale/Leaseback Transaction.

"cash" means U.S. Legal Tender.

"Cash Equivalents" means (a) United States dollars, (b)
securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof having maturities of
not more than six months from the date of acquisition, (c) certificates of
deposit with maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months, and overnight
bank deposits, in each case, with any Eligible Institution, (d) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clauses (b) and (c) entered into with any Eligible
Institution, and (e) commercial paper rated "P-1," "A-1" or the equivalent
thereof by Moody's or S&P, respectively, and in each case maturing within six
months after the date of acquisition.

"Change of Control" means (a) any sale, lease, transfer or other
conveyance or disposition, whether direct or indirect, of more than 50% of the
fair market value of the assets of the Company, on a consolidated basis, to any
"person" or "group" (as such terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act, whether or not applicable), other than to or among
the Company's wholly owned Subsidiaries, whether in a single transaction or a
series of related transactions, unless immediately after such transaction, John

2
<PAGE> 8
R. Stanley has, directly or indirectly, in the aggregate, sole beneficial
ownership of more than 50%, on a fully diluted basis, of the total voting power
entitled to vote in the election of directors, managers, or trustees of the
transferee, (b) the liquidation or dissolution of the Company, or (c) any
transaction, event or circumstance pursuant to which any "person" or "group"
(as such terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act, whether or not applicable), other than John R. Stanley and his
wholly owned Subsidiaries, is or becomes the "beneficial owner" (as that term
is used in Rules 13d-3 and 13d-5 under the Exchange Act, whether or not
applicable, except that a person shall be deemed to have "beneficial ownership"
of all shares that any such person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total voting power of the Company's then
outstanding Voting Stock, unless at the time of the occurrence of an event
specified in clause (a), (b) or (c), the Mortgage Notes have an Investment
Grade Rating; provided, however, that if at any time within 120 days after such
occurrence, the Mortgage Notes cease having an Investment Grade Rating, such
event shall be a "Change of Control."

"Change of Control Offer" shall have the meaning specified in
Section 11.1.

"Change of Control Payment Date" shall have the meaning specified
in Section 11.1.

"Change of Control Purchase Price" shall have the meaning
specified in Section 11.1.

"Closing Price" of a share of common stock on any day shall mean
(a) the closing sales price regular way per share of common stock on such day
on the New York Stock Exchange ("NYSE"), or (b) if the common stock is not
listed on the NYSE, the last reported sales price regular way, or in case no
such reported sale takes place on such day, the average of the reported closing
bid and asked prices regular way, on the principal national securities exchange
on which the common stock is admitted for trading, or (c) if the common stock
is not listed or admitted for trading on any national securities exchange, the
last reported sales price regular way per share of common stock on such day,
or, in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case, on the
Nasdaq National Market.

"Collateral" means (a) the Account Collateral, as such term is
defined in the Security Agreement, and (b) the Pledged Collateral, as such term
is defined in the Pledge Agreement.

"Collateral Account" shall have the meaning provided in the
Disbursement Agreement.

"Common Stock" means the common stock, par value $.01 per share,
of the Company, now or hereafter issued.

"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to the Indenture and thereafter means such
successor.

"Consolidated EBITDA" of any Person for any period means (a) the
Consolidated Net Income of such Person for such period, plus (b) the sum,
without duplication (and only to the extent such amounts are deducted from net
revenues in determining such Consolidated Net Income), of (i) the provision for
income taxes for such period for such Person and its consolidated Subsidiaries,
(ii) depreciation and amortization of such Person and its consolidated
Subsidiaries during such period, and (iii) Consolidated Fixed Charges of such
Person for such period, determined, in each case, on a consolidated basis for
such Person and its consolidated Subsidiaries in accordance with GAAP unless
otherwise defined herein.

"Consolidated Fixed Charge Coverage Ratio" on any date (the
"Transaction Date") means, with respect to any Person, the ratio, on a pro
forma basis, of (a) the aggregate amount of Consolidated EBITDA of such Person
(attributable to continuing operations and businesses and exclusive of the
amounts attributable to operations and businesses discontinued or disposed of,
on a pro forma basis) for the Reference Period to (b) the aggregate
Consolidated Fixed Charges of such Person (exclusive of amounts attributable to
discontinued

3
<PAGE> 9
operations and businesses, but only to the extent that the obligations giving
rise to such Consolidated Fixed Charges would no longer be obligations
contributing to such Person's Consolidated Fixed Charges subsequent to the
Transaction Date) during the Reference Period; provided, that for purposes of
such computation, in calculating Consolidated EBITDA and Consolidated Fixed
Charges, (i) the transaction giving rise to the need to calculate the
Consolidated Fixed Charge Coverage Ratio shall be assumed to have occurred on
the first day of the Reference Period, (ii) the incurrence of any Debt or
issuance of Disqualified Capital Stock during the Reference Period or
subsequent thereto and on or prior to the Transaction Date (and the application
of the proceeds therefrom) shall be assumed to have occurred on the first day
of such Reference Period, and (iii) Consolidated Interest Expense attributable
to any Debt (whether existing or being incurred) bearing a floating interest
rate shall be computed as if the rate in effect on the Transaction Date had
been the applicable rate for the entire period, unless such Person or any of
its Subsidiaries is a party to an Interest Swap Obligation (that remains in
effect for the 12-month period after the Transaction Date) that has the effect
of fixing the interest rate on the date of computation, in which case such rate
(whether higher or lower) shall be used.

"Consolidated Fixed Charges" of any Person for any period means
(without duplication) the sum of (a) Consolidated Interest Expense of such
Person for such period, (b) dividend requirements of such Person and its
Subsidiaries (whether in cash or otherwise (except dividends payable solely in
shares of Qualified Capital Stock)) with respect to Preferred Stock, paid or
accrued during such period, in each case to the extent attributable to such
period and excluding items eliminated in consolidation, and (c) fees paid or
accrued during such period by such Person and its Subsidiaries in respect of
performance bonds or other guarantees of payment. For purposes of clause (b)
above, dividend requirements shall be increased to an amount representing the
pretax earnings that would be required to cover such dividend requirements;
accordingly, the increased amount shall be equal to a fraction, the numerator
of which is such dividend requirements and the denominator of which is 1 minus
the applicable actual combined Federal, state, local, and foreign income tax
rate of such Person and its Subsidiaries (expressed as a decimal), on a
consolidated basis, for the fiscal year immediately preceding the date of the
transaction giving rise to the need to calculate Consolidated Fixed Charges.

"Consolidated Interest Expense" of any Person means, for any
period, the aggregate interest (without duplication), whether expensed or
capitalized, paid or accrued during such period in respect of all Debt of such
Person and its consolidated Subsidiaries (including (a) amortization of
deferred financing costs and original issue discount and noncash interest
payments or accruals, (b) the interest portion of all deferred payment
obligations, calculated in accordance with the effective interest method, and
(c) all commissions, discounts, other fees, and charges owed with respect to
letters of credit and banker's acceptance financing and costs associated with
Interest Swap Obligations, in each case to the extent attributable to such
period) determined on a consolidated basis in accordance with GAAP. For
purposes of this definition, (i) interest on a Capitalized Lease Obligation
shall be deemed to accrue at an interest rate reasonably determined by the
Board of Directors of such Person (as evidenced by a Board Resolution) to be
the rate of interest implicit in such Capitalized Lease Obligation in
accordance with GAAP (including Statement of Financial Accounting Standards No.
13 of the Financial Accounting Standards Board), and (ii) Consolidated Interest
Expense attributable to any Debt represented by the guarantee by such Person or
a Subsidiary of such Person other than with respect to Debt of such Person or a
Subsidiary of such Person shall be deemed to be the interest expense
attributable to the item guaranteed.

"Consolidated Net Income" of any Person for any period means the
net income (loss) of such Person and its consolidated Subsidiaries for such
period, determined in accordance with GAAP, excluding (without duplication) (a)
all extraordinary, unusual, and nonrecurring gains, (b) the net income, if
positive, of any other Person, other than a consolidated Subsidiary in which
such Person or any of its consolidated Subsidiaries has an interest, except to
the extent of the amount of any dividends or distributions actually paid in
cash to such Person or a consolidated Subsidiary of such Person during such
period, but not in excess of such Person's pro rata share of such other
Person's aggregate net income earned during such period, (c) the net income, if
positive, of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition, and (d) the net income, if
positive, of any Subsidiary of such Person to the extent that the declaration
or payment of dividends or similar distributions is not at the time permitted
by operation of the terms of its charter or any

4
<PAGE> 10
agreement, instrument (other than the Indenture), judgment, decree, order,
statute, rule, or governmental regulation applicable to such Subsidiary;
provided, however, that the Consolidated Net Income of the Company shall not
include any income of the Company arising from dividends or distributions paid
to the Company by TransTexas.

"consolidated Subsidiary" means, for any Person, each Subsidiary
of such Person (whether now existing or hereafter created or acquired) the
financial statements of which shall be (or should have been) consolidated for
financial statement reporting purposes with the financial statements of such
Person in accordance with GAAP.

"Construction Supervisor" means Baker & O'Brien, Inc., in its
capacity as Construction Supervisor under the Mortgage Notes Disbursement
Agreement, and any successor thereto.

"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.

"Debt" means, with respect to any Person, (a) all liabilities,
contingent or otherwise, of such Person (i) for borrowed money (whether or not
the recourse of the lender is to the whole of the assets of such Person or only
to a portion thereof), (ii) evidenced by bonds, notes, debentures, or similar
instruments or letters of credit or representing the balance deferred and
unpaid of the purchase price of any property or services, (iii) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks or
Interest Swap Obligations, or (iv) for the payment of money relating to a
Capitalized Lease Obligation; (b) reimbursement obligations of such Person with
respect to letters of credit; (c) all liabilities of others of the kind
described in the preceding clause (a) or (b) that such Person has guaranteed or
that are otherwise its legal liability; (d) all obligations secured by a Lien
to which the property or assets (including, without limitation, leasehold
interests and any other tangible or intangible property rights) of such Person
are subject, whether or not the obligations secured thereby shall have been
assumed by or shall otherwise be such Person's legal liability; (e) the
Attributable Debt associated with any Sale/Leaseback Transactions; and (f) any
and all deferrals, renewals, extensions, refinancings, and refundings (whether
direct or indirect) of, or amendments, modifications, or supplements to, any
liability of the kind described in any of the preceding clauses (a) through (e)
whether or not between or among the same parties.

"Default" means an event or condition, the occurrence of which
is, or with the lapse of time would be, or giving of notice, or both, would be
an Event of Default.

"Defaulted Interest" shall have the meaning specified in Section
2.12.

"Disbursement Agent" means First Union National Bank, in its
capacity as Disbursement Agent under the Disbursement Agreement, and any
successor thereto.

"Disbursement Agreement" means the Cash Collateral and
Disbursement Agreement, among the Company, the Trustee and the Disbursement
Agent substantially in the form of Exhibit C hereto, as amended from time to
time in accordance with the terms hereof.

"Disqualified Capital Stock" means, with respect to any Person,
any Capital Stock of such Person or its Subsidiaries that, by its terms or by
the terms of any security into which it is convertible or exchangeable, is or,
upon the happening of an event or the passage of time, would be required to be
redeemed or repurchased, in whole or in part, by such Person or its
subsidiaries, including any redemption or repurchase at the option of the
holder, or has or, upon the happening of an event or passage of time, would
have a redemption, repurchase or similar payment due, on or prior to March 14,
1998.

5
<PAGE> 11
"Eligible Institution" means a domestic commercial banking
institution that has combined capital and surplus of not less than
$500,000,000, whose debt is rated "A" (or higher) according to S&P or Moody's
at the time as of which any investment or rollover therein is made.

"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute.

"Event of Default" shall have the meaning specified in Section
6.1.

"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC thereunder.

"Final Change of Control Put Date" shall have the meaning
specified in Section 11.1.

"Final Put Date" shall have the meaning specified in Section
4.16.

"Force Majeure" means strikes, lockouts or other labor trouble,
fire or other casualty, governmental preemption in connection with a national
emergency, any rule, order or regulation of any governmental agency or any
department or subdivision thereof, or inability to secure materials or labor
because of any such emergency, rule, order, regulation, war, civil disturbance
or other emergency, cause or event beyond the reasonable control of the
Company.

"GAAP" means generally accepted accounting principles, as in
effect in the United States on the Issue Date, applied on a basis consistent
with those used in the preparation of the audited financial statements of the
Company included in the most recent annual report on Form 10-K filed with the
SEC.

"Gas Purchase Agreement" means the Interruptible Gas Sales Terms
and Conditions between the Company and TransTexas, as in effect on the Issue
Date and as amended from time to time, provided that any such amendment is not
adverse to the holders of the Notes.

"Government Securities" means direct obligations of the United
States of America for the payment of which guarantee or obligations the full
faith and credit of the United States is pledged.

"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.

"Incur" shall have the meaning specified in Section 4.13.

"Indenture" means this Indenture, as amended or supplemented from
time to time in accordance with the terms hereof.

"Interest Payment Date" means the stated due date of an
installment of interest on the Notes.

"Interest Swap Obligation" means (a) any obligation of any Person
pursuant to any arrangement whereby, directly or indirectly, such Person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such Person calculated by applying a
fixed or floating rate of interest on the same notional amount, and (b) any
interest rate exchange, collar, cap, swap option or similar agreement providing
interest rate protection.

"Investment" by any Person in any other Person means (a) the
acquisition (whether for cash, property, services, securities or otherwise) of
capital stock, bonds, notes, debentures, partnership or other

6
<PAGE> 12
ownership interests or other securities of such other Person or any agreement
to make any such acquisition; (b) the making by such Person of any deposit
with, or advance, loan, contribution or other extension of credit to, such
other Person (including the purchase of property from another Person subject to
an understanding or agreement, contingent or otherwise, to resell such property
to such other Person) and (without duplication) any amount committed to be
advanced, loaned or extended to such other Person; (c) the entering into of any
guarantee of, or other contingent obligation with respect to, Debt or any other
liability of such other Person; or (d) the entering into of any Interest Swap
Obligation with such other Person.

"Investment Grade Rating" means, with respect to the Mortgage
Notes, a rating in one of the four highest letter rating categories (without
regard to "+" or "-" or other modifiers) by both S&P and Moody's or any
successor rating agency to either entity, or, if any such rating agency has
ceased using letter rating categories or the four highest of such letter rating
categories are not considered to represent "investment grade" ratings, the
comparable "investment grade" ratings (as designated by such rating agency).

"Issue Date" means the date of first issuance of the Notes under
this Indenture.

"Junior Debt" means Debt of the Company that (a) requires no
payment of principal prior to or on the date on which all principal of and
interest on the Notes is paid in full or (b) is subordinate or junior in right
of payment to the Notes.

"Legal Holiday" shall have the meaning provided in Section 13.7.

"Lien" means any mortgage, lien, pledge, charge, security
interest, or other encumbrance of any kind, whether or not filed, recorded or
otherwise perfected under applicable law (including any conditional sale or
other title retention agreement and any lease deemed to constitute a security
interest and any option or other agreement to give any security interest).

"Market Value" means, as of any date, with respect to any number
of shares of any equity security, the average of the Closing Prices of such
security for the 20 Trading Day period for such security immediately preceding
such date multiplied by such number of shares.

"Marketable Securities" means (a) Government Securities, (b) any
certificate of deposit maturing not more than 270 days after the date of
acquisition issued by, or time deposit of, an Eligible Institution, (c)
commercial paper maturing not more than 270 days after the date of acquisition
issued by a corporation (other than an Affiliate of the Company) with a rating,
at the time as of which any investment therein is made, of "A-l" (or higher)
according to S&P or "P-1" (or higher) according to Moody's, issued or offered
by an Eligible Institution, (d) any bankers' acceptances or money market
deposit accounts issued or offered by an Eligible Institution, and (e) any fund
investing exclusively in investments of the types described in clauses (a)
through (d) above.

"Maturity Date", when used with respect to the Notes, means the
date on which the principal of such Notes becomes due and payable as therein or
herein provided, whether at the Stated Maturity, Change of Control Payment
Date, Purchase Date, Accelerated Payment Date or by declaration of
acceleration, call for redemption or otherwise.

"Minimum Accumulation Date" shall have the meaning provided in
Section 4.16.

"Moody's" means Moody's Investors Service, Inc.

"Mortgage Notes" means, collectively, the Company's Guaranteed
First Mortgage Notes due 2002 and the Company's Guaranteed First Mortgage
Discount Notes due 2002, in each case issued pursuant to the Mortgage Notes
Indenture.

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<PAGE> 13
"Mortgage Notes Disbursement Agreement" means the Cash Collateral
and Disbursement Agreement, dated February 15, 1995, among the Company, First
Union Bank, National Association, as Trustee and First Union Bank, National
Association, as Disbursement Agent and the Construction Supervisor.

"Mortgage Notes Indenture" means the Indenture dated as of
February 15, 1995 among the Company, the Guarantors named therein and First
Union Bank, National Association, as Trustee, as amended by the First
Supplemental Indenture dated as of February 24, 1997 among the Company, the
Guarantors named therein and First Union National Bank, as Trustee.

"Mortgage Notes Company Pledge Agreement" means the Company
Pledge Agreement, dated February 23, 1995, between the Company and First Union
Bank, National Association, as Trustee.

"NASD" means the National Association of Securities Dealers, Inc.

"Net Cash Proceeds" shall have the meaning specified in Section
4.16.

"Net Proceeds" means the cash proceeds received from the sale of
TransTexas common stock less reasonable and customary underwriting discounts
and broker's commissions incurred in connection with such sale and less the
amount of any tax liabilities arising as a result of such sale other than as a
result of TransTexas ceasing to be a member of TransAmerican's consolidated
group for Federal tax purposes.

"Net Worth" of any Person means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of such Person and its Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation), less any amounts included therein attributable to Disqualified
Capital Stock or any equity security convertible into or exchangeable for Debt,
the cost of treasury stock, and the principal amount of any promissory notes
receivable from the sale of the Capital Stock of such Person or any of its
Subsidiaries, each item to be determined in conformity with GAAP.

"Non-Recourse Debt" of any Person means Debt of such Person that
(a) is not guaranteed by any other Person (except a wholly owned Subsidiary of
such Person), (b) is not recourse to and does not obligate any other Person
(except a wholly owned Subsidiary of such Person) in any way, (c) does not
subject any property or assets of any other Person (except a wholly owned
Subsidiary of such Person), directly or indirectly, contingently or otherwise,
to the satisfaction thereof, and (d) is not required by GAAP to be reflected on
the financial statements of any other Person (other than a Subsidiary of such
Person) prepared in accordance with GAAP.

"Note Redemption" means a redemption of Notes by the Company
pursuant to Article III.

"Note Repurchase" means a purchase of Notes by the Company, other
than pursuant to a Change of Control Offer or an Offer to Purchase, provided
that all Notes purchased are delivered to the Trustee for cancellation promptly
upon their receipt by the Company.

"Notes" means the Company's 15% Senior Secured Notes due March
14, 1998 as supplemented from time to time in accordance with the terms hereof,
issued under this Indenture.

"Offer Amount" shall have the meaning specified in Section 4.16.

"Offer Price" shall have the meaning specified in Section 4.16.

"Offer to Purchase" means any offer made by the Company to
Holders of the Notes required by the provisions of Section 4.16(a) and made
pursuant to the provisions of Section 4.16(b), otherwise, also referred to as a
"Section 4.16 Offer."

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<PAGE> 14
"Officer" means, with respect to the Company the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, the
Chief Financial Officer, the Treasurer, the Controller, or the Secretary of the
Company.

"Officers' Certificate" means, with respect to the Company, a
certificate signed by two Officers or by an Officer and an Assistant Secretary
of the Company and otherwise complying with the requirements of Sections 13.4
and 13.5.

"Opinion of Counsel" means a written opinion from legal counsel
who is reasonably acceptable to the Trustee complying with the requirements of
Sections 13.4 and 13.5. Unless otherwise required by the Trustee, the counsel
may be outside counsel to the Company.

"Paying Agent" shall have the meaning specified in Section 2.3.

"Permitted Hedging Transactions" means transactions in futures
contracts and related options that are permitted under Section 4.20.

"Permitted Investment" means, when used with reference to the
Company or any of its Subsidiaries, (a) trade credit extended to persons in the
ordinary course of business; (b) a purchase of (i) readily marketable
obligations of, or obligations guaranteed unconditionally by, the United States
of America maturing in one year or less from the date of purchase, (ii)
commercial paper having the highest rating obtainable from either Moody's or
S&P (or any successor rating agency to either entity), (iii) certificates of
deposit maturing in one year or less from the date of purchase issued by,
bankers' acceptances and deposit accounts of, and time deposits with,
commercial banks of recognized standing chartered in the United States of
America or Canada with capital, surplus, and undivided profit aggregating in
excess of $250,000,000, (iv) demand or fully insured time deposits used in the
ordinary course of business with commercial banks insured by the Federal
Deposit Insurance Corporation, (v) Eurodollar time deposits, or (vi) shares of
money market funds that invest solely in Permitted Investments of the kind
described in clauses (i) through (v) above; (c) an Investment in the Company or
a Person that is or upon such Investment becomes a wholly owned Subsidiary that
is engaged in a Related Business; (d) any Interest Swap Obligation permitted to
be incurred under Section 4.13; (e) the receipt of capital stock or notes in
lieu of cash in connection with the settlement of litigation to the extent that
cash is not otherwise available to the Person obligated to make such settlement
payment; (f) an advance to an officer or employee in connection with the
performance of his duties in the ordinary course of business in an amount that,
together with all other such advances to officers and employees that are
outstanding, does not exceed $3,000,000 at any time; (g) a margin deposit in
connection with a Permitted Hedging Transaction; or (h) any investment by the
Company in TEC or TransTexas.

"Permitted Liens" means (a) Liens imposed by governmental
authorities for taxes, assessments, or other charges not yet due or which are
being contested in good faith and by appropriate proceedings, if adequate
reserves with respect thereto are maintained on the books of the Company in
accordance with GAAP; (b) statutory Liens of landlords, carriers, warehousemen,
mechanics, materialmen, repairmen, mineral interest owners, or other like Liens
arising by operation of law in the ordinary course of business provided that
(i) the underlying obligations are not overdue for a period of more than 60
days, or (ii) such Liens are being contested in good faith and by appropriate
proceedings and adequate reserves with respect thereto are maintained on the
books of the Company in accordance with GAAP; (c) deposits to secure the
performance of bids, trade contracts (other than borrowed money), leases,
statutory obligations, surety and appeal bonds, performance bonds, and other
obligations of a like nature incurred in the ordinary course of business; (d)
easements, rights-of-way, zoning, similar restrictions and other similar
encumbrances or title defects incurred in the ordinary course of business
which, in the aggregate, are not material in amount and which do not, in any
case, materially detract from the value of the property subject thereto (as
such property is used by the Company or any of its Subsidiaries) or interfere
with the ordinary conduct of the business of the Company or any of its
Subsidiaries; (e) Liens arising by operation of law in connection with
judgments, only to the extent, for an amount and for a period not resulting in

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<PAGE> 15
an Event of Default with respect thereto; (f) Liens existing on the Issue Date
not exceeding $2 million; (g) pledges or deposits made in the ordinary course
of business in connection with worker's compensation, unemployment insurance,
and other types of social security legislation; (h) if the Company has obtained
a Revolving Credit Facility that satisfies the requirements of Section 4.13 and
the Company has deposited in the Collateral Account $50,000,000 of the proceeds
of Debt incurred pursuant to such Revolving Credit Facility, Liens on (i)
accounts receivable owned by the Company and its Subsidiaries or (ii) inventory
owned by the Company and its Subsidiaries, in either case, securing Debt of the
Company pursuant to such Revolving Credit Facility; (i) Liens on the assets of
any entity existing at the time such assets are acquired by the Company or any
of its Subsidiaries, whether by merger, consolidation, purchase of assets or
otherwise so long as such Liens (i) are not created, incurred or assumed in
contemplation of such assets being acquired by the Company or such Subsidiary
and (ii) do not extend to any other assets of the Company or any of its
Subsidiaries; (j) Liens (including extensions and renewals thereof) on real or
personal property acquired after the Issue Date, except for property acquired
in whole or in part with the proceeds of this offering; provided, however, that
(i) such Lien is created solely for the purpose of securing Debt incurred to
finance the cost (including the cost of improvement or construction) of the
item of property or assets subject thereto and such Lien is created prior to,
at the time of, or within six months after the later of the acquisition, the
completion of construction, or the commencement of full operation of such
property, (ii) the principal amount of the Debt secured by such Lien does not
exceed 100% of such cost, and (iii) any such Lien shall not extend to or cover
any property or assets other than such item of property or assets and any
improvements on such item; (k) leases or subleases granted to others that do
not materially interfere with the ordinary course of business of the Company
and its Subsidiaries, taken as a whole; (l) Liens in favor of the Company; (m)
Liens securing reimbursement obligations with respect to letters of credit that
encumber documents and other property relating to such letters of credit and
the products and proceeds thereof; (n) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods; (o) Liens encumbering customary
initial deposits and margin deposits securing Interest Swap Obligations or
Permitted Hedging Transactions; (p) until the Company obtains a Revolving
Credit Facility, Liens on cash deposits of up to $30,000,000 to secure
reimbursement obligations with respect to letters of credit; (q) Liens
encumbering funds disbursed from the Collateral Account in accordance with the
Disbursement Agreement; (r) Liens granted pursuant to the Mortgage Notes
Indenture and the security documents executed in connection therewith; (s)
Liens granted pursuant to this Indenture and the Security Documents; and (t)
any replacement of the Permitted Liens set forth in the foregoing clauses (a)
through (s) that is on substantially similar terms and does not secure any
additional Debt or encumber or otherwise affect or relate to any additional
property; provided, however, that the aggregate amount of Debt secured by Liens
pursuant to the foregoing clauses (i), (j) and (p), shall not exceed $50
million plus the amount of any Debt, not in excess of $10 million, incurred to
finance the acquisition of tank storage facilities.

"Permitted Proceeds Uses" means for general corporate purposes of
the Company, but in no event for the purpose of distribution to any Affiliate
of the Company.

"Person" means any corporation, individual, joint stock company,
joint venture, partnership, unincorporated association, governmental regulatory
entity, country, state or political subdivision thereof, trust, municipality
or other entity.

"Phase I Completion Date" or shall have the meaning as set forth
in the Mortgage Notes Indenture.

"Plans" means the "Plans" as such term is defined in Mortgage
Notes Indenture.

"Pledge Agreement" means the Pledge Agreement between the Company
and the Trustee, substantially in the form of Exhibit B hereto, as amended from
time to time in accordance with the terms hereof.

"8% Preferred Stock" means Preferred Stock of the Company that is
Qualified Capital Stock, is not entitled to receive cash dividends, is not
entitled to any voting rights (other than as required by law), is not

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<PAGE> 16
convertible or exchangeable into any other security (whether or not of the
Company), is issued at a price at least equal to its liquidation preference,
and provides for dividends or distributions payable only in additional shares
of 8% Preferred Stock at a rate less than or equal to 8% per annum of the
purchase price thereof.

"Preferred Stock" means, with respect to any corporation, any
class or classes (however designated) of Capital Stock of such Person which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or distribution of such
corporation over shares of Capital Stock of any other class of such
corporation.

"Project Costs" means, with respect to a proposed expansion or
modification of the Company's refinery, the aggregate costs required to
complete such expansion or modification of the refinery in accordance with the
Plans therefor and applicable legal requirements, including direct costs
related thereto such as construction, engineering and design costs and the cost
of site work, construction permits, certificates and bonds, fixtures,
machinery, and equipment.

"Principal" of any Debt (including the Notes) means the principal
of such Debt plus, without duplication, any applicable premium, if any, on such
Debt.

"Property" means any right or interest in or to property or
assets of any kind whatsoever, whether real, personal or mixed and whether
tangible or intangible.

"Public Equity Offering" means a public offering by the Company
of Qualified Capital Stock of the Company underwritten by a nationally
recognized member of the National Association of Securities Dealers pursuant to
an effective registration statement filed with the Securities and Exchange
Commission pursuant to the Securities Act.

"Public Market Value" means, as of any date, with respect to any
equity security, the product of the weighted average number of shares of such
security outstanding during the 20 Trading Day period for such security
immediately preceding such date multiplied by the average of the Closing Prices
of such security for such period. Notwithstanding the foregoing, if such
security is not listed or admitted for trading on any national securities
exchange or the Nasdaq National Market, the Public Market Value of such
security shall be zero.

"Purchase Date" shall have the meaning specified in Section
4.16(b).

"Qualified Capital Stock" means any Capital Stock of the Company
that is not Disqualified Capital Stock.

"Record Date" means a Record Date specified in the Notes whether
or not such Record Date is a Business Day.

"Redemption Date", when used with respect to any Note to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and Paragraph 5 in the form of Note attached hereto as Exhibit A.

"Redemption Price", when used with respect to any Security to be
redeemed, means the redemption price for such redemption pursuant to Paragraph
5 in the form of Note attached hereto as Exhibit A, which shall include,
without duplication, in each case, accrued and unpaid interest to the
Redemption Date.

"Reference Period" with regard to any Period means the four full
fiscal quarters for which financial statements are available of such Period
ended on or immediately preceding any date upon which any determination is to
be made pursuant to the terms of the Notes or the Indenture; provided, however,
that for purposes of calculating the Consolidated Fixed Charge Coverage Ratio
of the Company in connection with the

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<PAGE> 17
definition of "Required Phase I Completion Date" or Section 12.6 hereof,
"Reference Period" means the three-month period ending on the date as of which
the Consolidated Fixed Charge Coverage Ratio is calculated.

"Refinancing Debt" shall have the meaning specified in Section
4.13.

"Refinancing Fees" shall have the meaning specified in Section
4.13.

"Registrar" shall have the meaning specified in Section 2.3.

"Registration Rights Agreement" means the Registration Rights
Agreement among TransTexas, the Company, the Trustee and TEC, as in effect on
February 15, 1995 and as amended from time to time, provided that any such
amendment is not adverse to the holders of the Notes.

"Related Business" means the business of processing, blending,
storing, marketing (other than through operating retail gasoline stations),
refining, or distilling crude oil, condensate, natural gas liquids, petroleum
blendstocks or refined products thereof.

"Related Person" means, with respect to any Person, (a) any
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with the referenced Person (or any Subsidiary of the
Company if the Company is the referenced Person) or any officer, director, or
employee of the referenced person (or any Subsidiary of the Company if the
Company is the referenced Person) or of such Person, (b) the spouse, any
immediate family member, or any other relative who has the same principal
residence of any Person described in clause (a) above, and any Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with, such spouse, family member or other relative, and (c) any trust
in which any Person described in clause (a) or (b), above, is a fiduciary or
has a beneficial interest. For purposes of this definition the term "control"
means (i) the power to direct the management and policies of a Person, directly
or through one or more intermediaries, whether through the ownership of voting
securities, by contract, or otherwise, or (ii) the beneficial ownership of 10%
or more of the voting common equity of such Person (on a fully diluted basis)
or of warrants or other rights to acquire such equity (whether or not presently
exercisable).

"Related Person Transaction" shall have the meaning specified in
Section 4.12.

"Required Phase I Completion Date" means July 15, 1997.

"Restricted Investment" means any direct or indirect Investment
other than a Permitted Investment.

"Restricted Payment" means, with respect to any Person, (a) any
Restricted Investment by such Person, (b) any dividend or other distribution on
shares of Capital Stock of such Person, (c) any direct or indirect payment on
account of the purchase, redemption, or other acquisition or retirement for
value of any shares of Capital Stock of such Person or any Subsidiary of such
Person, and (d) any defeasance, redemption, repurchase, or other acquisition or
retirement for value, or any payment in respect of any amendment (in
anticipation of or in connection with any such retirement, acquisition, or
defeasance) in whole or in part, of any Junior Debt, directly or indirectly, of
such Person or a Subsidiary of such Person prior to the scheduled maturity or
prior to any scheduled repayment of principal in respect of such Junior Debt;
provided, however, that, with respect to the Company, the term "Restricted
Payment" does not include (i) any dividend, distribution, or other payment on
shares of Capital Stock of an issuer solely in shares of Qualified Capital
Stock of such issuer that is at least as junior in ranking as the Capital Stock
on which such dividend, distribution, or other payment is to be made, (ii) any
dividend, distribution, or other payment to the Company, or any of its directly
or indirectly owned Subsidiaries, by any of its Subsidiaries, (iii) any
defeasance, redemption, repurchase, or other acquisition or retirement for
value, in whole or in part, of any Junior Debt payable solely in shares of
Qualified Capital Stock of such Person or (iv) payments by the Company to TEC,
in an aggregate amount not to exceed $350,000 per fiscal

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<PAGE> 18
year, as reimbursement for expenses of TEC in connection with accounting,
legal, financial and other expenses. For purposes of clause (a) of the
immediately preceding sentence, the aggregate amount of Restricted Investments
made by the Company and its Subsidiaries after the Issue Date shall equal the
aggregate gross amount of such Restricted Investments, less amounts received in
cash without restriction by the Company or its wholly owned Subsidiaries upon
the disposition, liquidation, or repayment of any portion of such Restricted
Investment (not to exceed the original cost of such portion), to the extent not
reflected in the Consolidated Net Income of the Company, in either case, less
the cost of disposition, liquidation, or repayment.

"Revolving Credit Facility" means any revolving credit facility
of the type and with such terms as are customarily entered into with banks,
between the Company or any of its Subsidiaries, on the one hand, and any banks
or other lenders, on the other hand; provided that all indebtedness incurred
pursuant to such facility would be reflected on the balance sheet of the
Company or its Subsidiaries as current liabilities in accordance with GAAP.

"Sale/Leaseback Transaction" means an arrangement relating to
property owned on the Issue Date or thereafter acquired whereby the Company, or
a Subsidiary of the Company transfers such property to a Person and leases it
back from such Person, other than (i) any such arrangement (a) the term of
which is for not more than one year and (b) the Attributable Debt associated
with which is less than $1.0 million (aggregating any series of related
transactions), and (ii) any such arrangement between the Company and a wholly
owned Subsidiary of the Company, or between wholly owned subsidiaries of the
Company.

"S&P" means Standard & Poor's Ratings Service, a division of
McGraw-Hill, Inc., and its successors.

"SEC" means the Securities and Exchange Commission.

"Section 4.16 Offer" shall refer to an "Offer to Purchase," as
defined in Section 4.16.

"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the SEC promulgated thereunder.

"Security Agreement" means the Security Agreement between the
Company and the Trustee, substantially in the form attached as Exhibit B
hereto, as amended from time to time in accordance with the terms hereof.

"Security Documents" means (a) the Security Agreement, (b) the
Pledge Agreement, (c) the Disbursement Agreement, and (d) each other agreement
relating to the pledge of assets to secure the Notes that may be entered into
after the Issue Date pursuant to the terms of this Indenture.

"Senior Debt" means, with respect to any Person, any Debt that is
not Subordinated Debt.

"Services Agreement" means the Services Agreement among the
Company, TEC, TransTexas, and TransAmerican dated as of February 15, 1995, as
in effect on the Issue Date and as amended from time to time, provided that any
such amendment is not adverse to the holders of the Notes.

"Significant Subsidiary" means, with respect to any Person, a
Subsidiary of such Person that would be a "significant subsidiary," within the
meaning of Rule 1-02 of Regulation S-X of the Securities and Exchange
Commission, if such Person were deemed to be the "registrant" referred to
therein.

"Southeast" means Southeast Louisiana Contractors of Norco, Inc.,
a Louisiana corporation.

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<PAGE> 19
"Special Record Date" for payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 2.12.

"Stated Maturity", when used with respect to the Notes, means
March 14, 1998.

"Stock Transfer Agreement" means the Stock Transfer Agreement
among TransAmerican, TEC and the Company dated as of February 15, 1995, as in
effect on the Issue Date and as amended from time to time, provided that any
such amendment is not adverse to the holders of the Notes.

"Subordinated Debt" means Debt of the Company that (a) requires
no payment of principal prior to or on the date on which all principal of and
interest on the Notes is paid in full and (b) is subordinate and junior in
right of payment to the Notes in all respects.

"Subsidiary" means, with respect to any Person, (a) a corporation
of which such Person, one or more Subsidiaries of such Person or such Person
and one or more Subsidiaries of such Person, directly or indirectly, owns at
least 50% of the Voting Stock, or (b) a partnership of which such Person or a
Subsidiary of such Person is a general partner, or (c) any entity (other than a
corporation or a partnership) in which such Person, one or more Subsidiaries of
such Person, or such Person and one or more Subsidiaries of such Person,
directly or indirectly, has (i) at least a 50% ownership interest or (ii) the
power to elect or direct the election of the directors or other governing body
of such entity. For the purposes of this Indenture, "Subsidiary" shall not
include (x) the Accounts Receivable Subsidiary, except for purposes of
determining the Consolidated Fixed Charge Coverage Ratio of the Company, or (y)
TransTexas or any of its Subsidiaries.

"Surviving Person" shall have the meaning specified in Section
5.1(a).

"TARC Warrants" means common stock purchase warrants initially
exercisable for 5,811,773 shares of the common stock of TransAmerican Refining
Corporation.

"Tax Allocation Agreement" means the Tax Allocation Agreement
among TransAmerican, TEC, the Company, TransTexas, and TransAmerican's other
subsidiaries, dated as of February 15, 1995, as in effect on the Issue Date and
as amended from time to time, provided that any such amendment is not adverse
to the holders of the Notes.

"TEC" means TransAmerican Energy Corporation, a Delaware
corporation.

"TEC Preferred" means the Series A Preferred Stock $.01 par value
per share of TransAmerican Energy Corporation.

"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb) as in effect on the date of the execution of this
Indenture.

"Trading Day" means any day on which the securities in question
are quoted on the Nasdaq National Market, or if such securities are not
approved for listing on the Nasdaq National Market, on the principal national
securities market or exchange on which such securities are listed or admitted.

"TransAmerican" means Transamerican Natural Gas Corporation, a
Texas corporation.

"TransAmerican Lease" means a lease to be entered into between
TransAmerican and the Company, as amended from time to time, with respect to an
office building owned by TransAmerican located in Houston, Texas, which lease
will provide for payments by the Company to TransAmerican not in excess of
$950,000 per year.

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<PAGE> 20
"TransTexas" means TransTexas Gas Corporation, a Delaware
corporation.

"TransTexas Indenture" shall have the meaning specified in
Section 6.1.

"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.

"Trust Officer" means any officer within the corporate trust
department (or any successor group) of the Trustee including any vice
president, assistant vice president, secretary, assistant secretary or any
other officer or assistant officer of the Trustee customarily performing
functions similar to those performed by the Persons who at that time shall be
such officers, and also means, with respect to a particular corporate trust
matter, any other officer of the corporate trust department (or any successor
group) of the Trustee to whom such trust matter is referred because of his
knowledge of and familiarity with the particular subject.

"U.S. Legal Tender" means such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts.

"Voting Stock" means, with respect to any corporation, Capital
Stock of such corporation having generally the right to vote in the election of
directors of such corporation.

"wholly owned Subsidiary" means with respect to any Person, at
any time, a Subsidiary of such Person, all of the Capital Stock of which
(except any director's qualifying shares, the TARC Warrants and the TEC
Preferred) is at the time owned directly or indirectly by such Person.

"Weighted Average Life" means, as of the date of determination,
with respect to any debt instrument, the quotient obtained by dividing (a) the
sum of the products, for each scheduled principal payment of such debt
instrument, of (i) the number of years from the date of determination to the
date of such scheduled principal payment and (ii) the amount of such principal
payment, by (b) the sum of all such scheduled principal payments.

Section 1.2 Incorporation by Reference of TIA.

Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:

"Commission" means the SEC.

"indenture securities" means the Notes.

"indenture securityholder" means a Holder or a Noteholder.

"indenture to be qualified" means this Indenture.

"indenture trustee" or "institutional trustee" means the Trustee.

"obligor" on the indenture securities means the Company and any
other obligor on the Notes.

All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule and
not otherwise defined herein have the meanings assigned to them thereby.

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<PAGE> 21
Section 1.3 Rules of Construction.

Unless the context otherwise requires:

(a) a term has the meaning assigned to it;

(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;

(d) words in the singular include the plural, and words in the
plural include the singular;

(e) provisions apply to successive events and transactions;

(f) "herein", "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or other
subdivision; and

(g) references to Sections or Articles means reference to such
Section or Article in this Indenture, unless stated otherwise.

ARTICLE II

THE NOTES

Section 2.1 Form and Dating.

The Notes and the Trustee's certificate of authentication in
respect thereof shall be substantially in the form of Exhibit A hereto. The
Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage. The Company shall approve the form of the Notes and
any notation, legend or endorsement on them. Any such notations, legends or
endorsements not contained in the form of Note attached as Exhibit A hereto
shall be delivered in writing to the Trustee. Each Security shall be dated the
date of its authentication. To the extent applicable, the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
the terms and provisions contained in the forms of Notes and to be bound
thereby.

Section 2.2 Execution and Authentication.

One Officer shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal shall not be required to be impressed,
affixed, imprinted or reproduced on the Notes.

If an Officer whose signature is on a Note was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Note, the Note shall be valid nevertheless and the Company
shall nevertheless be bound by the terms of the Notes and this Indenture.

A Note shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Note but such
signature shall be conclusive evidence that the Note has been authenticated
pursuant to the terms of this Indenture.

The Trustee shall authenticate Notes for original issue in the
aggregate principal amount of up to $36,000,000 upon a written order of the
Company in the form of an Officers' Certificate. The Officers'

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<PAGE> 22
Certificate shall specify the amount of Notes to be authenticated and the date
on which the Notes are to be authenticated. The aggregate principal amount of
Notes outstanding at any time may not exceed $36,000,000 except as provided in
Section 2.7. Upon the written order of the Company in the form of an Officers'
Certificate, the Trustee shall authenticate Notes in substitution of Notes
originally issued to reflect any name change of the Company.

The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. Unless otherwise provided in the appointment,
an authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as
an Agent to deal with the Company, any Affiliate of the Company, or any of its
Subsidiaries.

Notes shall be issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof.

Section 2.3 Registrar and Paying Agent.

The Company shall maintain an office or agency where Notes may
be presented for registration of transfer or for exchange ("Registrar") and an
office or agency each in the Borough of Manhattan, The City of New York, where
Notes may be presented for payment ("Paying Agent") and where notices and
demands to or upon the Company in respect of the Notes may be served. The
Company may act as its own Registrar or Paying Agent, except that, for the
purposes of Articles III, VIII, XI and Section 4.16 none of the Company or any
Affiliate of the Company shall act as Paying Agent. The Registrar shall keep a
register of the Notes and of their transfer and exchange. The Company may have
one or more co-Registrars and one or more additional Paying Agents. The term
"Paying Agent" includes any additional Paying Agent. The Company hereby
initially appoints the Trustee as Registrar and Paying Agent, and the Trustee
hereby initially agrees so to act.

The Company shall enter into an appropriate written agency
agreement with any Agent not a party to this Indenture, which agreement shall
implement the provisions of this Indenture that relate to such Agent. The
Company shall promptly notify the Trustee in writing of the name and address of
any such Agent. If the Company fails to maintain a Registrar or Paying Agent,
the Trustee shall act as such; provided and on the express condition that the
Company delivers all necessary files, records and information to permit the
Trustee to act as the Registrar and the Paying Agent.

Section 2.4 Paying Agent to Hold Assets in Trust.

The Company shall require each Paying Agent other than the
Trustee to agree in writing that each Paying Agent shall hold in trust for the
benefit of Holders or the Trustee all assets held by the Paying Agent for the
payment of principal of, or interest on, the Notes (whether such assets have
been distributed to it by the Company, or any other obligor on the Notes), and
shall notify the Trustee in writing of any Default in making any such payment.
If the Company or a Subsidiary of the Company acts as Paying Agent, it shall
segregate such assets and hold them as a separate trust fund for the benefit of
the Holders or the Trustee. The Company at any time may require a Paying Agent
to distribute all assets held by it to the Trustee and account for any assets
disbursed and the Trustee may at any time during the continuance of any payment
Default, upon written request to a Paying Agent, require such Paying Agent to
distribute all assets held by it to the Trustee and to account for any assets
distributed. Upon distribution to the Trustee of all assets that shall have
been delivered by the Company to the Paying Agent, the Paying Agent (if other
than the Company) shall have no further liability for such assets.

Section 2.5 Noteholder Lists.

The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall

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<PAGE> 23
furnish to the Trustee on or before the third Business Day preceding each
Interest Payment Date and at such other times as the Trustee may request in
writing a list in such form and as of such date as the Trustee reasonably may
require of the names and addresses of Holders.

Section 2.6 Transfer and Exchange.

When Notes are presented to the Registrar or a co-Registrar with
a request to register the transfer of such Notes or to exchange such Notes for
an equal principal amount of Notes of other authorized denominations, the
Registrar or co-Registrar shall register the transfer or make the exchange as
requested if its reasonable requirements for such transaction are met;
provided, however, that the Notes surrendered for transfer or exchange shall be
duly endorsed or accompanied by a written instrument of transfer in form
reasonably satisfactory to the Company and the Registrar or co-Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing. To
permit registrations of transfers and exchanges, the Company shall execute and
the Trustee shall authenticate Notes at the Registrar's or co-Registrar's
request. No service charge shall be made for any registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
transfer tax, assessments, or similar governmental charge payable in connection
therewith (other than any such transfer taxes, assessments, or similar
governmental charge payable upon exchanges or transfers pursuant to Section
2.2, 2.10, 4.16, 9.5, or 11.1). The Registrar or co-Registrar shall not be
required to register the transfer of or exchange of (a) any Note to be redeemed
pursuant to Article III hereof, or (b) any Note for a period beginning 15
Business Days before the mailing of a notice of an offer to repurchase pursuant
to Article XI or Section 4.16 hereof or redeem Notes pursuant to Article III
hereof and ending at the close of business on the day of such mailing.

Section 2.7 Replacement Notes.

If a mutilated Note is surrendered to the Trustee or if the
Holder of a Note claims and submits an affidavit or other evidence,
satisfactory to the Trustee, to the Trustee to the effect that the Note has
been lost, destroyed or wrongfully taken, the Company shall issue and the
Trustee shall authenticate a replacement Note if the Trustee's requirements are
met. If required by the Trustee or the Company, such Holder must provide an
indemnity bond or other indemnity, sufficient in the judgment of both the
Company and the Trustee, to protect the Company, the Trustee or any Agent from
any loss which any of them may suffer if a Note is replaced. The Company may
charge such Holder for its reasonable, out-of-pocket expenses in replacing a
Security.

Every replacement Note is an additional obligation of the
Company.

Section 2.8 Outstanding Notes.

Notes outstanding at any time are all the Notes that have been
authenticated by the Trustee except those cancelled by it, those delivered to
it for cancellation and those described in this Section 2.8 as not outstanding.
A Note does not cease to be outstanding because the Company or an Affiliate of
the Company holds the Note, except as provided in Section 2.9.

If a Note is replaced pursuant to Section 2.7 (other than a
mutilated Note surrendered for replacement), it ceases to be outstanding unless
the Trustee receives proof satisfactory to it that the replaced Note is held by
a bona fide purchaser. A mutilated Note ceases to be outstanding upon
surrender of such Note and replacement thereof pursuant to Section 2.7.

If on a Redemption Date or the Maturity Date the Paying Agent
(other than the Company or an Affiliate of the Company) holds U.S. Legal Tender
or Government Securities sufficient to pay all of the principal and interest
due on the Notes payable on that date, then on and after that date such Notes
cease to be outstanding and interest on them ceases to accrue.

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Section 2.9 Treasury Securities.

In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, amendment, supplement, waiver
or consent, Notes owned by the Company and Affiliates of the Company shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, amendment, supplement,
waiver or consent, only Notes that the Trustee knows are so owned shall be
disregarded.

Section 2.10 Temporary Notes.

Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes. Temporary Notes
shall be substantially in the form of definitive Notes but may have variations,
not inconsistent with the terms of this Indenture, that the Company reasonably
and in good faith considers appropriate for temporary Notes. Without
unreasonable delay the Company shall prepare and the Trustee shall authenticate
definitive Notes in exchange for temporary Notes. Until so exchanged, the
temporary Notes shall in all respects be entitled to the same benefits under
this Indenture as permanent Notes authenticated and delivered hereunder.

Section 2.11 Cancellation.

The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee,
or at the direction of the Trustee, the Registrar or the Paying Agent (other
than the Company or an Affiliate of the Company), and no one else, shall cancel
and, at the written direction of the Company, shall dispose of all Notes
surrendered for transfer, exchange, payment or cancellation. Subject to
Section 2.7, the Company may not issue new Notes to replace Notes that have
been paid or delivered to the Trustee for cancellation. No Notes shall be
authenticated in lieu of or in exchange for any Notes cancelled as provided in
this Section 2.11, except as expressly permitted in the form of Notes and as
permitted by this Indenture.

Section 2.12 Defaulted Interest.

Interest on any Note which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the person in
whose name that Note (or one or more predecessor Notes) is registered at the
close of business on the Record Date for such interest.

Any interest on any Note which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date plus, to the extent
lawful, any interest payable on the defaulted interest, at the rate provided in
the Note, compounded semi-annually (herein called "Defaulted Interest"), shall
forthwith cease to be payable to the registered holder on the relevant Record
Date by virtue of having been such Holder, and such Defaulted Interest may be
paid by the Company, at its election in each case, as provided in clause (a) or
(b) below:

(a) The Company may elect to make payment of any
Defaulted Interest to the persons in whose names the Notes (or their respective
predecessor Notes) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Note and the date of
the proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of the persons
entitled to such Defaulted Interest as provided in this clause (a). Thereupon
the Trustee shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10 days prior
to the date of the proposed

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payment and not less than 10 days after the receipt by the Trustee of the
notice of the proposed payment. The Trustee shall promptly notify the Company
of such Special Record Date and, in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor to be mailed, first-class postage prepaid, to each
Holder at his address as it appears in the Security Register not less than 10
days prior to such Special Record Date. The Trustee may, in its discretion, in
the name and at the expense of the Company, cause a similar notice to be
published at least once in a newspaper, customarily published in the English
language on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, but such publication shall not be a condition
precedent to the establishment of such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor having been mailed as aforesaid, such Defaulted Interest shall be paid
to the persons in whose names the Notes (or their respective predecessor Notes)
are registered on such Special Record Date and shall no longer be payable
pursuant to the following clause (b).

(b) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, if, after notice given by the Company to
the Trustee of the proposed payment pursuant to this clause, such manner shall
be deemed practicable by the Trustee.

Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon transfer of or in exchange for or in lieu
of any other Note shall carry the rights to interest accrued and unpaid, and to
accrue, which were carried by such other Note.

ARTICLE III

REDEMPTION

Section 3.1 Right of Redemption.

Redemption of Notes, as permitted or required by any provision of
this Indenture, shall be made in accordance with such provision and this
Article III.

The Notes may be redeemed at the election of the Company, as a
whole, at any time on or after July 1, 1997, at 100% of the principal amount
thereof, including accrued and unpaid interest to the Redemption Date.

The Notes shall be redeemed, as a whole, upon the occurrence of
the events set forth in Paragraph 5 of the Notes, at 100% of the principal
amount thereof, including accrued and unpaid interest to the Redemption Date.

Section 3.2 Notices to Trustee.

If the Company elects to redeem Notes pursuant to Paragraph 5 of
the Notes, it shall notify the Trustee in writing of the Redemption Date and
the principal amount of Notes to be redeemed.

The Company shall give each notice to the Trustee provided for in
this Section 3.2 at least 7 days before an optional Redemption Date and at
least 10 days prior to the date any notice pursuant to Section 3.3 is to be
mailed to Holders by the Trustee at the Company's request (unless a shorter
notice shall be satisfactory to the Trustee in its sole discretion).

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Section 3.3 Notice of Redemption.

At least 7 days but not more than 45 days before an optional
Redemption Date, the Company shall give a notice of redemption by first class
mail, postage prepaid, or by telecopy, to the Trustee and each Holder. At the
Company's request, the Trustee shall give the notice of redemption in the
Company's name and at the Company's expense. Each notice for redemption shall
identify the Notes to be redeemed and shall state:

(a) the Redemption Date;

(b) the Redemption Price, including the amount of
accrued and unpaid interest to be paid upon such redemption;

(d) that Notes must be surrendered to the Paying Agent
at the address specified in such notice to collect the Redemption Price;

(e) that, unless the Company defaults in its obligation
to deposit U.S Legal Tender with the Paying Agent in accordance with Section
3.4 hereof, interest on Notes ceases to accrue on and after the Redemption Date
and the only remaining right of the Holders of such Notes is to receive payment
of the Redemption Price, including accrued and unpaid interest, upon surrender
to the Paying Agent of the Notes and to be redeemed;

(f) the CUSIP number, if any, of the Notes; and

(g) that the notice is being sent pursuant to this
Section 3.3 and pursuant to the optional redemption provisions of Paragraph 5
of the Notes.

Section 3.4 Effect of Notice of Redemption.

Once notice of redemption is mailed in accordance with Section
3.3, the Notes become due and payable on the Redemption Date and at the
Redemption Price, including accrued and unpaid interest. Upon surrender to the
Trustee or Paying Agent, the Notes shall be paid at the Redemption Price,
including interest, if any, accrued and unpaid on the Redemption Date; provided
that if the Redemption Date is after a regular Record Date and on or prior to
the Interest Payment Date, the accrued interest shall be payable to the Holder
of the redeemed Notes registered on the relevant Record Date; and provided,
further, that if a Redemption Date is a Legal Holiday, payment shall be made on
the next succeeding Business Day and no interest shall accrue for the period
from such Redemption Date to such succeeding Business Day.

Section 3.5 Deposit of Redemption Price.

On or prior to the Redemption Date, the Company shall deposit
with the Paying Agent (other than the Company or an Affiliate of the Company)
U.S. Legal Tender sufficient to pay the Redemption Price of, including accrued
and unpaid interest on, all Notes on such Redemption Date (other than Notes
called for redemption on that date that have been delivered by the Company to
the Trustee for cancellation). The Paying Agent shall promptly return to the
Company any U.S. Legal Tender so deposited which is not required for that
purpose upon the written request of the Company.

If the Company complies with the preceding paragraph and the
other provisions of this Article III, interest on the Notes will cease to
accrue on the applicable Redemption Date, whether or not such Notes are
presented for payment. Notwithstanding anything herein to the contrary, if any
Note surrendered for redemption in the manner provided in the Notes shall not
be so paid upon surrender for redemption because of the failure of

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the Company to comply with the preceding paragraph, interest shall continue to
accrue and be paid from the Redemption Date until such payment is made on the
unpaid principal, and on any interest not paid on such unpaid principal, in
each case, at the rate and in the manner provided in Section 4.1 hereof and the
Note.

ARTICLE IV

COVENANTS

Section 4.1 Payment of Notes.

The Company shall pay in New York, New York the principal of and
interest on the Notes on the dates and in the manner provided in the Notes.
The principal amount of or an installment of interest on the Notes shall be
considered paid on the date it is due if the Trustee or Paying Agent (other
than the Company, or an Affiliate of the Company) holds for the benefit of the
Holders, on or before 10:00 a.m., New York City time on that date, U.S. Legal
Tender deposited and designated for and sufficient to pay such amount or
installment.

The Company shall pay interest on overdue principal and on
overdue installments of interest at the rate specified in the Notes compounded
semi-annually, to the extent lawful.

Section 4.2 Maintenance of Office or Agency.

The Company shall maintain in the Borough of Manhattan, The City
of New York, an office or agency where Notes may be presented or surrendered
for payment, where Notes may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Notes and this Indenture may be served. The Company shall give prompt written
notice to the Trustee of the location, and any change in the location, of such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the address of the Trustee set forth in Section 13.2.

The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York, for such purposes. The Company
shall give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or
agency. The Company hereby initially designates the Corporate Trust Office of
the Trustee as such office of the Company.

Section 4.3 Limitation on Use of Proceeds.

The Company shall use the net proceeds derived from the sale of
the Notes only for Permitted Proceeds Uses; including without limitation
redemption of the Company's 17% Senior Notes due July 15, 1997; provided,
however, that pending the use of such net proceeds to pay such Permitted
Proceeds Uses, such proceeds shall be deposited in the Collateral Account and
invested by the Disbursement Agent in cash, Cash Equivalents and Marketable
Securities. Proceeds deposited in the Collateral Account shall be disbursed to
the Company in accordance with the Disbursement Agreement.

Section 4.4 Construction.

The Company shall use its best efforts to continue to expand and
to modify its refinery with diligence and continuity in a good and workmanlike
manner in accordance with the Plans except during the

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existence of delays caused by Force Majeure. The Company shall use its best
efforts to prevent and to minimize any delays caused by Force Majeure.

Section 4.5 Limitation on Restricted Payments.

The Company shall not, and the Company shall not permit any of
its Subsidiaries to, directly or indirectly, make any Restricted Payment, if,
at the time or after giving effect thereto on a pro forma basis, (a) the
Company's Consolidated Fixed Charge Coverage Ratio does not exceed 3.5 to 1,
(b) the Company's Net Worth is not equal to or greater than $170 million, (c)
Default or an Event of Default would occur or be continuing, or (d) the
aggregate amount of all Restricted Payments made by the Company and all of its
Subsidiaries, including such proposed Restricted Payment and all payments made
pursuant to the proviso at the end of this sentence (if not made in cash, then
the fair market value of any property used therefor), from and after the Issue
Date and on or prior to the date of such Restricted Payment, shall exceed an
amount equal to (i) 25% of Consolidated Net Income of the Company accrued for
the period (taken as one accounting period) from the first full fiscal quarter
that commenced after the Issue Date to and including the fiscal quarter ended
immediately prior to the date of each calculation for which financial
statements are available (or, if the Company's Consolidated Net Income for such
period is a deficit, then minus 100% of such deficit), minus (ii) 100% of the
amount of any write-downs, write-offs, other negative reevaluations, and other
negative extraordinary charges not otherwise reflected in the Company's
Consolidated Net Income during such period, provided, that the foregoing
clauses shall not prohibit the payment of any dividend within 60 days after the
date of its declaration if such dividend could have been made on the date of
its declaration in compliance with the foregoing provisions.

Section 4.6 Corporate Existence.

Subject to Article V, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate or other existence of each of its
Subsidiaries in accordance with the respective organizational documents of each
of them and the rights (charter and statutory) and corporate franchises of the
Company and each of its Subsidiaries; provided, however, that the Company shall
not be required to preserve, with respect to itself, any right or franchise,
and with respect to any of its Subsidiaries, any such existence, right or
franchise, if (a) the Board of Directors of the Company shall determine that
the preservation thereof is no longer desirable in the conduct of the business
of the Company and (b) the loss thereof is not disadvantageous in any material
respect to the Holders.

Section 4.7 Payment of Taxes and Other Claims.

The Company shall, and shall cause each of its Subsidiaries to,
pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (a) all taxes, assessments and governmental charges
(including withholding taxes and any penalties, interest and additions to
taxes) levied or imposed upon the Company or any of its Subsidiaries or any of
their respective properties and assets and (b) all lawful claims, whether for
labor, materials, supplies, services or anything else, which have become due
and payable and which by law have or may become a Lien (other than a Permitted
Lien) upon the property and assets of the Company or any of its Subsidiaries;
provided, however, that the Company shall not be required to pay or discharge
or cause to be paid or discharged any such tax, assessment, charge or claim
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which disputed amounts adequate reserves have
been established in accordance with GAAP.

Section 4.8 Maintenance of Properties and Insurance.

The Company shall cause the properties used or useful to the
conduct of its business and the business of each of its Subsidiaries to be
maintained and kept in good condition, repair and working order (reasonable
wear and tear excepted) and supplied with all necessary equipment and shall
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in its reasonable

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judgment may be necessary, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times.

The Company shall provide, or cause to be provided, for itself
and each of its Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds that, in the reasonable, good faith opinion
of the Company are adequate and appropriate for the conduct of the business of
the Company and such Subsidiaries in a prudent manner, with reputable insurers
or with the government of the United States of America or an agency or
instrumentality thereof, in such amounts, with such deductibles, and by such
methods as shall be customary, in the reasonable, good faith opinion of the
Company and adequate and appropriate for the conduct of the business of the
Company and such Subsidiaries in a prudent manner for companies engaged in a
similar business; provided, that the Company shall not be required to obtain
business interruption insurance and delay in start up insurance until 90 days
after the first introduction of hydrocarbons into the Company's crude unit.

Section 4.9 Compliance Certificate; Notice of Default.

The Company shall deliver to the Trustee within 90 days after the
end of each of its fiscal years a written report of a firm of independent
certified public accountants with an established national reputation stating
that in conducting their audit for such fiscal year, nothing has come to their
attention that caused them to believe that the Company or any Subsidiary of the
Company was not in compliance with the provisions set forth in Section 4.3,
4.5, 4.13 or 4.16 of this Indenture.

The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, immediately upon becoming aware of any Default or Event
of Default under this Indenture, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes
to take with respect thereto. The Trustee shall not be deemed to have
knowledge of a Default or an Event of Default unless one of its trust officers
receives an Officers' Certificate specifying the Default or Event of Default
giving rise thereto from the Company or written notice specifying the
occurrence of a Default or an Event of Default from any of the Holders.

Section 4.10 SEC Reports.

The Company shall deliver to the Trustee and each Holder, within
15 days after it files the same with the SEC, copies of all reports and
information (or copies of such portions of any of the foregoing as the SEC may
by rules and regulations prescribe), if any, which the Company is required to
file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act or
pursuant to the immediately following sentence. If the Company is not subject
to the requirements of Section 13 or 15(d) of the Exchange Act (or otherwise
required to file reports pursuant to the immediately preceding sentence), the
Company shall deliver to the Trustee and to each Holder, within 15 days after
it would have been required to file such information with the SEC were it
required to do so, financial statements, including any notes thereto (and, in
the case of a fiscal year end, an auditors' report by an independent certified
public accounting firm of established national reputation), and a "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
substantially equivalent to that which it would have been required to include
in such quarterly or annual reports, information, documents or other reports if
it had been subject to the requirements of Section 13 or 15(d) of the Exchange
Act.

Section 4.11 Limitation on Status as Investment Company or
Public Utility Company.

The Company shall not become, and the Company shall not permit
any of its Subsidiaries to become, an "investment company" (as that term is
defined in the Investment Company Act of 1940, as amended) or a "holding
company" or a "public utility company" (as such terms are defined in the Public
Utility Holding Company Act of 1935, as amended) or otherwise subject to
regulation under the Investment Company Act or the Public Utility Holding
Company Act.

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Section 4.12 Limitation on Transactions with Related Persons.

The Company shall not, and the Company shall not permit any of
its Subsidiaries to, enter directly or indirectly into, or permit to exist, any
transaction or series of related transactions with any Related Person of the
Company (including without limitation: (a) the sale, lease, transfer, or other
disposition of properties, assets, or securities to such Related Person; (b)
the purchase or lease of any properties, assets, or securities from such
Related Person; (c) an Investment in such Related Person (other than a
Restricted Investment permitted by Section 4.5); and (d) entering into or
amending any contract or agreement with or for the benefit of a Related Person)
(each a "Related Person Transaction"), except for (i) permitted Restricted
Payments and transactions made in good faith, the terms of which are: (x) fair
and reasonable to the Company or Subsidiary, as the case may be, and (y) at
least as favorable as the terms which could be obtained by the Company or
Subsidiary, as the case may be, in a comparable transaction made on an arm's
length basis with Persons who are not Related Persons, (ii) transactions
between the Company and any of its wholly owned Subsidiaries and transactions
between wholly owned Subsidiaries of the Company, (iii) transactions pursuant
to the Services Agreement, the Tax Allocation Agreement, the Gas Purchase
Agreement, the Stock Transfer Agreement, the Registration Rights Agreement, and
the TransAmerican Lease, (iv) any employee compensation arrangement in an
amount which, together with the amount of all other compensation to such
employee, shall not exceed $1,000,000 in any fiscal year of such employee's
employer and which has been approved, if the Company or one of its Subsidiaries
is the employer, by a majority of the Company's directors and found in good
faith by such directors to be in the best interests of the Company or
Subsidiary, as the case may be, and (v) $10,000,000 of indebtedness owed by the
Company to TransAmerican and outstanding on February 15, 1995. Notwithstanding
the foregoing, (a) the Company shall not issue any Capital Stock or securities
convertible or exchangeable into Capital Stock to John R. Stanley or any of his
affiliates other than 8% Preferred Stock, (b) the Company may not permit any of
its Subsidiaries to, directly or indirectly, loan or advance any funds to John
R. Stanley, and the aggregate amount of total compensation that the Company may
pay John R. Stanley shall not exceed $1 million per year and (c) the amount
payable by the Company or its Subsidiaries to Southeast shall not exceed the
actual costs Southeast incurs to provide employee services to the Company,
which costs consist solely of employee payroll and benefits, plus related
administrative costs and an administrative fee, which administrative costs and
fee shall not exceed $1,200,000 in the aggregate per year.

Without limiting the foregoing, except for sales of accounts
receivable to an Accounts Receivable Subsidiary in accordance with Section
4.21, (a) with respect to any Related Person Transaction or series of Related
Person Transactions with an aggregate value in excess of $1,000,000, such
transaction must first be approved by a majority of the Board of Directors of
the Company and a majority of the directors of the Company who are
disinterested in the transaction pursuant to a Board Resolution, as (i) fair
and reasonable to the Company or Subsidiary, as the case may be, and (ii) on
terms which are at least as favorable as the terms which could be obtained by
the Company or Subsidiary, as the case may be, on an arm's length basis with
Persons who are not Related Persons, and (b) with respect to any Related Person
Transaction or series of Related Person Transactions with an aggregate value in
excess of $5,000,000, the Company or Subsidiary, as the case may be, must first
obtain a favorable written opinion as to the fairness of such transaction to
the Company or Subsidiary, as the case may be, from a financial point of view
from a "big 6 accounting firm" or a nationally recognized investment banking
firm that has not received and does not receive any fees or other compensation
(other than solely for such opinion or other opinions pursuant hereto) from the
Company, or any of its Subsidiaries, or a Related Person within 24 months prior
to, and 12 months after, such opinion.

Section 4.13 Limitation on Incurrences of Additional Debt and
Issuances of Disqualified Capital Stock.

The Company shall not, and the Company shall not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume, guarantee,
or otherwise become liable for, contingently or otherwise (to "Incur or, as
appropriate, an "Incurrence"), any Debt or issue any Disqualified Capital Stock
(other than Capital Stock of the Company issued to TEC), except (a)(i) Debt
evidenced by the Notes pursuant to the Indenture; and (ii) Debt

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evidenced by the Mortgage Notes pursuant to the Mortgage Notes Indenture; (b)
Subordinated Debt of the Company solely to any wholly owned Subsidiary of the
Company, or Debt of any wholly owned Subsidiary of the Company solely to the
Company or to any wholly owned Subsidiary of the Company, provided that neither
the Company nor any Subsidiary of the Company shall become liable to any person
other than the Company or another wholly owned Subsidiary of the Company; (c)
Debt of the Company pursuant to a Revolving Credit Facility outstanding at any
time in an aggregate principal amount not to exceed the greater of (i)
$70,000,000 or (ii) the Borrowing Base, less, in each case, the amount of any
Debt of the Accounts Receivable Subsidiary; (d) Debt of the Company outstanding
at any time in an aggregate principal amount, or Disqualified Capital Stock of
the Company outstanding at any time with an aggregate liquidation value, or any
combination thereof, not to exceed $50,000,000 in the aggregate, plus the
amount of any Debt, not in excess of $10 million, incurred to finance the
acquisition of tank storage facilities; (e) Subordinated Debt of the Company
outstanding at any time in an aggregate principal amount not to exceed
$200,000,000 in the aggregate; (f) the Company may Incur Debt as an extension,
renewal, replacement, or refunding of any of the Debt permitted to be Incurred
by clause (a) or (c) above, or this clause (f) (such Debt is collectively
referred to as "Refinancing Debt"), provided, that (i) the maximum principal
amount of Refinancing Debt (or, if such Refinancing Debt does not require cash
payments prior to maturity, the original issue price of such Refinancing Debt)
permitted under this clause (f) may not exceed the lesser of (x) the principal
amount of the Debt being extended, renewed, replaced, or refunded plus
reasonable financing fees and other associated reasonable out-of-pocket
expenses (including any premium and defeasance costs) other than those paid to
a Related Person (collectively, "Refinancing Fees"), or (y) if such Debt being
extended, renewed, replaced, or refunded was issued at an original issue
discount, the original issue price, plus amortization of the original issue
discount at the time of the Incurrence of the Refinancing Debt plus Refinancing
Fees, (ii) the Refinancing Debt as a Weighted Average Life and a final maturity
that is equal to or greater than the Debt being extended, renewed, replaced, or
refunded at the time of such extension, renewal, replacement, or refunding,
(iii) the Refinancing Debt shall rank with respect to the Notes to an extent no
more favorable in respect thereof than the Debt being refinanced, (iv)
Refinancing Debt Incurred pursuant to clause (c) may be renewed, replaced,
refunded or refinanced only with another Revolving Credit Facility; (g) Debt of
the Company represented by trade payables or accrued expenses, in each case,
incurred on normal, customary terms in the ordinary course of business, not
overdue for a period of more than 45 days (or, if overdue for a period of more
than 45 days, being contested in good faith and by appropriate proceedings and
adequate reserves with respect thereto being maintained on the books of the
Company in accordance with GAAP) and not constituting any amounts due to banks
or other financial institutions; and (h) Debt Incurred and Disqualified Capital
Stock issued by any Person at a time when that Person is not a Subsidiary of
the Company, which Debt or Disqualified Capital Stock is outstanding at the
time such Person becomes, or is merged into, or consolidated with, a Subsidiary
of the Company, was not incurred or issued in contemplation of such Person
becoming or being merged into, or consolidated with, a Subsidiary of the
Company, and is in an aggregate amount not to exceed $25,000,000. For the
purpose of determining the amount of outstanding Debt that has been Incurred
pursuant to clause (c) above, there shall be included in such clause the
principal amount then outstanding of any Debt originally Incurred pursuant to
such clause and, after any refinancing or refunding of such Debt, any
outstanding Debt Incurred pursuant to clause (e) above so as to refinance or
refund such Debt Incurred pursuant to clause (c) and any subsequent
refinancings or refundings thereof. For purposes of clause (h) above, Debt
shall be deemed to be incurred, and Disqualified Capital Stock shall be deemed
to be issued, as the case may be, at the time such Person becomes or is merged
into or consolidated with, a Subsidiary of the Company.

Notwithstanding the foregoing provisions of this covenant, (a)
the Company may Incur Senior Debt of the Company and the Company may issue
Disqualified Capital Stock if, at the time such Senior Debt is Incurred or such
Disqualified Capital Stock is issued, (i) no Default or Event of Default shall
have occurred and be continuing at the time or immediately after giving effect
to such transaction on a pro forma basis, and (ii) immediately after giving
effect to the Consolidated Interest Expense in respect of such Debt being
Incurred or Disqualified Capital Stock being issued and the application of the
proceeds therefrom to the extent used to reduce Debt or Disqualified Capital
Stock, on a pro forma basis, (x) the Consolidated Fixed Charge Coverage Ratio
of the Company for the Reference Period is greater than 3.5 to 1, and (y) the
rating agencies have indicated in writing that the Mortgage Notes will be rated
"BB-" or higher by S&P and "Ba3" or higher by Moody's, and

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(b) the Company may Incur Subordinated Debt if, at the time such Subordinated
Debt is incurred, (i) no Default or Event of Default shall have occurred and be
continuing at the time or immediately after giving effect to such transaction
on a pro forma basis, and (ii) immediately after giving effect to the
Consolidated Interest Expense in respect of such Subordinated Debt being
incurred and the application of the proceeds therefrom to the extent used to
reduce Debt, on a pro forma basis, (x) the Consolidated Fixed Charge Coverage
Ratio of the Company for the Reference Period is greater than 2.5 to 1 and (y)
the rating agencies have indicated in writing that the Mortgage Notes will be
rated "BB-" or higher by S&P and "Ba3" or higher by Moody's.

Debt Incurred and Disqualified Capital Stock issued by any Person
that is not a Subsidiary of the Company which Debt or Disqualified Capital
Stock is outstanding at the time such Person becomes, or is merged into, or
consolidated with, a Subsidiary of the Company shall be deemed to have been
Incurred or issued, as the case may be, at the time such Person becomes, or is
merged into or consolidated with, a Subsidiary of the Company.

For the purpose of determining compliance with this covenant, (a)
if an item of Debt meets the criteria of more than one of the types of Debt
described in the above clauses, the Company shall have the right to determine
in its sole discretion the category to which such Debt applies and shall not be
required to include the amount and type of such Debt in more than one of such
categories and (b) the amount of any Debt which does not pay interest in cash
shall be deemed to be equal to the amount of the liability in respect thereof
determined in accordance with GAAP.

Section 4.14 Limitation on Restricting Subsidiary Dividends.

The Company shall not and the Company shall not permit any of its
Subsidiaries to, directly or indirectly, create, assume, or suffer to exist any
consensual encumbrance or restriction on the ability of any of its Subsidiaries
to (a) pay dividends or make other distributions on the Capital Stock of any
such Subsidiary or pay any obligation to the Company, or any of its
Subsidiaries or (b) otherwise transfer assets or make or pay loans or advances
to the Company, or any of its Subsidiaries, except encumbrances and
restrictions existing under any agreement of a Person acquired by the Company,
or one of its Subsidiaries, which encumbrances and restrictions existed at the
time of acquisition, were not put in place in anticipation of such acquisition
and are not applicable to any Person or property, other than the Person or any
property of the Person so acquired.

Section 4.15 Limitation on Liens.

The Company shall not, and the Company shall not permit any of
its Subsidiaries to, directly or indirectly, Incur, or suffer to exist any Lien
upon any of its properties or assets, whether now owned or hereafter acquired,
other than Permitted Liens.

Section 4.16 Limitation on Asset Sales.

(a) The Company shall not, and the Company shall not
permit any of its Subsidiaries to, in one or a series of related transactions,
convey, sell, transfer (other than the granting of any Permitted Lien), or
otherwise dispose of (including through damage or destruction for which
insurance proceeds are paid or by condemnation), directly or indirectly, any of
its properties, businesses, or assets, whether owned on the Issue Date or
thereafter acquired (an "Asset Sale") unless: (i) the Net Cash Proceeds
therefrom are applied to the repurchase of the Notes pursuant to an Offer to
Purchase and (ii) at least 85% of the value of the consideration for such Asset
Sales consists of (x) cash, (y) the assumption of Debt of the Company, or any
of its Subsidiaries and the release of the Company or Subsidiary from all
liability on such Debt in connection with such Asset Sale, or (z) securities
received by the Company or any of its Subsidiaries from the transferee that are
promptly converted by the Company or Subsidiary into cash. Notwithstanding the
foregoing:

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(i) any Subsidiary of the Company may convey, sell, lease,
transfer, or otherwise dispose of any or all of its assets (upon
voluntary liquidation or otherwise) to the Company or a wholly owned
Subsidiary of the Company;

(ii) the Company and any Subsidiary of the Company may
convey, sell, lease, transfer, or otherwise dispose of assets in the
ordinary course of business and on ordinary business terms if the
aggregate proceeds from all such Asset Sales not otherwise permitted do
not exceed $2 million in any twelve-month period;

(iii) the Company may convey, sell, lease, transfer, or
otherwise dispose of assets pursuant to and in accordance with Section
5.1;

(iv) the Company and any Subsidiary of the Company may (a)
sell damaged, worn out, or other obsolete property in the ordinary
course of business or other property no longer necessary for the proper
conduct of the business or (b) abandon such property if it cannot,
through reasonable efforts, be sold;

(v) the Company and its Subsidiaries may sell accounts
receivable to an Accounts Receivable Subsidiary in accordance with
Section 4.21;

(vi) the Company and its Subsidiaries may convey, sell,
transfer or otherwise dispose of crude oil and refined products in the
ordinary course of business; and

(vii) the Company may sell two Avon 1535 Gas Turbines and
related equipment for cash proceeds of at least $6 million;

(viii) the Company may sell or otherwise dispose of shares of
TransTexas common stock only in accordance with Section 12.6.

For purposes of the foregoing, "Net Cash Proceeds" means the
aggregate amount of cash received by the Company and its Subsidiaries in
respect of an Asset Sale (other than those expressly permitted in clauses (i)
through (viii) of the immediately preceding sentence), including any cash as
and when received from the proceeds of any property which itself was acquired
in consideration of an Asset Sale, less the sum of (i) all reasonable
out-of-pocket fees, commissions, and other expenses incurred in connection with
such Asset Sale, including the amount (estimated in good faith by the Company)
of income, franchise, sales, and other applicable taxes required to be paid by
the Company and its Subsidiaries in connection with such Asset Sale and (ii)
the aggregate amount of cash so received which is used to retire any then
existing Debt of the Company or its Subsidiaries (other than the Notes) that is
required by the terms of such Debt to be repaid in connection with such Asset
Sale.

The Company shall accumulate all Net Cash Proceeds and the
aggregate amount of such accumulated Net Cash Proceeds not timely used for the
purposes permitted above is referred to as the "Accumulated Amount."

(b) For purposes of this Section 4.16, "Minimum
Accumulation Date" means each date, on and after the date that all of the
obligations under the Mortgage Notes Indenture shall have been paid in full, on
which the Accumulated Amount exceeds $20,000,000. Not later than 10 Business
Days after a Minimum Accumulation Date, the Company shall make an irrevocable,
unconditional offer (an "Offer to Purchase") to the Holders to purchase, on a
pro rata basis, Notes having a principal amount (the "Offer Amount") equal to
the Accumulated Amount, at a purchase price (the "Offer Price") equal to 100%
of the principal amount thereof, plus accrued but unpaid interest, to and
including the date the Notes tendered are purchased and paid for in accordance
with this Section 4.16, which date shall be no later than 25 Business Days
after the first date on which the Offer to

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<PAGE> 34
Purchase is required to be made (the "Purchase Date"). Notice of an Offer to
Purchase shall be sent at least 20 Business Days prior to the close of business
on the third Business Day prior to the Purchase Date (the "Final Put Date"), by
first-class mail, by the Company to each Holder at its registered address, with
a copy to the Trustee. The notice to the Holders shall contain all
information, instructions, and materials required by applicable law or
otherwise material to such Holders' decision to tender Notes pursuant to the
Offer to Purchase. The notice, which shall govern the terms of the Section
4.16 Offer, shall state:

(1) that the Offer to Purchase is being made
pursuant to such notice and this Section 4.16;

(2) the Offer Amount, the Offer Price (including
the amount of accrued and unpaid interest), the Final Put Date, and the
Purchase Date, which Purchase Date shall be on or prior to forty
Business Days following the Minimum Accumulation Date;

(3) that any Note or portion thereof not tendered
or accepted for payment will continue to accrue interest;

(4) that, unless the Company defaults in depositing
U.S. Legal Tender with the Paying Agent in accordance with the last
paragraph of this clause (b) or such payment is otherwise prevented, any
Note or portion thereof accepted for payment pursuant to the Offer to
Purchase shall cease to accrue interest after the Purchase Date;

(5) that Holders electing to have a Note or portion
thereof purchased pursuant to an Offer to Purchase will be required to
surrender the Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Note completed, to the Paying Agent
(which may not, for purposes of this Section 4.16, notwithstanding any
other provision of this Indenture, be the Company or any Affiliate of
the Company) at the address specified in the notice prior to the close
of business at least three Business Days prior to the Final Put Date;

(6) that Holders will be entitled to withdraw their
elections, in whole or in part, if the Paying Agent (which may not for
purposes of this Section 4.16, notwithstanding any other provision of
this Indenture, be the Company or any Affiliate of the Company)
receives, up to the close of business on the Final Put Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Notes the Holder is withdrawing and
a statement containing a facsimile signature that such Holder is
withdrawing his election to have such principal amount of Notes
purchased;

(7) that if Notes in a principal amount in excess
of the principal amount of Notes to be acquired pursuant to the Offer to
Purchase are tendered and not withdrawn, the Company shall purchase
Notes on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000
or integral multiples of $1,000 shall be acquired);

(8) that Holders whose Notes were purchased only in
part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered; and

(9) the circumstances and relevant facts regarding
such Asset Sales.

Any such Offer to Purchase shall comply with all applicable
provisions of Federal and state laws, including those regulating tender offers,
if applicable, and any provisions of this Indenture that conflict with such
laws shall be deemed to be superseded by the provisions of such laws.

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<PAGE> 35
On or before a Purchase Date, the Company shall (i) accept for
payment Notes or portions thereof properly tendered pursuant to the Offer to
Purchase on or prior to the Final Put Date (on a pro rata basis if Notes in a
principal amount in excess of the principal amount of Notes to be acquired are
tendered and not withdrawn), (ii) deposit with the Paying Agent U.S. Legal
Tender sufficient to pay the Offer Price for all Notes or portions thereof so
accepted, and (iii) deliver to the Trustee Notes so accepted together with an
Officers' Certificate stating the Notes or portions thereof being purchased by
the Company. The Paying Agent shall promptly mail or deliver to Holders of
Notes so accepted payment in an amount equal to the Offer Price for such Notes.
The Trustee shall promptly cancel all Notes accepted by the Company pursuant to
the Offer to Purchase and authenticate and mail or deliver to the Holders of
Notes so accepted a new Note equal in principal amount to any unpurchased
portion of the Note surrendered. Any Notes not so accepted shall be promptly
mailed or delivered by the Company to the Holder thereof. The Company shall
publicly announce the results of the Offer to Purchase on or as soon as
practicable after the Purchase Date.

(c) If the amount required to acquire all Notes tendered
by Holders pursuant to the Offer to Purchase (the "Acceptance Amount") shall be
less than the Offer Amount, the excess of the Offer Amount over the Acceptance
Amount may be used by the Company for general corporate purposes without
restriction, unless otherwise restricted by the other provisions of this
Indenture. Upon consummation of any Offer to Purchase made in accordance with
the terms of this Section 4.16, the Accumulated Amount as of the Minimum
Accumulation Date shall be reduced to zero and accumulations thereof shall be
deemed to recommence from the day next following such Minimum Accumulation
Date.

Section 4.17 Waiver of Stay, Extension or Usury Laws.

The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law which would prohibit or forgive the Company from paying
all or any portion of the principal of or interest on the Notes as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this Indenture; and (to the extent
that it may lawfully do so) the Company hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no such law had
been enacted.

Section 4.18 Restriction on Sale and Issuance of Subsidiary
Stock.

The Company shall not, and the Company shall not permit any of
its Subsidiaries to, issue or sell any shares of Capital Stock of any
Subsidiary of the Company to any Person other than the Company or a wholly
owned Subsidiary of the Company; provided, however, that the Company shall be
permitted to issue additional shares of Capital Stock (a) to TEC, or (b) in
connection with an Equity Offering as defined in the Mortgage Notes Indenture.
Notwithstanding the foregoing, no additional shares of Capital Stock, or
securities convertible or exchangeable into Common Stock, of the Company (other
than 8% Preferred Stock) may be issued to John R. Stanley or any of his
Related Persons.

Section 4.19 Limitations on Line of Business.

Neither the Company nor any of its Subsidiaries shall directly or
indirectly engage to any substantial extent in any line or lines of business
activity other than a Related Business.

Section 4.20 Limitation on Speculative Trading.

The Company shall not, and the Company shall not permit any of
its Subsidiaries to, engage in transactions in futures contracts and options
for speculative purposes. The Company and its Subsidiaries may engage in such
transactions only as part of normal business operations as a risk-management
strategy or hedge

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against changes resulting from market conditions in the petroleum refining
industry related to the operations of the Company or Subsidiary.

Section 4.21 Accounts Receivable Subsidiary.

(a) Notwithstanding the provisions of Section 4.5 the
Company may, and may permit any of its Subsidiaries to, make Investments in an
Accounts Receivable Subsidiary (i) the proceeds of which are applied within
five Business Days of the making thereof solely to finance the purchase of
accounts receivable of the Company and its Subsidiaries and (ii) in the form of
Accounts Receivable Subsidiary Notes to the extent permitted by clause (b)
below; provided that the aggregate amount of such Investments shall not exceed
$20,000,000 at any time;

(b) The Company shall not, and the Company shall not
permit any of its Subsidiaries to, sell accounts receivable to an Accounts
Receivable Subsidiary except for consideration in an amount not less than that
which would be obtained in an arm's length transaction and solely in the form
of cash or Cash Equivalents; provided that an Accounts Receivable Subsidiary
may pay the purchase price for any such accounts receivable in the form of
Accounts Receivable Subsidiary Notes so long as, after giving effect to the
issuance of any such Accounts Receivable Subsidiary Notes, the aggregate
principal amount of all Accounts Receivable Subsidiary Notes outstanding shall
not exceed 20% of the aggregate purchase price paid for all outstanding
accounts receivable purchased by an Accounts Receivable Subsidiary since the
date of this Indenture (and not written off or required to be written off in
accordance with the normal business practice of an Accounts Receivable
Subsidiary);

(c) The Company shall not permit an Accounts Receivable
Subsidiary to sell any accounts receivable purchased from the Company and its
Subsidiaries or participation interests therein to any other Person except on
an arm's length basis and solely for consideration in the form of cash or Cash
Equivalents;

(d) The Company shall not, and the Company shall not
permit any of its Subsidiaries to, enter into any guarantee, subject any of
their respective properties or assets (other than the accounts receivable sold
by them to an Accounts Receivable Subsidiary) to the satisfaction of any
liability or obligation or otherwise incur any liability or obligation
(contingent or otherwise), in each case, on behalf of an Accounts Receivable
Subsidiary or in connection with any sale of accounts receivable or
participation interests therein by or to an Accounts Receivable Subsidiary,
other than obligations relating to breaches of representations, warranties,
covenants, and other agreements of the Company or any of its Subsidiaries with
respect to the accounts receivable sold by the Company or any of its
Subsidiaries to an Accounts Receivable Subsidiary or with respect to the
servicing thereof; provided that neither the Company nor any of its
Subsidiaries shall at any time guarantee or be otherwise liable for the
collectibility of accounts receivable sold by them;

(e) The Company shall not permit an Accounts Receivable
Subsidiary to engage in any business or transaction other than the purchase and
sale of accounts receivable or participation interests therein of the Company
and its Subsidiaries and activities incidental thereto;

(f) The Company shall not permit an Accounts Receivable
Subsidiary to incur any Debt other than the Accounts Receivable Subsidiary
Notes, Debt owed to the Company and Non-Recourse Debt; provided that the
aggregate principal amount of all such Debt of an Accounts Receivable
Subsidiary shall not exceed the book value of its total assets as determined in
accordance with GAAP;

(g) The Company shall cause any Accounts Receivable
Subsidiary to remit to the Company or a wholly owned Subsidiary of the Company
on a monthly basis as a distribution all available cash and Cash Equivalents
not held in a collection account pledged to acquirors of accounts receivable or
participation interests therein, to the extent not applied to (i) pay interest
or principal on the Accounts Receivable Subsidiary Notes or any Debt of such
Accounts Receivable Subsidiary owed to the Company, (ii) pay or maintain
reserves

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for reasonable operating expenses of such Accounts Receivable Subsidiary or to
satisfy reasonable minimum operating capital requirements, or (iii) to finance
the purchase of additional accounts receivable of the Company and its
Subsidiaries; and

(h) The Company shall not, and shall not permit any of its
Subsidiaries to, sell accounts receivable to, or enter into any other
transaction with or for the benefit of, an Accounts Receivable Subsidiary (i)
if such Accounts Receivable Subsidiary pursuant to or within the meaning of any
Bankruptcy Law (A) commences a voluntary case, (B) consents to the entry of an
order for relief against it in an involuntary case, (C) consents to the
appointment of a Custodian of it or for all or substantially all of its
property, (D) makes general assignment for the benefit of its creditors, or (E)
generally is not paying its debts as they become due; or (ii) if a court of
competent jurisdiction enters an order or decree under any Bankruptcy Law that
(A) is for relief against such Accounts Receivable Subsidiary in an involuntary
case, (B) appoints a Custodian of such Accounts Receivable Subsidiary or for
all or substantially all of the property of such Accounts Receivable
Subsidiary, or (C) orders the liquidation of such Accounts Receivable
Subsidiary, and, with respect to clause (ii) hereof, the order or decree
remains unstayed and in effect for 60 consecutive days.

Section 4.22 Separate Existence and Formalities.

The Company hereby covenants and agrees that:

(a) the funds and other assets of the Company and its
Subsidiaries will not be commingled with those of TEC, TransAmerican or
TransTexas, other than pursuant to the Services Agreement;

(b) all actions taken by the Company and its Subsidiaries
will be taken pursuant to authority granted by the Board of Directors of the
Company or such Subsidiary, as the case may be, to the extent required by law
or the Certificate of Incorporation or By-laws of the Company or its
Subsidiaries;

(c) the Company and its Subsidiaries will maintain records
and books of account separate from those of TEC, TransAmerican and TransTexas
in each case in accordance with generally accepted accounting principles;

(d) the Company and its Subsidiaries will conduct their
business at offices that are identifiably segregated from the offices of TEC,
TransAmerican and TransTexas;

(e) the Company and its Subsidiaries will conduct their
businesses solely in their own names and will not knowingly or negligently
mislead any other Person as to the identity or authority of the Company or its
Subsidiaries;

(f) all oral and written communications of the Company and
its Subsidiaries, including, without limitation, letters, invoices, purchase
orders, contracts, statements and applications, will be made solely in the name
of the Company or its Subsidiaries, as the case may be;

(g) the Company and its Subsidiaries will provide for all
of their operating expenses and liabilities from their own separate funds;

(h) each of the Company and its Subsidiaries will maintain
correct minutes of the meetings and other corporate proceedings of the owners
of its capital stock and of its Board of Directors and otherwise comply with
requisite corporate formalities required by law;

(i) except as set forth in the Tax Allocation Agreement,
the Company nor any of its Subsidiaries will hold itself out or knowingly
permit itself to be held out as having agreed to pay or as being liable for any
indebtedness of TEC, TransAmerican or TransTexas; and

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(j) the Company will take full advantage of their
respective rights and privileges under the Stock Transfer Agreement, and the
Company will not amend the Stock Transfer Agreement in a manner adverse to the
Holders or the Company.

Section 4.23 Revolving Credit Facility. If the Company obtains
a Revolving Credit Facility, the Company shall promptly deposit the proceeds
thereof in the manner, and to the extent, if any, required pursuant to the
Mortgage Notes Indenture.

Section 4.24 Registration of Pledged Shares. The Company shall
cause TransTexas to effect a shelf registration of the TransTexas common stock
pledged pursuant to the Pledge Agreement.

Section 4.25 Limitation on Sale/Leaseback Transactions. The
Company will not, and the Company will not permit any of its Subsidiaries to,
enter into any Sale/Leaseback Transaction unless (a) the Company could have (i)
incurred Debt in the amount equal to the aggregate amount of Attributable Debt
relating to such Sale/Leaseback Transaction pursuant to Section 4.13 and (ii)
incurred a Lien to secure such Debt pursuant to Section 4.15, (b) the gross
cash proceeds of such Sale/Leaseback Transaction are at least equal to the fair
market value (as determined in good faith by the Board of Directors of the
Company) of the property that is subject to such Sale/Leaseback Transaction and
(c) the transfer of assets in such Sale/Leaseback Transaction is permitted by,
and the Company applies the proceeds of such transaction in compliance with
Section 4.16.

ARTICLE V

SUCCESSOR CORPORATION

Section 5.1 When Company May Merge, Etc.

(a) The Company shall not, in a single transaction or
through a series of related transactions, consolidate with or merge with or
into any other Person or, directly or indirectly, sell, lease, assign, transfer
or convey all or substantially all of its assets (computed on a consolidated
basis), to another Person or group of Affiliated Persons, unless:

(1) either (a) the Company shall be the continuing
Person, or (b) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or to which all or
substantially all of the properties and assets of the Company are
transferred as an entirety or substantially as an entirety (the Company
or such other Person being hereinafter referred to as the "Surviving
Person") shall be a corporation or partnership organized and validly
existing under the laws of the United States, any State thereof or the
District of Columbia, and shall expressly assume, by an indenture
supplemental hereto, and any supplements to any Security Documents as
the Trustee in its sole discretion may require, executed and delivered
to the Trustee, in form satisfactory to the Trustee, all the obligations
of the Company under the Notes, the Security Documents and this
Indenture;

(2) on a pro forma consolidated basis, immediately
after giving effect to such transaction and the assumption of the
obligations contemplated by clause (1), above, and the incurrence or
anticipated incurrence of any Debt or Disqualified Capital Stock to be
incurred or issued in connection therewith (x) the Net Worth of the
Surviving Person is at least equal to the Net Worth of the Company and
its Subsidiaries immediately prior to such transaction and (y) the
rating agencies have indicated in writing that, immediately thereafter,
the Mortgage Notes will be rated "BB-" or higher by S&P and "Ba3" or
higher by Moody's or the ratings of the Mortgage Notes by S&P and
Moody's will be higher than before the transaction;

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(3) immediately before and on a pro forma basis
immediately after giving effect to such transaction and the assumption
of the obligations as set forth in clause (1), above, and the incurrence
or issuance or anticipated incurrence or issuance of any Debt to be
incurred or Disqualified Capital Stock to be issued in connection
therewith, no Default or Event of Default shall exist or shall occur;
and

(4) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, assignment, or transfer and such supplemental
indenture comply with this Article V, that such consolidation, merger,
assignment or transfer will not have any adverse effect on the validity,
legality or enforceability of the Notes and that all conditions
precedent herein provided relating to such transaction have been
satisfied.

For purposes of this Section 5.1, the Consolidated
Fixed Charge Coverage Ratio shall be determined on a pro forma
consolidated basis (giving effect to such merger, sale or consolidation)
for the four fiscal quarters for which financial information is
available immediately preceding such merger, sale or consolidation.

(b) For purposes of clause (a), the sale, lease,
conveyance, assignment, transfer, or other disposition of all or substantially
all of the properties and assets of one or more Subsidiaries of the Company
which properties and assets, if held by the Company instead of such
Subsidiaries, would constitute all or substantially all of the properties and
assets of the Company on a consolidated basis, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.

Section 5.2 Successor Corporation Substituted.

Upon any consolidation or merger, or any transfer of assets in
accordance with Section 5.1, the Surviving Person formed by such consolidation
or into which the Company is merged or to which such transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such Surviving
Person had been named as the Company herein. When a Surviving Person duly
assumes all of the obligations of the Company pursuant hereto and pursuant to
the Notes and Security Documents the predecessor shall be released from such
obligations.

ARTICLE VI

EVENTS OF DEFAULT AND REMEDIES

Section 6.1 Events of Default.

"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be caused voluntarily or involuntarily or effected, without limitation,
by operation of law or pursuant to any judgment, decree or order of any court
or any order, rule or regulation of any administrative or governmental body):

(a) default in the payment of any interest upon any Note
as and when the same becomes due and payable, and the continuance of such
default for a period of 15 days;

(b) default in the payment of all or any part of the
principal of (or premium, if any. applicable to) the Notes when and as the
same becomes due and payable at maturity, redemption, by acceleration or
otherwise, including default in the payment of the Change of Control Purchase
Price in accordance with Article XI, the Offer Price in accordance with Section
4.16;

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(c) default in the observance or performance of, or breach
of, any covenant, agreement or warranty of the Company contained in the
Security Documents, the Notes or this Indenture (other than a default in the
performance of any covenant, agreement or warranty which is specifically dealt
with elsewhere in this Section 6.1), and continuance of such default or breach
for a period of 30 days after there has been given, by registered or certified
mail, to the Company by the Trustee, or to the Company, and the Trustee by
Holders of at least a majority of the aggregate principal amount of the
outstanding Notes, a written notice specifying such default or breach,
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder;

(d) a default which extends beyond any stated period of
grace applicable thereto, including any extension thereof, under any mortgage,
indenture or instrument under which there is outstanding any Debt of the
Company, or any of its Subsidiaries with an aggregate principal amount in
excess of $10,000,000, or failure to pay such Debt at its stated maturity, it
being understood that a waiver by the lenders of such default shall constitute
a waiver hereunder for the same period;

(e) a decree, judgment, or order by a court of competent
jurisdiction shall have been entered adjudging the Company or any of its
Significant Subsidiaries as bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization of the Company or any of its
Significant Subsidiaries under any bankruptcy or similar law, and such decree
or order shall have continued undischarged and unstayed for a period of 30
days; or a decree or order of a court of competent jurisdiction over the
appointment of a receiver, liquidator, trustee, or assignee in bankruptcy or
insolvency of the Company or any of its Significant Subsidiaries, or of the
property of any such Person, or for the winding up or liquidation of the
affairs of any such Person, shall have been entered, and such decree, judgment,
or order shall have remained in force undischarged and unstayed for a period of
30 days;

(f) the Company or any of its Significant Subsidiaries
shall institute proceedings to be adjudicated a voluntary bankrupt, or shall
consent to the filing of a bankruptcy proceeding against it, or shall file a
petition or answer or consent seeking reorganization under any bankruptcy or
similar law or similar statute, or shall consent to the filing of any such
petition, or shall consent to the appointment of a Custodian, receiver,
liquidator, trustee, or assignee in bankruptcy or insolvency of it or any of
its assets or property, or shall make a general assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts generally
as they become due, or shall, within the meaning of any Bankruptcy Law, become
insolvent, fail generally to pay their debts as they become due, or take any
corporate action in furtherance of or to facilitate, conditionally or
otherwise, any of the foregoing;

(g) final judgments not covered by insurance for the
payment of money, or the issuance of any warrant of attachment against any
portion of the property or assets of the Company or any of its Subsidiaries,
which, in the aggregate, equal or exceed $10,000,000 at any one time shall be
entered against the Company or any of its Subsidiaries by a court of competent
jurisdiction and not be stayed, bonded or discharged for a period (during which
execution shall not be effectively stayed) of 60 days (or, in the case of any
such final judgment which provides for payment over time, which shall so remain
unstayed, unbonded or undischarged beyond any applicable payment date provided
therein);

(h) any of the Security Documents shall for any reason
cease to be in full force and effect, or shall cease to give the Trustee for
the ratable benefit of the Holders the Liens, rights, powers and privileges
purported to be created thereby including but not limited to, a perfected
security interest in, and Lien on, all of the Collateral in accordance with the
terms thereof, or a default shall occur under any of the Security Documents;

(i) there shall have occurred any amendment to the
Certificate of Incorporation or Bylaws of the Company or any of its
Subsidiaries that would materially adversely affect the interests of the
Noteholders and the failure to correct such violation, failure or amendment
continues for a period of 10 days (or 90 days if a Public Equity Offering has
occurred) after written notice is given to the Company by the Trustee or to

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the Company and the Trustee by the Holders of at least a majority of the in
aggregate principal amount of the Notes outstanding; or

(j) there shall have occurred any "Event of Default" under
either (i) the Mortgage Notes Indenture, or (ii) the indenture, dated as of
June 15, 1995 (the "TransTexas Indenture"), by and between TransTexas,
TransTexas Transmission Corporation, as guarantor, and American Bank National
Association, as trustee, if, as a result thereof, any of the Mortgage Notes or
the notes issued under the TransTexas Indenture, as the case may be, shall
become due and payable by declaration of acceleration or otherwise;

Any Defaults under Sections 4.5, 4.13, or 5.1 of this
Indenture shall be Events of Default without the notice specified in clause (c)
above and upon the passage of 10 days.

Section 6.2 Acceleration of Maturity Date; Rescission and
Annulment.

If an Event of Default (other than an Event of Default specified
in Section 6.1(e) or (f) relating to the Company or any of its Subsidiaries)
occurs and is continuing and subject to Section 4.9 hereof, then, and in every
such case, unless the principal of all of the Notes shall have already become
due and payable, either the Trustee or the Holders of not less than a majority
of aggregate principal amount of Notes then outstanding, by a notice in writing
to the Company (and to the Trustee if given by Holders) (an "Acceleration
Notice"), may declare all of the principal of the Notes (or the Change of
Control Purchase Price if the Event of Default includes failure to pay the
Change of Control Purchase Price), determined as set forth below, including in
each case accrued interest thereon, to be due and payable immediately. If an
Event of Default specified in Section 6.1(e) or (f) relating to the Company or
any of its Subsidiaries occurs, all principal and accrued interest on the Notes
shall be immediately due and payable on all outstanding Notes without any
declaration or other act on the part of the Trustee or the Holders.

At any time after such a declaration of acceleration being made
and before a judgment or decree for payment of the money due has been obtained
by the Trustee as hereinafter provided in this Article VI, the Holders of a
majority in aggregate principal amount of then outstanding Notes, by written
notice to the Company and the Trustee, may waive, on behalf of all Holders, any
such declaration of acceleration if:

(a) the Company has paid or deposited with the Trustee
a sum sufficient to pay

(i) all overdue interest on all Notes,

(ii) the principal of (and premium, if any,
applicable to) any Notes which would become due otherwise than by such
declaration of acceleration, and interest thereon at the rate borne by
the Notes,

(iii) to the extent that payment of such
interest is lawful, interest upon overdue interest at the rate borne by
the Notes,

(iv) all sums paid or advanced by the Trustee
hereunder and the compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, and

(b) all Events of Default, other than the non-payment
of the principal of, premium, if any, and interest on Notes which have become
due solely by such declaration of acceleration, have been cured or waived as
provided in Section 6.12, including, if applicable, any Event of Default
relating to the covenants contained in Section 11.1.

Notwithstanding the previous sentence of this Section 6.2, no
waiver shall be effective for any Event of Default or event which with notice
or lapse of time or both would be an Event of Default with respect to

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<PAGE> 42
any covenant or provision which cannot be modified or amended without the
consent of the Holder of each of the outstanding Notes, unless all such
affected Holders agree, in writing, to waive such Event of Default or event.
No such waiver shall cure or waive any subsequent default or impair any right
consequent thereon.

Section 6.3 Collection of Indebtedness and Suits for
Enforcement by Trustee.

The Company covenants that if an Event of Default in payment of
principal, premium or interest specified in clause (a) or (b) or Section 6.1
occurs and is continuing, the Company shall, upon demand of the Trustee, pay to
it, for the benefit of the Holders of such Notes, the whole amount then due and
payable on such Notes for principal, premium (if any) and interest, and, to the
extent that payment of such interest shall be legally enforceable, interest on
any overdue principal (and premium, if any) and on any overdue interest, at the
rate borne by the Notes, and, in addition thereto, such further amount as shall
be sufficient to cover the costs and expenses of collection, including
compensation to, and expenses, disbursements and advances of the Trustee, its
agents and counsel.

If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust in
favor of the Holders, may institute a judicial proceeding for the collection of
the sums so due and unpaid, may prosecute such proceeding to judgment or final
decree and may enforce the same against the Company or any other obligor upon
the Notes and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any other obligor
upon the Notes, wherever situated.

If an Event of Default occurs and is continuing, the Trustee may
in its discretion proceed to protect and enforce its rights and the rights of
the Holders by such appropriate judicial proceedings as the Trustee shall deem
most effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.

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Section 6.4 Trustee May File Proofs of Claim.

In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition
or other judicial proceeding relative to the Company or any other obligor upon
the Notes or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Notes
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company or any obligor for the payment of overdue principal or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise to take any and all actions under the TIA, including

(a) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in respect of the
Notes and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agent and counsel) and of the Holders allowed in such judicial
proceeding, and

(b) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same pursuant
to Section 6.6 hereof; and any custodian, receiver, assignee, trustee,
liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 6.6 or Section 7.7.

Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment, or composition affecting the Notes
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.

Section 6.5 Trustee May Enforce Claims Without Possession of
Notes.

All rights of action and claims under this Indenture or the Notes
may be prosecuted and enforced by the Trustee without the possession of any of
the Notes or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust in favor of the Holders, and any recovery of
judgment shall, after provision for the payment of compensation to, and
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Holders of the Notes in respect of which such
judgment has been recovered.

Section 6.6 Priorities.

Any money or other property collected by the Trustee pursuant to
this Article VI shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such money or other
property on account of principal, premium (if any) or interest, upon
presentation of the Notes and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:

FIRST: To the Trustee in payment of all amounts due pursuant to
Section 7.7;

SECOND: To the Holders in payment of the amounts then due and
unpaid for principal of premium (if any) and interest on, the Notes in respect
of which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts due and
payable on such Notes for principal (if any) and interest respectively; and

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THIRD: on and after the date on which all of the obligations
under this Indenture have been satisfied in full and the Lien on the Pledged
Collateral has been released, to the Trustee under the Mortgage Notes for
application thereby in accordance with the terms and conditions of the Mortgage
Notes Indenture; and

FOURTH: To whomsoever may be lawfully entitled thereto, the
remainder, if any.

Section 6.7 Limitation on Suits.

No Holder of any Note shall have any right to order or direct the
Trustee to institute any proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless

(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;

(b) the Holders of not less than a majority of the
principal amount of then outstanding Notes shall have made written request to
the Trustee to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;

(c) such Holder or Holders have offered to the Trustee
security or indemnity, acceptable to the Trustee, against the costs, expenses
and liabilities to be incurred or reasonably probable to be incurred in
compliance with such request;

(d) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute any such
proceeding; and

(e) no direction inconsistent with such written request
has been given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the outstanding Notes; it being understood and
intended that no one or more Holders shall have any right in any manner
whatever by virtue of, or by availing of, any provision of this Indenture to
affect, disturb or prejudice the rights of any other Holders, or to obtain or
to seek to obtain priority or preference over any other Holders or to enforce
any right under this Indenture, except in the manner herein provided and for
the equal and ratable benefit of all the Holders.

Section 6.8 Unconditional Right of Holders to Receive
Principal, Premium and Interest.

Notwithstanding any other provision of this Indenture, the Holder
of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of, and premium (if any) and interest on, such
Note on the Maturity Dates of such payments as expressed in such Note (in the
case of redemption, the Redemption Price on the applicable Redemption Date, in
the case of the Change of Control Purchase Price, on the applicable Change of
Control Payment Date, and in the case of the Offer Price, on the Purchase Date
and to institute suit for the enforcement of any such payment after such
respective dates, and such rights shall not be impaired without the consent of
such Holder.

Section 6.9 Rights and Remedies Cumulative.

Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes in Section 2.7, no right
or remedy herein conferred upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at
law or in equity or otherwise. The assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.

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Section 6.10 Delay or Omission Not Waiver.

No delay or omission by the Trustee or by any Holder of any Note
to exercise any right or remedy arising upon any Event of Default shall impair
the exercise of any such right or remedy or constitute a waiver of any such
Event of Default. Every right and remedy given by this Article VI or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.

Section 6.11 Control by Holders.

Subject to Section 6.7, the Holder or Holders of a majority in
aggregate principal amount of then outstanding Notes shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred upon the
Trustee, provided, that

(a) such direction shall not be in conflict with any rule
of law or with this Indenture,

(b) the Trustee shall not determine that the action so
directed would be unjustly prejudicial to the Holders not taking part in such
direction, and

Section 6.12 Waiver of Past Default.

Subject to Section 6.8, the Holder or Holders of not less than a
majority in aggregate principal amount of the outstanding Notes may, on behalf
of all Holders, prior to the declaration of the maturity of the Notes, waive
any past default hereunder and its consequences, except a default

(a) in the payment of the principal of, premium, if any,
or interest on, any Note as specified in clauses (a) and (b) of Section 6.1, or

(b) in respect of a covenant or provision hereof which,
under Article XI, cannot be modified or amended without the consent of the
Holder of each outstanding Note affected.

Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or impair the exercise of any right arising
therefrom.

Section 6.13 Undertaking for Costs.

All parties to this Indenture agree, and each Holder of any Note
by his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted to be taken by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section shall not apply to any suit
instituted by the Trustee, to any suit instituted by a group of Holders,
holding in the aggregate more than a majority of the aggregate principal amount
of the outstanding Notes, or to any suit instituted by any Holder for
enforcement of the payment of principal of, or premium (if any) or interest on,
any Note on or after the respective Maturity Date expressed in such Note
(including, in the case of redemption, on or after the Redemption Date).

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Section 6.14 Restoration of Rights and Remedies.

If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders
shall be restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of the Trustee and the Holders
shall continue as though no such proceeding had been instituted.

ARTICLE VII

TRUSTEE

The Trustee hereby accepts the trust imposed upon it by this
Indenture and covenants and agrees to perform the same, as herein expressed.

Section 7.1 Duties of Trustee.

(a) If a Default or an Event of Default has occurred and
is continuing, the Trustee shall exercise such of the rights and powers vested
in it by this Indenture and use the same degree of care and skill in their
exercise as a prudent Person would exercise or use under the circumstances in
the conduct of his own affairs.

(b) Except during the continuance of a Default or an Event
of Default:

(i) The Trustee need perform only those duties
as are specifically set forth in this Indenture and no others, and no
covenants or obligations shall be implied in or read into this Indenture
which are adverse to the Trustee.

(ii) In the absence of bad faith on its part,
the Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture.

(c) The Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:

(i) This paragraph does not limit the effect
of paragraph (b) of this Section 7.1.

(ii) The Trustee shall not be liable for any
error of judgment made in good faith by a Trust Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts.

(iii) The Trustee shall not be liable with
respect to any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Section 6.11.

(d) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or to take or omit
to take any action under this Indenture or at the request, order or direction
of the Holders or in the exercise of any

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of its rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.

(e) Every provision of this Indenture that in any way
relates to the Trustee is subject to paragraphs (a), (b), (c), (d) and (f) of
this Section 7.1.

(f) The Trustee shall not be liable for interest on any
assets received by it except as the Trustee may agree in writing with the
Company. Assets held in trust by the Trustee need not be segregated from other
assets except to the extent required by law.

Section 7.2 Rights of Trustee.

Subject to Section 7.1:

(a) The Trustee may rely on any document believed by it to
be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.

(b) Before the Trustee acts or refrains from acting, it
may consult with counsel and may require an Officers' Certificate or an Opinion
of Counsel, which shall conform to Sections 13.4 and 13.5. The Trustee shall
not be liable for any action it takes or omits to take in good faith in
reliance on such certificate or opinion.

(c) The Trustee may act through its attorneys and agents
and shall not be responsible for the misconduct or negligence of any agent
appointed with due care.

(d) The Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers.

(e) The Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, notice, request, direction, consent, order,
bond, debenture, or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts or
matters as it may see fit.

(f) The Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the request,
order or direction of any of the Holders, pursuant to the provisions of this
Indenture, unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby.

Section 7.3 Individual Rights of Trustee.

The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Company, its
Subsidiaries, or their respective Affiliates with the same rights it would have
if it were not Trustee. Any Agent may do the same with like rights. However,
the Trustee must comply with Sections 7.10 and 7.11.

Section 7.4 Trustee's Disclaimer.

The Trustee makes no representation as to the validity or
adequacy of this Indenture or the Notes and it shall not be accountable for the
Company's use of the proceeds from the Notes, and it shall not be responsible
for any statement in the Notes, other than the Trustee's certificate of
authentication, or the use or application of any funds received by a Paying
Agent other than the Trustee.

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Section 7.5 Notice of Default.

If a Default or an Event of Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to each Noteholder notice
of the uncured Default or Event of Default within 45 days after such Default or
Event of Default occurs. Except in the case of a Default or an Event of
Default in payment of principal (or premium, if any) of, or interest on, any
Note (including all payments due on any Maturity Date), including a default in
the payment of the Redemption Price, the Offer Price or the Change of Control
Purchase Price the Trustee may withhold the notice if and so long as the board
of directors, the executive committee or a trust committee of directors and/or
responsible officers of the Trustee in good faith determines that withholding
the notice is in the interest of the Holders.

As soon as practicable, but in any event within 5 Business Days
after an Event of Default has occurred that is continuing and is known to the
Trustee, the Trustee shall promptly give written notice to the Disbursement
Agent that an Event of Default under the Indenture has occurred and is
continuing (unless the Person serving as the Trustee is also serving as the
Disbursement Agent).

Section 7.6 Reports by Trustee to Holders.

Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, the Trustee shall, if required, mail to
each Noteholder a brief report dated as of such May 15 that complies with TIA
Section 313(a). The Trustee also shall comply with TIA Sections 313(b) and
313(c).

A copy of each report at the time of its mailing to Noteholders
shall be mailed to the Company and filed by the Trustee with the SEC and each
securities exchange, if any, on which the Notes are listed.

Section 7.7 Compensation and Indemnity.

The Company shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances incurred or made by it. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trustee's agents,
accountants, experts and counsel.

The Company shall indemnify the Trustee (in its capacity as
Trustee) and each of its officers directors, attorneys-in-fact and agents for,
and hold it harmless against, any claim, demand, expense (including but not
limited to, reasonable compensation, disbursements and expenses of the
Trustees' agents and counsel), loss or liability incurred by it without
negligence or bad faith on its part, arising out of or in connection with the
administration of this trust and its rights or duties hereunder including the
reasonable costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers
or duties hereunder. The Trustee shall notify the Company promptly of any
claim asserted against the Trustee for which it may seek indemnity. The
Company need not reimburse any expense or indemnify against any loss or
liability to the extent incurred by the Trustee through its negligence, bad
faith or willful misconduct.

To secure the Company's payment obligations to the Trustee in
this Section 7.7, the Company and the Holders agree that the Trustee shall have
a lien prior to the Notes on all assets held or collected by the Trustee, in
its capacity as Trustee.

When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.1(e) or (f) occurs, the Company and the
Holders agree that the expenses and the compensation for the services are
deemed to constitute expenses of administration under any Bankruptcy Law.

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The Company's obligations under this Section 7.7 and any lien
arising hereunder shall survive the resignation or removal of the Trustee, the
discharge of the Company's obligations pursuant to Article VIII of this
Indenture and any rejection or termination of this Indenture under any
Bankruptcy Law.

Section 7.8 Replacement of Trustee.

The Trustee may resign by so notifying the Company in writing.
The Holder or Holders of a majority in principal amount of the outstanding
Notes may remove the Trustee by so notifying the Company and the Trustee in
writing and may appoint a successor Trustee with the Company's consent. The
Company may remove the Trustee if:

(a) the Trustee fails to comply with Section 7.10;

(b) the Trustee is adjudged bankrupt or insolvent; or

If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holder or Holders of a majority in principal amount of the Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.

A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after
delivery of such acceptance and provided that all sums owing to the Trustee
provided for in Section 7.7 have been paid, the retiring Trustee shall transfer
all property held by it as Trustee to the successor Trustee, subject to the
lien provided in Section 7.7, the resignation or removal of the retiring
Trustee shall become effective, and the successor Trustee shall have all the
rights, powers and duties of the Trustee under this Indenture. A successor
Trustee shall mail notice of its succession to each Holder.

If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company
or the Holder or Holders of at least a majority of the principal amount of the
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.

If the Trustee fails to comply with Section 7.10, any Noteholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.

Notwithstanding replacement of the Trustee pursuant to this
Section 7.8, the Company's obligations under Section 7.7 shall continue for the
benefit of the retiring Trustee.

Section 7.9 Successor Trustee by Merger, Etc.

If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.

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ARTICLE VIII

SATISFACTION AND DISCHARGE

Section 8.1 Satisfaction, Discharge of the Indenture and
Defeasance of the Notes.

The Company shall be deemed to have paid and discharged the
entire Debt on the Notes and the provisions of this Indenture shall cease to be
of further effect (subject to Section 8.3), if:

(a) The Company irrevocably deposits in trust for the
benefit of the Holders of the Notes with the Trustee, pursuant to an
irrevocable trust and security agreement (i) U.S. Legal Tender in an amount,
(ii) Government Securities which, after payment of all Federal, state and local
taxes or other charges or assessments in respect of such Government Securities
payable by the Trustee, through the payment of principal and interest will
provide, not later than one day before the due date of payment in respect of
the Notes, U.S. Legal Tender in an amount, or (iii) a combination thereof,
which, in the opinion of a nationally recognized firm of independent certified
public accountants expressed in a written certification thereof (in form and
substance reasonably satisfactory to the Trustee) delivered to the Trustee, is
sufficient to pay the principal of, premium, if any, and each installment of
principal and interest on the Notes then outstanding on the dates on which any
such payments are due and payable in accordance with the terms of this
Indenture and of the Notes;

(b) Such deposits shall not cause the Trustee to have a
conflicting interest as defined in and for purposes of the TIA;

(c) No Default or Event of Default shall have occurred or
be continuing on the date of such deposit or shall occur on or before the 91st
day (or one day after such greater period of time in which any such deposit of
trust funds may remain subject to bankruptcy or insolvency laws) after the date
of such deposit, and such deposit will not result in a Default or Event of a
Default under this Indenture or a breach or violation of, or constitute a
default under, any other instrument to which the Company, or any Subsidiary of
the Company is a party or by which it or its property is bound;

(d) The deposit, defeasance and discharge will not be
deemed, or result in, a Federal income taxable event to the Holders of the
Notes and the Holders will be subject to Federal income tax in the same amounts
and in the same manner and at the same times as would have been the case if
such deposit and defeasance had not occurred;

(e) The deposit shall not result in the Company, the
Trustee or the trust being subject to regulation under the Investment Company
Act of 1940;

(f) After the passage of 90 days (or any greater period of
time in which any such deposit of trust funds may remain subject to Bankruptcy
Laws insofar as those laws apply to the Company) following the irrevocable
deposit of the trust funds, such funds will not be subject to any Bankruptcy
Laws affecting creditors' rights generally;

(g) Holders of the Notes will have a valid, perfected and
unavoidable (under applicable bankruptcy or insolvency laws), subject to the
passage of time referred to in clause (f) above, first-priority security
interest in the trust funds; and

(h) The Company has delivered to a Trustee an Officers'
Certificate and an Opinion of Counsel (who may be outside counsel to the
Company, but not in-house counsel to the Company), each in form and substance
satisfactory to the Trustee, stating that all conditions precedent specified
herein relating to the defeasance contemplated by this Section 8.1 have been
complied with.

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In the event all of any portion of the Notes are to be redeemed
through such irrevocable trust, the Company must make arrangements satisfactory
to the Trustee, at the time of such deposit, for the giving of the notice of
such redemption or redemptions by the Trustee in the name and at the expense of
the Company.

In the event that the Company takes the necessary action to
comply with the provisions described in this Section 8.1 and the Notes are
declared due and payable because of the occurrence of an Event of Default
within the time period specified in Section 8.1(c), or at any time under
Section 8.3, the Company will remain liable for all amounts due on the Notes at
the time of acceleration resulting from such Event of Default in excess of the
amount of U.S. Legal Tender and Government Securities deposited with the
Trustee pursuant to this Section 8.1 at the time of such acceleration.

Section 8.2 Termination of Obligations Upon Cancellation of the
Notes.

In addition to the Company's rights under Section 8.1, the
Company may terminate all of their respective obligations under this Indenture
(subject to Section 8.3) when:

(a) either (i) all Notes theretofore authenticated and
delivered (other than Notes which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 2.7) have been delivered to
the Trustee for cancellation or (ii) all such Notes not theretofore delivered
to the Trustee for cancellation have become due and payable or will become due
and payable within one year and the Company has irrevocably deposited or caused
to be deposited in trust for the benefit of the Holders of the Notes with the
Trustee U.S. Legal Tender or Government Securities in an amount sufficient to
pay and discharge the entire indebtedness of the Notes, not theretofore
delivered to the Trustee for cancellation, including principal of, premium if
any, and interest on the Notes through the Stated Maturity and with respect to
this clause (ii) no default or Event of Default shall have occurred or be
continuing on the date of such deposit of trust funds may remain subject to
bankruptcy or insolvency laws) after the date of such deposit, and such deposit
will not result in a Default or Event of Default under this Indenture or a
breach or violation of, or constitute a default under, any other instrument to
which the Company, or any subsidiary of the Company or is a party or by which
it or its property is bound;

(b) the Company has paid or caused to be paid all sums
payable hereunder by the Company; and

(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent specified herein relating to the satisfaction and discharge of this
Indenture have been complied with.

Section 8.3 Survival of Certain Obligations.

Notwithstanding the satisfaction and discharge of this Indenture
and of the Notes referred to in Section 8.1 or 8.2, the respective obligations
of the Company and the Trustee under Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.7,
2.11, 2.12, Article III, 4.1, 4.2, 4.6, 6.8, 7.7, 7.8, 8.5, 8.7, and this
Section 8.3 shall survive until the Notes are no longer outstanding, and
thereafter the obligations of the Company and the Trustee under Sections 6.8,
7.7, 7.8, 8.5, 8.6, 8.7 and this Section 8.3 shall survive. Nothing contained
in this Article VIII shall abrogate any of the obligations or duties of the
Trustee under this Indenture.

Section 8.4 Acknowledgment of Discharge by Trustee.

After (a) the conditions of Section 8.1 or 8.2 have been
satisfied, (b) the Company has paid or caused to be paid all other sums payable
hereunder by the Company and (c) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent referred to in clause (a) above, relating to the
satisfaction and discharge of this Indenture have been complied with, the
Trustee

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upon request shall acknowledge in writing the discharge of each of the
Company's obligations under this Indenture except for those surviving
obligations specified in Section 8.3.

Section 8.5 Application of Trust Assets.

The Trustee shall hold any U.S. Legal Tender or Government
Securities deposited with it in the irrevocable trust established pursuant to
Section 8.1 or 8.2. The Trustee shall apply the deposited U.S. Legal Tender
or Government Securities, together with earnings thereon, through the Paying
Agent (other than the Company or any Subsidiary of the Company), in accordance
with this Indenture and the terms of the irrevocable trust agreement, to the
payment of principal of and interest on the Notes.

Section 8.6 Repayment to the Company.

Upon termination of the trust established pursuant to Section 8.1
or 8.2, the Trustee and the Paying Agent shall promptly pay to the Company upon
request any excess U.S. Legal Tender or Government Securities held by them.

The Trustee and the Paying Agent shall pay to the Company upon
request, and, if applicable, in accordance with the irrevocable trust
established pursuant to Section 8.1 or 8.2, any U.S. Legal Tender or Government
Securities held by them for the payment of principal of or interest on the
Notes that remain unclaimed for two years after the date on which such payment
shall have become due; provided, however, that the Trustee or such Paying
Agent, before being required to make any such repayment, may, at the expense of
the Company, cause to be published once, in a newspaper customarily published
on each Business Day and of general circulation in the Borough of Manhattan,
The City of New York, notice that such money remains unclaimed and that, after
a date specified therein, which shall not be less than 30 days from the date of
such publication, any unclaimed balance of such money then remaining shall be
repaid to the Company. After payment to the Company, Holders entitled to such
payment must look to the Company for such payment as general creditors unless
an applicable abandoned property law designates another Person.

Section 8.7 Reinstatement.

If the Trustee or Paying Agent is unable to apply any U.S. Legal
Tender or Government securities in accordance with Section 8.1 or 8.2 by reason
of any legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the Notes shall
be revived and reinstated as though no deposit had occurred pursuant to Section
8.1 or 8.2 until such time as the Trustee or Paying Agent is permitted to apply
all such U.S. Legal Tender or Government Securities in accordance with Section
8.1 or 8.2; provided, however, that if the Company has made any payment of
principal of or interest on any Notes because of the reinstatement of the
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the U.S. Legal Tender or Government
Securities held by the Trustee or Paying Agent.

ARTICLE IX

AMENDMENTS, SUPPLEMENTS AND WAIVERS

Section 9.1 Supplemental Indentures Without Consent of Holders.

Without the consent of any Holder, the Company, when authorized
by Board Resolutions, and the Trustee, at any time and from time to time, may
enter into one or more indentures supplemental hereto or amended Security
Documents, in form satisfactory, to the Trustee, for any of the following
purposes:

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(a) to cure any ambiguity, defect, or inconsistency, or to
make any other provisions with respect to matters or questions arising under
this Indenture or the Security Documents which shall not be inconsistent with
the provisions of this Indenture or the Security Documents, provided such
action pursuant to this clause (a) shall not adversely affect the interests of
any Holder in any respect;

(b) to add to the covenants of the Company for the benefit
of the Holders, or to surrender any right or power herein conferred upon the
Company or to make any other change that does not adversely affect the rights
of any Holder, provided, that the Company has delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel stating that such change does
not adversely affect the rights of any Holder;

(d) to evidence the succession of another Person to the
Company, and the assumption by any such successor of the obligations of the
Company, herein and in the Notes in accordance with Article V; or

(e) to comply with the TIA.

Section 9.2 Amendments, Supplemental Indentures and Waivers
with Consent of Holders.

Subject to Section 6.8, with the consent of the Holders of not
less than a majority in aggregate principal amount of then outstanding Notes,
by written act of said Holders delivered to the Company and the Trustee, the
Company, when authorized by Board Resolutions, and the Trustee may amend or
supplement this Indenture or the Notes or enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or the Notes
or of modifying in any manner the rights of the Holders under this Indenture or
the Notes. Notwithstanding any of the above, however, no such amendment,
supplemental indenture or waiver shall, without the consent of the Holder of
each outstanding Note affected thereby:

(a) reduce the percentage of Notes whose Holders must
consent to an amendment, supplement or waiver of any provision of this
Indenture or the Notes;

(b) reduce the rate or extend the time for payment of
interest on any Note;

(c) reduce the principal amount of any note, reduce the
Change of Control Purchase Price, the Offer Price, or the Redemption Price;

(d) change the Stated Maturity or the Change of Control
Payment Date, or the Purchase Date of any Note;

(e) alter the redemption provisions of Article III or
paragraph 5 of the Notes or the terms or provisions of Section 4.16 or the
terms or provisions of Article XI, in any case, in a manner adverse to any
holder;

(f) make any changes in the provisions concerning waivers
of Defaults or Events of Default by Holders of the Notes (except to increase
any required percentage or to provide that certain other provisions hereof
cannot be modified or waived without the consent of the Holders of each
outstanding Note affected thereby) or the rights of holders to recover the
principal or premium of, interest on, or redemption payment with respect to,
any Note;

(g) make any changes in Section 6.4, 6.7 or this third
sentence of this Section 9.2; or

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(h) make the principal of, or the interest on, any Note
payable with anything or in any manner other than as provided for in this
Indenture (including changing the place of payment where, or the coin or
currency in which, any Note or any premium or the interest thereon is payable)
and the Notes as in effect on the date hereof.

It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.

After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.

After an amendment, supplement or waiver under this Section 9.2
or 9.4 becomes effective, it shall bind each Holder.

In connection with any amendment, supplement or waiver under this
Article IX, the Company may, but shall not be obligated to, offer to any Holder
who consents to such amendment, supplement or waiver, or to all Holders,
consideration for such Holder's consent to such amendment, supplement or
waiver.

Section 9.3 INTENTIONALLY OMITTED.

Section 9.4 Revocation and Effect of Consents.

Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt
as the consenting Holder's Note, even if notation of the consent is not made on
any Note. However, any such Holder or subsequent Holder may revoke the consent
as to his Note or portion of his Note by written notice to the Company or the
Person designated by the Company as the Person to whom consents should be sent
if such revocation is received by the Company or such Person before the date on
which the Trustee receives an Officers' Certificate certifying that the Holders
of the requisite principal amount of Notes have consented (and not theretofore
revoked such consent) to the amendment, supplement or waiver.

The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any
amendment, supplement or waiver, which record date shall be the date so fixed
by the Company notwithstanding the provisions of the TIA. If a record date is
fixed, then notwithstanding the last sentence of the immediately preceding
paragraph, those Persons who were Holders at such record date, and only those
Persons (or their duly designated proxies), shall be entitled to revoke any
consent previously given, whether or not such persons continue to be Holders
after such record date. No such consent shall be valid or effective for more
than 90 days after such record date.

After an amendment, supplement or waiver becomes effective, it
shall bind every Noteholder, unless it makes a change described in any of
clauses (a) through (h) of Section 9.2, in which case, the amendment,
supplement or waiver shall bind only each Holder of a Note who has consented to
it and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note; provided, that any such waiver
shall not impair or affect the right of any Holder to receive payment of
principal and premium of and interest on a Note, on or after the respective
dates set for such amounts to become due and payable expressed in such Note, or
to bring suit for the enforcement of any such payment on or after such
respective dates.

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Section 9.5 Notation on or Exchange of Notes.

If an amendment, supplement or waiver changes the terms of a
Note, the Trustee may require the Holder of the Note to deliver it to the
Trustee or require the Holder to put an appropriate notation on the Note. The
Trustee may place an appropriate notation on the Note about the changed terms
and return it to the Holder. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for the Note shall issue and the Trustee
shall authenticate a new Note that reflects the changed terms. Any failure to
make the appropriate notation or to issue a new Note shall not affect the
validity of such amendment, supplement or waiver.

Section 9.6 Trustee to Sign Amendments, Etc.

The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article IX; provided, that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Officer's Certificate and an Opinion of Counsel
stating that the execution of any amendment, supplement or waiver authorized
pursuant to this Article IX is authorized or permitted by this Indenture and
that all conditions precedent have been complied with.

ARTICLE X

MEETINGS OF NOTEHOLDERS

Section 10.1 Purposes for Which Meetings May Be Called.

A meeting of Noteholders may be called at any time and from time
to time pursuant to the provisions of this Article X for any of the following
purposes:

(a) to give any notice to the Company or to the Trustee,
or to give any directions to the Trustee, or to waive or to consent to the
waiving of any Default or Event of Default hereunder and its consequences, or
to take any other action authorized to be taken by Noteholders pursuant to any
of the provisions of Article VI;

(b) to remove the Trustee or appoint a successor Trustee
pursuant to the provisions of Article VII;

(d) to take any other action (i) authorized to be taken by
or on behalf of the Holder or Holders of any specified aggregate principal
amount of the Notes under any other provision of this Indenture, or authorized
or permitted by law or (ii) which the Trustee deems necessary or appropriate in
connection with the administration of this Indenture.

Section 10.2 Manner of Calling Meetings.

The Trustee may at any time call a meeting of Noteholders to take
any action specified in Section 10.1, to be held at such time and at such place
in the City of New York, New York or elsewhere as the Trustee shall determine.
Notice of every meeting of Noteholders, setting forth the time and place of
such meeting and in general terms the action proposed to be taken at such
meeting, shall be mailed by the Trustee, first-class

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postage prepaid, to the Company and to the Holders at their last addresses as
they shall appear on the registration books of the Registrar, not less than 10
nor more than 60 days prior to the date fixed for a meeting.

Any meeting of Noteholders shall be valid without notice if the
Holders of all Notes then outstanding are present in Person or by proxy, or if
notice is waived before or after the meeting by the Holders of all Notes
outstanding, and if the company and the Trustee are either present by duly
authorized representatives or have before or after the meeting, waived notice.

Section 10.3 Call of Meetings by Company or Holders.

In case at any time the Company, pursuant to a Board Resolution,
or the Holders of not less than a majority of the aggregate principal amount of
the Notes then outstanding, shall have requested the Trustee to call a meeting
of Noteholders to take any action specified in Section 10.1, by written request
setting forth in reasonable detail the action proposed to be taken at the
meeting, and the Trustee shall not have mailed the notice of such meeting
within 20 days after receipt of such request, then the Company or the Holders
of Notes in the amount above specified may determine the time and place in the
City of New York, New York or elsewhere for such meeting and may call such
meeting for the purpose of taking such action, by mailing or causing to be
mailed notice thereof as provided in Section 10.2, or by causing notice thereof
to be published at least once in each of two successive calendar weeks (on any
Business Day during such week) in a newspaper or newspapers printed in the
English language, customarily published at least five days a week of a general
circulation in the City of New York, State of New York, the first such
publication to be not less than 10 nor more than 60 days prior to the date
fixed for the meeting.

Section 10.4 Who May Attend and Vote at Meetings.

To be entitled to vote at any meeting of Noteholders, a Person
shall (a) be a registered Holder of one or more Notes, or (b) be a Person
appointed by an instrument in writing as proxy for the registered Holder or
Holders of Notes. The only Persons who shall be entitled to be present or to
speak at any meeting of Noteholders shall be the Persons entitled to vote at
such meeting and their counsel and any representatives of the Trustee and its
counsel and any representatives of the Company and its counsel.

Section 10.5 Regulations May Be Made by Trustee; Conduct of the
Meeting; Voting Rights; Adjournment.

Notwithstanding any other provision of this Indenture, the
Trustee may make such reasonable regulations as it may deem advisable for any
action by or any meeting of Noteholders, in regard to proof of the holding of
Notes and of the appointment of proxies, and in regard to the appointment and
duties of inspectors of votes, and submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall think appropriate. If the
Company has not already set a record date and time for determining the Holders
of record of Notes entitled to vote at such meeting, such regulations may do
so, and in either case those and only those Persons who are Holders of Notes at
the record date and time so fixed, or their proxies, shall be entitled to vote
at such meeting whether or not they shall be such Holders at the time of the
meeting.

The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been called by
the Company or by Noteholders as provided in Section 10.3, in which case the
Company or the Noteholders calling the meeting, as the case may be, shall in
like manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by vote of the Holders of a majority
in principal amount of the Notes represented at the meeting and entitled to
vote.

At any meeting each Noteholder or proxy shall be entitled to one
vote for each $1,000 principal amount of Notes held or represented by him;
provided, however, that no vote shall be cast or counted at any

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meeting in respect of any Notes challenged as not outstanding and ruled by the
chairman of the meeting to be not then outstanding. The chairman of the
meeting shall have no right to vote other than by virtue of Notes held by him
or instruments in writing as aforesaid duly designating him as the proxy to
vote on behalf of other Noteholders. Any meeting of Noteholders duly called
pursuant to the provisions of Section 10.2 or Section 10.3 may be adjourned
from time to time by vote of the Holder or Holders of a majority in aggregate
principal amount of the Notes represented at the meeting and entitled to vote,
and the meeting may be held as so adjourned without further notice.

Section 10.6 Voting at the Meeting and Record to Be Kept.

The vote upon any resolution submitted to any meeting of
Noteholders shall be by written ballots on which shall be subscribed the
signatures of the Holders of Notes or of their representatives by proxy and the
principal amount of the Notes voted by the ballot. The permanent chairman of
the meeting shall appoint two inspectors of votes, who shall count all votes
cast at the meeting for or against any resolution and who shall make and file
with the secretary of the meeting their verified written reports in duplicate
of all votes cast at the meeting. A record in duplicate of the proceedings of
each meeting of Noteholders shall be prepared by the secretary of the meeting
and there shall be attached to such record the original reports of the
inspectors of votes on any vote by ballot taken thereat and affidavits by one
or more Persons having knowledge of the facts, setting forth a copy of the
notice of the meeting and showing that such notice was mailed as provided in
Section 10.2 or published as provided in Section 10.3 The record shall be
signed and verified by the affidavits of the permanent chairman and the
secretary of the meeting and one of the duplicates shall be delivered to the
Company and the other to the Trustee to be preserved by the Trustee, the latter
to have attached thereto the ballots voted at the meeting.

Any record so signed and verified shall be conclusive evidence of
the matters therein stated.

Section 10.7 Exercise of Rights of Trustee or Holders May Not Be
Hindered or Delayed by Call of Meeting.

Nothing contained in this Article X shall be deemed or construed
to authorize or permit, by reason of any call of a meeting of Noteholders or
any rights expressly or impliedly conferred hereunder to make such call, any
hindrance or delay in the exercise of any right or rights conferred upon or
reserved to the Trustee or to the Noteholders under any of the provisions of
this Indenture or of the Notes.

ARTICLE XI

RIGHT TO REQUIRE REPURCHASE

Section 11.1 Repurchase of Notes at Option of the Holder Upon
Change of Control.

(a) In the event that a Change of Control occurs, each
Holder of Notes shall have the right, at such Holder's option, to require the
Company to repurchase all or any part of such Holder's Notes (provided that the
principal amount of such Notes at maturity must be $1,000 or an integral
multiple thereof) on the date that is no later than 40 Business Days after the
occurrence of a Change of Control (the "Change of Control Payment Date"), at a
cash purchase price (the "Change of Control Purchase Price") equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, to and
including the Change of Control Payment Date.

(b) Within five Business Days after each date upon which
the Company knows of the occurrence of a Change of Control requiring the
Company to make a Change of Control Offer pursuant to this Section 11.1, the
Company shall so notify the Trustee. Within 10 Business Days after the Company
knows of the occurrence of a Change of Control, the Company shall make an
irrevocable unconditional offer (a "Change of

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Control Offer") to all Holders to purchase for cash all of the Notes pursuant
to the offer described in clause (c) of this Section 11.1 at the Change of
Control Purchase Price.

(c) Notice of a Change of Control Offer shall be sent, at
least 20 Business Days prior to the Final Change of Control Put Date (as
defined below), by first class mail, by the Company to each Holder at its
registered address, with a copy to the Trustee. The notice to the Holders
shall contain all instructions and materials required by applicable law and
shall contain or make available to Holders other information material to such
Holders' decision to tender Notes pursuant to the Change of Control Offer. The
notice, which shall govern the terms of the offer, shall state:

(i) that the Change of Control Offer is being
made pursuant to this Section 11.1 and that all Notes or portions
thereof tendered will be accepted for payment;

(ii) the Change of Control Purchase Price
(including the amount of accrued and unpaid interest), the Change of
Control Payment Date and the Final Change of Control Put Date (as
defined below);

(iii) that any Note, or portion thereof not
tendered or accepted for payment will continue to accrue interest;

(iv) that, unless the Company defaults in
depositing U.S. Legal Tender with the Paying Agent in accordance with
the last paragraph of this clause (c), or payment is otherwise
prevented, any Note or portion thereof accepted for payment pursuant to
the Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date;

(v) that Holders electing to have a Note or
portion thereof purchased pursuant to a Change of Control Offer will be
required to surrender the Note, with the form entitled "Option of Holder
to Elect Purchase" on the reverse of the Note completed, to the Paying
Agent (which may not for purposes of this Section 11.1, notwithstanding
anything in this Indenture to the contrary, be the Company or any
Affiliate of the Company) at the address specified in the notice prior
to the close of business on the third Business Day prior to the Change
of Control Payment Date (the "Final Change of Control Put Date");

(vi) that Holders will be entitled to withdraw
their election, in whole or in part, if the Paying Agent receives, prior
to the close of business on the Final Change of Control Put Date, a
telegram, telex, facsimile transmission or letter setting forth the name
of the Holder, the principal amount of the Notes the Holder is
withdrawing and a statement that such Holder is withdrawing his election
to have such principal amount of Notes purchased; and

(vii) a brief description of the events
resulting in such Change of Control.

Any such Change of Control Offer shall comply with all applicable
provisions of Federal and state laws, including those regulating tender offers,
if applicable, and any provisions of this Indenture which conflict with such
laws shall be deemed to be superseded by the provisions of such laws. On or
before the Change of Control Payment Date, the Company shall (i) accept for
payment Notes or portions thereof properly tendered pursuant to the Change of
Control Offer prior to the close of business on the Final Change of Control Put
Date, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay
the Change of Control Purchase Price (together with accrued and unpaid
interest) of all Notes so tendered and (iii) deliver to the Trustee Notes so
accepted together with an Officers' Certificate listing the Notes or portions
thereof being purchased by the Company. The Paying Agent shall promptly mail
to the Holders of Notes so accepted payment in an amount equal to the Change of
Control Purchase Price (together with accrued and unpaid interest). The
Trustee shall promptly cancel all Notes accepted by the Company pursuant to the
Change of Control Offer and delivered to it,

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<PAGE> 59
and authenticate and mail or deliver to the Holders of Notes so accepted a new
Note equal in principal amount to any unpurchased portion of the Note
surrendered. Any Notes not so accepted shall be promptly mailed or delivered
by the Company to the Holder thereof. The Company shall publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.

ARTICLE XII

SECURITY

Section 12.1 Security Documents.

Each Holder, by accepting a Note, agrees to all of the terms and
provisions of the Security Documents. The due and punctual payment of the
principal of, interest on and premium (if any) on the Notes when and as the
same shall be due and payable, whether on an interest payment date, at a
Maturity Date, by acceleration, call for redemption or otherwise, and interest
on the overdue principal and interest, if any, of the Notes and payment and
performance of all other obligations of the Company to the Holders or the
Trustee under this Indenture and the Notes, according to the terms hereunder or
thereunder, shall be secured as provided in the Security Documents. The
Company shall make, or cause its Subsidiaries to make, an assignment of their
right, title and interest in and to the Collateral to the Trustee as required
by and in accordance with the Security Documents.

Section 12.2 INTENTIONALLY OMITTED.

Section 12.3 Authorization of Actions to be Taken by the Trustee
Under the Security Documents.

The Trustee may, in its sole discretion and without the consent
of the Holders, but subject to Article VII hereof, take all actions it deems
necessary or appropriate in order to (a) enforce or effect the Security
Documents and (b) collect and receive any and all amounts payable in respect to
the obligations of the Company hereunder in accordance with and to the extent
provided in the Security Documents. Such actions shall include, but not be
limited to, advising, instructing or otherwise directing the Disbursement Agent
in accordance with the Security Documents in connection with enforcing or
effecting any term or provision of the Disbursement Agreement. Subject to the
provisions of the Security Documents, the Trustee shall have the power to
institute and to maintain such suits and proceedings as it may deem expedient
to prevent any impairment of the Collateral by any acts which may be unlawful
or in violation of the Security Documents or this Indenture, and such suits and
proceedings as the Trustee may deem expedient to preserve or protect its
interests and the interests of the Holders in the Collateral (including power
to institute and maintain suits or proceedings to restrain the enforcement of
or compliance with any legislative or other governmental enactment, rule or
order that may be unconstitutional or otherwise invalid if the enforcement of,
or compliance with, such enactment, rule or order would impair the security
hereunder or be prejudicial to the interests of the Holders or of the Trustee).

Section 12.4 Authorization of Receipt of Funds by the Trustee
Under the Security Documents.

The Trustee is authorized to receive any funds for the benefit of
Holders distributed under the Security Documents, and to make further
distributions of such funds to the Holders according to the provisions of this
Indenture.

Section 12.5 Termination of Security Interest.

54
<PAGE> 60
Upon the payment in full of all obligations of the Company under
this Indenture and the Notes, all liens, security interests and encumbrances
created by the Security Documents shall be automatically released and
discharged, and the Trustee shall, at the request of the Company, deliver a
certificate to the Disbursement Agent stating that such obligations have been
paid in full and that all liens, security interests, and encumbrances created
by the Security Documents or this Indenture have been released and discharged.

Section 12.6 Release of Collateral.

(a) Collateral may be released from the security interest
created by the Security Documents, and shall thereafter cease to be
"Collateral," in accordance with the provisions of the Security Documents.

(b) Shares of TransTexas common stock may be released from
the security interest created by the Pledge Agreement as follows:

(1) Up to 5,000,000 shares of pledged
TransTexas common stock (subject to adjustment upon the occurrence of
certain events, including subdivision, combinations and
reclassifications, affecting TransTexas common stock) owned by the
Company may be released from the security interest created by the Pledge
Agreement if (A) such shares are sold for cash and the Net Proceeds are
immediately deposited in the Collateral Account or (B) if the Company
issues and sells Preferred Stock that is exchangeable for TransTexas
common stock and the Net Proceeds of such sale are deposited
concurrently in the Collateral Account, provided such Net Proceeds are
at least equal to the Market Value, as of the date of such release, of
the shares of TransTexas common stock that are released. Any such
shares sold by the Company shall be sold at prices no less favorable to
the Company than those that could be obtained in arm's-length
transactions with unrelated persons.

(2) All of the pledged shares of TransTexas
common stock owned by the Company shall be released from the security
interest created by the Pledge Agreements upon the occurrence of a
Change of Control on the day after the Change of Control Payment Date if
a Change of Control Offer has been consummated in accordance with the
Indenture.

(c) The release of any Collateral from the terms hereof
and of the Security Documents will not be deemed to impair the security under
this Indenture in contravention of the provisions hereof if and to the extent
the Collateral is released pursuant to the Security Documents or this Section
12.6. The Trustee and each of the Holders acknowledge that a release of
Collateral in accordance with the terms of the Security Documents or this
Section 12.6 will not be deemed for any purpose to be an impairment of the
security under this Indenture. Notwithstanding any provision of this Indenture
or the Security Documents to the contrary, to the extent applicable, the
Company shall not be required to comply with TIA Sections 314(c) and (d).

(d) Any Collateral that may be released from the security
interest created by any of the Security Documents pursuant to this Section 12.6
or the Security Documents (other than disbursements from the Collateral Account
that are made in accordance with the Disbursement Agreement) shall be released
by the Trustee upon (i) the Trustee's receipt of written notice from the
Company, in the case of Company Collateral, specifying the Collateral to be
released and the circumstances for the release (including the provision of the
Indenture or Security Document pursuant to which the Collateral is to be
released), (ii) compliance by the Company with Section 13.4(a), and (iii) if
one of the conditions for the release of any Collateral is that any funds be
deposited in the Collateral Account, such funds shall have been deposited in
the Collateral Account concurrently with the Trustee's release of such
Collateral.

(e) Notwithstanding the foregoing, no Collateral may be
released from the security interest created by the Security Documents if at the
time of such proposed release, a Default or Event of Default has occurred and
is continuing or would occur as a result of such release. Any shares of
TransTexas common

55
<PAGE> 61
stock that is released pursuant to this Section 12.6 in connection with a sale
of such stock shall be sold for cash at prices no less favorable to the seller
than those that could be obtained in arm's-length transactions with unrelated
persons.

(f) The Company shall give written notice to the holders
of the Notes within 10 days of any release of pledged shares of TransTexas
common stock. Such notice shall set forth the date of such release, the number
of shares released, and the provision of the Indenture pursuant to which such
shares were released.

ARTICLE XIII

MISCELLANEOUS

Section 13.1 TIA.

If any provision of this Indenture limits, qualifies, or
conflicts with the duties imposed by operation of the TIA, the imposed duties
of this Indenture shall control. This Indenture will not be qualified under
the TIA.

Section 13.2 Notices.

Any notices or other communications to the Company or the Trustee
required or permitted hereunder shall be in writing, and shall be sufficiently
given if made by hand delivery, by telex, by telecopier or registered or
certified mail, postage prepaid, return receipt requested, addressed as
follows:

if to the Company:

TransAmerica Refining Corporation
1300 East North Belt, Suite 320
Houston, Texas 77060
Attention: Ed Donahue

if to the Trustee:

First Union National Bank
40 Broad Street
Suite 550
New York, New York 10004
Attention: Corporate Trust Administration

56
<PAGE> 62
with a copy to:

Edwards & Angel
750 Main Street
Hartford, Connecticut 06103-2715
Attention: Mr. Justin M. Sullivan

The Company or the Trustee by notice to each other party may
designate additional or different addresses as shall be furnished in writing by
such party. Any notice or communication to the Company or the Trustee shall be
deemed to have been given or made as of the date so delivered, if personally
delivered; when answered back, if telexed; when receipt is acknowledged, if
telecopied; and five Business Days after mailing if sent by registered or
certified mail, postage prepaid (except that a notice of change of address
shall not be deemed to have been given until actually received by the
addressee).

Any notice or communication mailed to a Noteholder shall be
mailed to him by first class mail or other equivalent means at his address as
it appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.

Failure to mail a notice or communication to a Noteholder or any
defect in it shall not affect its sufficiency with respect to other
Noteholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.

Section 13.3 INTENTIONALLY OMITTED.

Section 13.4 Certificate and Opinion as to Conditions Precedent.

(a) Upon any request or application by the Company to the
Trustee to take any action under this Indenture, the Company shall furnish to
the Trustee:

(1) an Officers' Certificate (in form and substance
reasonably satisfactory to the Trustee) stating that, in the opinion of the
officers signing such certificate, all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with;
and

(2) an Opinion of Counsel (in form and substance
reasonably satisfactory to the Trustee) stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.

(b) If any action taken by the Trustee under this
Indenture is subject to any condition subsequent, the Company shall, within 5
Business Days after all conditions subsequent for such action have been
satisfied, furnish to the Trustee:

(1) an Officers' Certificate (in form and substance
reasonably satisfactory to the Trustee) stating that, in the opinion of the
officers signing such certificate, all conditions subsequent provided for in
this Indenture relating to the action have been complied with; and

(2) an Opinion of Counsel (in form and substance
reasonably satisfactory to the Trustee) stating that, in the opinion of such
counsel, all such conditions subsequent have been complied with.

Section 13.5 Statements Required in Certificate or Opinion.

Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:

57
<PAGE> 63
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;

(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based:

(c) a statement that, in the opinion of such Person, he
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and

(d) a statement as to whether or not, in the opinion of
each such Person, such condition or covenant has been complied with; provided,
however, that with respect to matters of fact an Opinion of Counsel may rely on
an Officers' Certificate or certificates of public officials.

Section 13.6 Rules by Trustee, Paying Agent, Registrar.

The Trustee may make reasonable rules for action by or at a
meeting of Noteholders. The Paying Agent or Registrar may make reasonable
rules for its functions.

Section 13.7 Legal Holidays.

A "Legal Holiday" used with respect to a particular place of
payment is a Saturday, a Sunday or a day on which banking institutions at such
place are not required to be open. If a payment date is a Legal Holiday at
such place, payment may be made at such place on the next succeeding day that
is not a Legal Holiday, and no interest shall accrue for the intervening
period.

Section 13.8 Governing Law.

THIS INDENTURE AND THE NOTES SHALL BE CONSTRUED IN ACCORDANCE
WITH, AND THIS INDENTURE AND THE TRANSACTIONS DESCRIBED HEREIN SHALL BE
GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW, WITH RESPECT TO ALL ISSUES, INCLUDING (WITHOUT LIMITATION)
ISSUES OF VALIDITY, INTERPRETATION, EFFECT, PERFORMANCE AND REMEDIES. THE
COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY
FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN
RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
INDENTURE AND THE NOTES, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF
ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID
COURTS. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION WHICH
THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH
SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR
ANY NOTEHOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY
OTHER JURISDICTION.

58
<PAGE> 64
Section 13.9 No Adverse Interpretation of Other Agreements.

This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company or any of its Subsidiaries. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.

Section 13.10 No Recourse against Others.

A director, officer, employee, stockholder or incorporator, as
such, of the Company shall not have any liability for any obligations of the
Company under the Notes or this Indenture or for any claim based on, in respect
of or by reason of such obligations or their creations. Each Noteholder, by
accepting a Note, waives and releases all such liability. Such waiver and
release are part of the consideration for the issuance of the Notes.

Section 13.11 Successors.

All agreements of the Company in this Indenture and the Notes
shall bind its successor. All agreements of the Trustee in this Indenture
shall bind its successor.

Section 13.12 Duplicate Originals.

All parties may sign any number of copies or counterparts of this
Indenture. Each signed copy or counterpart shall be an original, but all of
them together shall represent the same agreement.

Section 13.13 Severability.

In case any one or more of the provisions in this Indenture or in
the Notes shall be held invalid, illegal or unenforceable, in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.

Section 13.14 Table of Contents, Headings, Etc.

The Table of Contents, Cross-Reference Table and headings of the
Articles and the Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.

59
<PAGE> 65
SIGNATURES

IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed as of the date first written above.

TRANSAMERICAN REFINING CORPORATION

By: /s/ Ed Donahue
------------------------------------
Authorized Signatory

FIRST UNION NATIONAL BANK, as Trustee

By: /s/ W. Jeffrey Kramer
------------------------------------
Authorized Signatory
<PAGE> 66

Exhibit A

[Form of Senior Secured Note]

TRANSAMERICAN REFINING CORPORATION

SENIOR SECURED NOTE DUE MARCH 14, 1998

No. $

TransAmerican Refining Corporation, a Texas corporation
(hereinafter called the "Company", which term includes any successor
corporation under the Indenture hereinafter referred to), for value received,
hereby promises to pay to _______________________, or registered assigns, the
principal sum of _________________ Dollars, on March 14, 1998.

Interest Payment Dates: September 14, 1997 and the Maturity Date

Record Dates: September 1, 1997 and March 1, 1998

Reference is made to the further provisions of this Note on the
reverse side, which will, for all purposes, have the same effect as if set
forth at this place.

IN WITNESS WHEREOF, the Company has caused this Instrument to be
duly executed under its corporate seal.

Dated:

TRANSAMERICAN REFINING CORPORATION

By:
--------------------------------
Authorized Signatory

A-1
<PAGE> 67
TRUSTEE'S CERTIFICATE OF AUTHENTICATION

This is one of the Notes described in the within-mentioned
Indenture.

FIRST UNION NATIONAL BANK,
as Trustee

By:
----------------------------
Authorized Signatory

Dated:

A-2
<PAGE> 68
TRANSAMERICAN REFINING CORPORATION

SENIOR SECURED NOTE DUE MARCH 14, 1998

1. Interest.

TransAmerican Refining Corporation, a Texas corporation (the
"Company"), promises to pay interest on the principal amount of the Notes at a
rate of 15.0% per annum (subject to adjustment). To the extent it is lawful,
the Company promises to pay interest on any interest payment due but unpaid on
such principal amount at a rate of 15.0% per annum (subject to adjustment)
compounded semiannually.

The Company will pay interest on September 14, 1997 and at the
Maturity Date (each, an "Interest Payment Date"). Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from March 14, 1997. Interest will be computed on the
basis of a 360-day year consisting of twelve 30-day months.

2. Method of Payment.

The Company shall pay interest on the Notes (except defaulted
interest) to the Persons who are registered Holders at the close of business on
the Record Date immediately preceding the Interest Payment Date. Holders must
surrender Notes to a Paying Agent to collect principal payments. Except as
provided below, the Company shall pay in New York principal and interest in
such coin or currency of the United States of America as at the time of payment
shall be legal tender for payment of public and private debts ("U.S. Legal
Tender"). The Company may pay principal and interest by wire transfer of
Federal funds, or interest by its check payable in such U.S. Legal Tender.
The Company may deliver any such interest payment to the Paying Agent.

3. Paying Agent and Registrar.

Initially, First Union National Bank, (the "Trustee") will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-Registrar without notice to the Holders. The Company or any of its
Subsidiaries may, subject to certain exceptions, act as Paying Agent, Registrar
or co-Registrar.

4. Indenture.

The Company issued the Notes under an Indenture, dated as of
March 14, 1997 (the "Indenture"), between the Company and the Trustee.
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the TIA, as in effect on
the date of the Indenture. The Notes are subject to all such terms, and
Holders of Notes are referred to the Indenture and said Act for a statement of
them. The Notes are senior obligations of the Company limited in aggregate
principal amount to $36,000,000.

5. Redemption.

The Notes may be redeemed at the election of the Company, as a
whole, at any time on and after July 1, 1997, at 100% of the principal amount
thereof, together with any accrued but unpaid interest to the Redemption Date.

The Company shall redeem the entire principal amount of the Notes
on a date (the "Redemption Date") that is not more than 7 days after the date
of completion of an Equity Exchange Offer (as such term is defined

A-3
<PAGE> 69
in the Mortgage Notes Indenture), or other exchange offer, tender offer or
other form of refinancing of the Mortgage Notes. Such redemption shall be made
at 100% of the principal amount thereof, plus accrued interest to the
Redemption Date.

6. Notice of Redemption.

Notice of redemption will be given at least 7 days but not more
than 45 days before the Redemption Date to each Holder of Notes to be redeemed,
by first class mail or by telecopy, his registered address.

Except as set forth in the Indenture, from and after any
Redemption Date, if monies for the redemption of the Notes called for
redemption shall have been deposited with the Paying Agent on such Redemption
Date the Notes called for redemption will cease to bear interest and the only
right of the Holders of such Notes will be to receive payment of the Redemption
Price and any accrued and unpaid interest to the Redemption Date.

7. Denominations; Transfer; Exchange.

The Notes are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder may
register the transfer of, or exchange Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the
transfer of or exchange any Notes selected for redemption.

8. Persons Deemed Owners.

The registered Holder of a Note may be treated as the owner of it
for all purposes.

9. Unclaimed Money.

If money for the payment of principal or interest remains
unclaimed for two years, the Trustee and the Paying Agent(s) will pay the money
back to the Company at its written request. After that, all liability of the
Trustee and such Paying Agent(s) with respect to such money shall cease.

10. Discharge Prior to Redemption or Maturity.

If the Company at any time deposits into an irrevocable trust
with the Trustee U.S. Legal Tender or Government Securities sufficient to pay
the principal of and interest on the Notes to redemption or maturity and
complies with the other provisions of the Indenture relating thereto, the
Company will be discharged from certain provisions of the Indenture and the
Notes (including the financial covenants, but excluding its obligation to pay
the principal of and interest on the Notes).

11. Amendment; Supplement; Waiver.

Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Notes then outstanding, and any
existing Default or Event of Default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Notes then outstanding. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture or the Notes
to, among other things, cure any ambiguity, defect or inconsistency, or make
any other change that does not adversely affect the rights of any Holder of a
Note.

A-4
<PAGE> 70
12. Restrictive Covenants.

The Indenture imposes certain limitations on the ability of the
Company, and its Subsidiaries to, among other things, incur additional Debt or
issue Disqualified Capital Stock, make payments in respect of its Capital Stock
enter into transactions with Related Persons, incur Liens, sell assets, change
the nature of its business, merge or consolidate with any other Person and
sell, lease, transfer or otherwise dispose of substantially all of its
properties or assets. The Indenture requires the Company to repurchase Notes
under certain circumstances with the Net Cash Proceeds of certain Asset Sales.
The limitations are subject to a number of important qualifications and
exceptions. The Company must report to the Trustee on compliance with such
limitations on a quarterly basis.

13. Change of Control.

In the event there shall occur any Change of Control, each Holder
of Notes shall have the right, at such Holder's option but subject to the
limitations and conditions set forth in the Indenture, to require the Company
to purchase on the Change of Control Payment Date in the manner specified in
the Indenture, all or any part (in integral multiples of $1,000) of such
Holder's Notes at a Change of Control Purchase Price equal to 101% of the
principal amount thereof, together with accrued and unpaid interest, if any, to
the Change of Control Payment Date.

14. Successors.

When a successor assumes all the obligations of its predecessor
under the Notes and the Indenture, the predecessor will be released from those
obligations.

15. Defaults and Remedies.

If an Event of Default occurs and is continuing, the Trustee or
the Holders of at least a majority of the aggregate principal amount of Notes
then outstanding may declare all the Notes to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Notes may
not enforce the Indenture or the Notes except as provided in the Indenture.
The Trustee may require indemnity satisfactory to it before it enforces the
Indenture of the Notes. Subject to certain limitations, Holders of a majority
in aggregate principal amount of the Notes then outstanding may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Notes notices of any continuing Default or Event of Default (except
a Default in payment of principal, premium, if any, or interest, including a
Default at any Maturity Date), if it determines that withholding notice is in
their interest.

16. No Recourse Against Others

No stockholder, director, officer, employee or incorporator, as
such, past, present or future, of the Company or any successor corporation
shall have any liability for any obligations of the Company under the Notes or
the Indenture or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each Holder of a by accepting a Note waives and
release all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.

17. Authentication.

This Note shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this Note.

A-5
<PAGE> 71
18. Abbreviations and Defined Terms.

Customary abbreviations may be used in the name of a Holder of a
Note or an assignee. such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).

A-6
<PAGE> 72
ASSIGNMENT

I or we assign this Note to:

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

(Print or type name, address and zip code of assignee)

Please insert Social Security or other identifying number of assignee:

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

and irrevocably appoint _______________________ agent to transfer this Note on
the books of the Company. The agent may substitute another to act for him.

Dated:
--------------

Signature:
-------------------------------

(Sign exactly as name appears on the other side of this Note)

A-7
<PAGE> 73
OPTION OF HOLDER TO ELECT PURCHASE

If you want to elect to have this Note purchased by the Company
pursuant to Section 4.16 or Article XI of the Indenture, check the appropriate
box:

[ ] Section 4.16 [ ] Article XI

If you want to elect to have only part of this Note purchased by
the Company pursuant to Section 4.16 or Article XI of the Indenture, as the
case may be, state the amount you want to be purchased:

$
----------------------

Dated:
--------------------

Signature:
-----------------------------------------------------
(Sign exactly as your name appears
on the other side of this Note)

Signature Guarantee:
-------------------------------------------

A-8

<PAGE> 1
EXHIBIT 4.10

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

TRANSAMERICAN REFINING CORPORATION,
as Pledgor

and

FIRST UNION NATIONAL BANK
as Trustee

_________________________________________

PLEDGE AGREEMENT

Dated as of March 14, 1997

_________________________________________

$36,000,000 Senior Secured Notes due March 14, 1998

================================================================================
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Section 2. Representations, Warranties and Covenants of the Pledgor . . . 2

Section 3. Administration of the Pledged Collateral . . . . . . . . . . . 4

Section 4. Release and Substitution of Pledged Collateral . . . . . . . . 4

Section 5. Voting Rights, Dividends, Etc . . . . . . . . . . . . . . . . . 4

Section 6. Default; Remedies . . . . . . . . . . . . . . . . . . . . . . . 5

Section 7. Trustee Appointed Attorney-in-Fact . . . . . . . . . . . . . . 7

Section 8. Purchase of Pledged Collateral by Trustee or Holders . . . . . 7

Section 9. Disposition of Proceeds . . . . . . . . . . . . . . . . . . . . 7

Section 10. Waiver of Claims . . . . . . . . . . . . . . . . . . . . . . . 7

Section 11. Remedies Cumulative; No Waiver . . . . . . . . . . . . . . . . 8

Section 12. Additional Collateral . . . . . . . . . . . . . . . . . . . . 8

Section 13. Further Assurances . . . . . . . . . . . . . . . . . . . . . . 8

Section 14. Indemnification and Expenses . . . . . . . . . . . . . . . . . 9

Section 15. Registration Rights, etc . . . . . . . . . . . . . . . . . . . 9

Section 16. Pledgor's Indenture Obligations Absolute . . . . . . . . . . . 10

Section 17. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Section 18. Termination . . . . . . . . . . . . . . . . . . . . . . . . . 10

Section 19. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Section 20. Binding Agreement; Assignment . . . . . . . . . . . . . . . . 11

Section 21. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 11

Section 22. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Section 23. Severability . . . . . . . . . . . . . . . . . . . . . . . . . 11

Section 24. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>

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<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Section 25. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 11

Section 26. Cooperation of TransTexas . . . . . . . . . . . . . . . . . . 11

Section 27. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>

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PLEDGE AGREEMENT

This PLEDGE AGREEMENT, together with any amendments, replacements and
supplements hereafter entered into (the "Pledge Agreement"), dated as of March
14, 1997, between TransAmerican Refining Corporation (together with its
successors and assigns, the "Pledgor") and First Union National Bank, (together
with its successors and assigns, the "Trustee"), is made for the benefit of the
Holders. As used herein, all capitalized terms not otherwise defined herein
shall have the meanings set forth in the Indenture (the "Indenture"), dated the
date hereof, between the Pledgor and the Trustee, relating to the Pledgor's
Senior Secured Notes due March 14, 1998 (the "Notes"), as amended from time to
time in accordance with the terms thereof.

W I T N E S S E T H:

WHEREAS, the Pledgor will issue $36,000,000 aggregate principal amount
of Notes;

WHEREAS, the Pledgor is the legal and beneficial owner of the issued and
outstanding shares of capital stock of TransTexas Gas Corporation, a Texas
Corporation ("TransTexas") as more fully set forth on Schedule A attached
hereto (the "TransTexas Shares"); and

WHEREAS, in order to secure the payment and performance in full of the
Indenture obligations of the Pledgor, the parties hereto desire to set forth
their mutual understanding and certain agreements regarding the terms and
conditions of the pledge of the Pledged Collateral (as defined below) made by
the Pledgor to the Trustee for the benefit of the Holders of the Notes;

WHEREAS, the Pledgor has issued the Mortgage Notes and has pledged all
of the TransTexas Shares for the benefit of the holders of Mortgage Notes
pursuant to the Mortgage Notes Indenture;

WHEREAS, the holders of the Mortgage Notes have consented to release the
Lien of the Mortgage Notes Company Pledge Agreement on up to 5,000,000 shares
of the TransTexas Shares and the other Company Pledge Collateral (as such term
is defined in the Mortgage Notes Indenture) related thereto in order to permit
the Pledgor to obtain the financing contemplated by the Indenture; and

NOW, THEREFORE, in consideration of the premises and other benefits to
the Pledgor, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:

Section 1. Pledge. As collateral security for the indefeasible
payment and performance in full of the Indenture obligations of the Pledgor,
the Pledgor hereby pledges, assigns, transfers, sets over and delivers unto the
Trustee, and hereby grants unto the Trustee for the benefit of FIRST, the
Holders and unto their respective successors and assigns, and SECOND the
holders of the Mortgage Notes and unto their respective successors and assigns,
a continuing security interest in all of the right, title and interest of the
Pledgor in, to and under any and all of the following described property,
rights and interests (collectively, the "Pledged Collateral"):

(a) 5,000,000 shares of the TransTexas Shares;

(b) all securities, certificates and instruments
representing or evidencing ownership of any of the property described in
Section 1(a) hereof (the property described in Section 1(a) and Section 1(b)
hereof being herein referred to collectively as the "Pledged Securities");

(c) any additional property of the kind or type described
in this Section 1 required to be supplied under the terms of this Pledge
Agreement; and

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(d) all proceeds and products of the Pledged Securities,
including without limitation dividends, distributions, cash, instruments and
other property or securities, now or hereafter at any time or from time to time
received or receivable or otherwise distributed or distributable in respect of
or in exchange for any or all of the Pledged Securities;

TO HAVE AND TO HOLD the Pledged Collateral, together with all rights, titles,
interests, powers, privileges and preferences pertaining or incidental thereto,
unto the Trustee for the benefit of FIRST, the Holders and unto their
respective successors and assigns, and SECOND, the holders of the Mortgage
Notes and unto their respective successors and assigns.

Section 2. Representations, Warranties and Covenants of the
Pledgor. The Pledgor hereby represents and warrants (as of the date of
execution hereof as to the Pledged Collateral existing on such date and as of
the date of acquisition as to the Pledged Collateral acquired subsequently),
covenants and agrees that:

(a) The Pledgor is the legal and beneficial owner of the
Pledged Collateral, holds the Pledged Collateral free and clear of all Liens
(except for (i) the security interest granted hereunder to the Trustee for the
benefit of (A) first, the Holders of Notes, and (B) second, the holders of the
Mortgage Notes, and (iii) Liens for taxes not yet payable), and has not made
and will not make any other pledge, assignment, mortgage, hypothecation or
transfer of the Pledged Collateral. The Pledged Securities are not subject to
any put, call, option or other right in favor of any other person whatsoever.

(b) The Pledged Securities have been duly authorized and
validly issued and are fully paid and non-assessable.

(c) Upon delivery of physical certificates evidencing the
Pledged Securities to the Trustee, the Trustee will have a perfected first
priority security interest in the Pledged Securities, securing the indefeasible
payment and performance in full of the Indenture obligations of the Pledgor.

(d) The Pledgor has the requisite corporate power and
authority to pledge the Pledged Collateral in the manner hereby done or
contemplated and will defend its title thereto against the lawful claims of all
persons whomsoever and shall maintain and preserve the security interest
granted hereunder with respect to the Pledged Collateral as long as this Pledge
Agreement shall remain in full force and effect.

(e) Neither the execution and delivery of this Pledge
Agreement by the Pledgor, the performance by the Pledgor of its obligations
hereunder, nor the transactions herein contemplated will (i) violate the
Pledgor's charter or bylaws, (ii) violate the terms of any agreement,
indenture, mortgage, deed of trust, equipment lease, instrument or other
document to which the Pledgor is a party, including, without limitation, the
Mortgage Notes Indenture and the Mortgage Notes Company Pledge Agreement, (iii)
violate any law, order, rule or regulation applicable to the Pledgor or any
court or any government, regulatory body or administrative agency or other
governmental body having jurisdiction over the Pledgor or its properties, or
(iv) result in or require the creation or imposition of any Lien (other than
the Lien contemplated hereby), upon or with respect to any of the property now
owned or hereafter acquired by the Pledgor, which violation or conflict would
have a material adverse effect on the financial condition, business, assets or
liabilities of the Pledgor or on the value of the Pledged Collateral or a
material adverse effect on the security interests hereunder; provided, that a
foreclosure by the Trustee with respect to the Pledged Collateral may result in
a "Change of Control" under the indenture relating to the 11 1/2% Senior
Secured Notes due 2002 of TransTexas Gas Corporation.

(f) The Pledged Securities include 5,000,000 shares of the
issued and outstanding shares of Capital Stock of TransTexas as described in
Schedule A attached hereto, and as of the date of execution hereof, there are
no outstanding options, warrants or other rights to subscribe for or purchase
any property described in Section l(a).

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<PAGE> 6
(g) No consent or approval which has not been obtained
prior to the date hereof of any other person or entity and no authorization,
approval or other action (other than delivery of physical certificates
evidencing the Pledged Securities) by, and no notice to or filing with any
governmental body (other than UCC filings), regulatory authority or securities
exchange, was or is necessary as a condition to the validity of the pledge
hereunder of the Pledged Collateral, and such pledge is effective to vest in
the Trustee the rights of the Trustee in the Pledged Collateral as set forth
herein. There are no restrictions on the transferability of any of the Pledged
Collateral transferred or delivered by the Pledgor hereunder or, except for
restrictions related to federal and state securities laws governing the sale of
"restricted stock" or "control stock," with respect to the foreclosure,
transfer or disposition thereof by the Trustee.

(h) The Pledgor shall deliver to the Trustee concurrently
with the execution of this Pledge Agreement or, to the extent acquired
subsequent to the date of execution hereof, immediately upon the Pledgor's
acquisition thereof: (i) all certificates and instruments representing the
Pledged Securities, and (ii) each other item of Pledged Collateral (including
all certificates, instruments and notes representing any such Pledged
Collateral). Any and all Pledged Securities delivered to the Trustee shall be
accompanied by undated duly executed powers in blank and by such other
instruments of transfer or documents as the Trustee may reasonably request.
The Trustee shall hold the certificates representing the Pledged Securities
delivered to it in its own name or in the name of its nominee, all in form and
substance satisfactory to the Trustee. The Pledgor hereby acknowledges that
the Trustee may, in its discretion, appoint one or more financial institutions
to act as the Trustee's agent in holding in custodial accounts, instruments or
other financial assets in which the Trustee is granted a security interest
hereunder, including, without limitation, certificates of deposit and other
instruments evidencing short term obligations.

(i) The Trustee shall at all times have full and free
access during normal business hours to all of the books, correspondence and
records of the Pledgor relating to the Pledged Collateral (other than
information that is privileged and confidential), and the Trustee and its
representatives may examine the same, make abstracts therefrom and make
photocopies thereof, and the Pledgor agrees to render to the Trustee, at the
Pledgor's cost and expense, such clerical and other assistance as may be
reasonably requested by the Trustee with regard thereto.

(j) The Pledgor shall use its best efforts to prohibit
TransTexas from issuing any securities of the type required to be pledged
hereunder unless such securities are promptly pledged and delivered hereunder
to the Trustee in accordance with Section 2(h).

(k) If, while this Pledge Agreement is in effect, any
stock dividend, stock split, reclassification, readjustment, reorganization,
merger, consolidation, exchange offer, tender offer or other change in the
capital structure, including the creation of any subscription or other rights
relating to the Pledged Securities, is declared or made, or proposed to be
declared or made, by TransTexas or any other issuer of Pledged Collateral, all
substituted and additional securities or interest issued with respect to the
Pledged Collateral and evidenced by certificates shall be endorsed in blank by
the Pledgor promptly upon receipt thereof or otherwise appropriately
transferred to the Trustee in negotiable form, and all certificates or
instruments evidencing such securities shall be delivered to the Trustee to be
held under the terms of this Pledge Agreement in the same manner as, and as a
part of, the Pledged Collateral. All Pledged Securities shall be evidenced by
one or more certificates. Any securities that may be issued upon exercise of
any subscription or other rights relating to the Pledged Securities shall be
endorsed in blank and delivered to the Trustee with any necessary powers.

(l) The Pledgor shall pay and discharge all taxes,
assessments and governmental charges or levies against any Pledged Collateral
prior to delinquency thereof and shall keep all Pledged Collateral free of all
unpaid charges whatsoever, unless contested in good faith and appropriate
reserves have been set aside in accordance with GAAP.

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(m) The Pledgor has, independently and without reliance on
the Trustee or any Holder and based on such documents and information as it
deemed appropriate, made its own credit analysis and decision to enter into
this Pledge Agreement.

(n) The Pledgor shall promptly notify the Trustee (i) of
any material changes in any fact or circumstance represented or warranted by
the Pledgor with respect to any material portion of the Pledged Collateral,
(ii) of any material impairment of the Pledged Collateral and (iii) of any
claim, action or proceeding affecting title to all or any of the Pledged
Collateral.

(o) The chief executive office and principal place of
business of the Pledgor is located at 1300 East North Belt, Houston, Texas
77060. The Pledgor shall not relocate its principal place of business or chief
executive office to another county or state unless the Pledgor gives 30 days'
prior written notice to the Trustee, which notice shall specify the county and
state into which such relocation is to be made.

Section 3. Administration of the Pledged Collateral. The
Trustee shall administer the Pledged Collateral in accordance with the
provisions hereof and of the Indenture.

Section 4. Release and Substitution of Pledged Collateral. The
Pledged Collateral shall not be released from the security interest created
hereunder and no property shall be substituted for any of the Pledged
Collateral, except (a) in accordance with the provisions of Section 12.6 of the
Indenture and (b) in accordance with the provisions of Section 18 hereof. The
Trustee shall return the physical certificates and related stock powers
evidencing Pledged Collateral in its possession when so permitted by the
Indenture or this Pledge Agreement.

Section 5. Voting Rights, Dividends, Etc.

(a) Until an Event of Default (as defined below) shall
have occurred and be continuing:

(i) except as otherwise provided in this Pledge Agreement,
the Pledgor shall be entitled to exercise any and all voting or
consensual rights and powers, including subscription rights, accruing to
an owner of the Pledged Collateral or any part thereof for any purpose
not inconsistent with the terms of this Pledge Agreement or any
agreement giving rise to any of the Indenture obligations; and

(ii) the Trustee shall execute and deliver to the Pledgor
or cause to be executed and delivered to the Pledgor, all such proxies,
powers of attorney, dividend orders and other instruments as the Pledgor
may reasonably request for the purpose of enabling it to exercise the
voting or consensual rights and powers which the Pledgor is entitled to
exercise pursuant to the foregoing Section 5(a)(i).

(b) Upon the occurrence and during the continuance of an
Event of Default, all rights of the Pledgor to exercise the voting or
consensual rights and powers which the Pledgor would otherwise be entitled to
exercise pursuant to Section 5(a)(i) shall automatically cease, and all such
rights shall thereupon become vested in the Trustee, which shall then have the
sole and exclusive right and authority to exercise, in its sole discretion, all
such voting and consensual rights and powers.

(c) The Trustee shall have the sole and exclusive right
and authority to receive and retain as Pledged Collateral all dividends,
distributions and other payments which are paid on the Pledged Collateral in
cash or property. Any and all money and other property paid over to or
received by the Trustee pursuant to the provisions of this Section 5(c) shall
be retained by the Trustee as additional Pledged Collateral hereunder and shall
be administered and applied in accordance with the provisions of this Pledge
Agreement and the Indenture. All dividends and interest payments which are
received by the Pledgor contrary to the provisions of this Section 5(c) shall
be received in trust for the benefit of the Trustee, shall be segregated from
other funds of

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<PAGE> 8
the Pledgor and shall be forthwith paid over to the Trustee as Pledged
Collateral in the same form as so received (with any necessary endorsement).

Section 6. Default; Remedies.

(a) Defined. For purposes of this Pledge Agreement, the
terms "Default" and "Event of Default" shall have the respective meanings
provided in the Indenture.

(b) Exercise of Remedies Under the Pledge Agreement. If
an Event of Default shall have occurred and be continuing to the actual
knowledge of the Trustee, the Trustee shall commence the taking of such actions
(or refrain from taking actions) toward collection or enforcement of this
Pledge Agreement and the Pledged Collateral (or any portion thereof), including
without limitation action toward foreclosure upon any Pledged Collateral, as it
deems appropriate in its sole discretion or as instructed by the Requisite
Holders (as defined in Section 6(f) below) to the extent allowed by law. If
any Event of Default that was the basis for the commencement of such action
shall have been cured or waived, and, in the case where there has been an
acceleration, rescission of such acceleration shall have occurred, in each case
in accordance with the terms of the Indenture, any direction to the Trustee to
take any action in connection with the aforementioned notice shall be deemed
rescinded upon notification by that percentage of Holders necessary to effect
such waiver with respect to such Event of Default as provided for in the
Indenture. The Trustee shall have no obligation to take any collection or
enforcement action except upon satisfaction of the conditions set forth in
Section 6.7 and Section 6.11 of the Indenture applied to this Pledge Agreement.

(c) Remedies Generally. If an Event of Default shall have
occurred and be continuing, the Trustee itself or by its agents or attorneys
may (i) exercise any or all of its rights and remedies hereunder, under the
Indenture, the Security Agreement or any other instrument or agreement
securing, evidencing or relating to the Indenture obligations or under
applicable laws (including all of the rights and remedies of a secured creditor
under the Uniform Commercial Code then in effect in the State of New York; (the
"NYUCC"), (ii) retain possession of the Pledged Collateral or (iii) sell,
assign, transfer, or dispose of, endorse and deliver the whole or, from time to
time, any part of the Pledged Collateral at public or private sale or sales, at
any exchanges, brokers board or at any of the Trustee's offices or elsewhere,
for cash, upon credit or for other property, for immediate or future delivery,
and, to the extent permitted by applicable law, for such price or prices and on
such other terms as the Trustee may deem commercially reasonable. Upon
consummation of any such sale, the Trustee shall have the right to assign,
transfer, endorse and deliver to the purchaser or purchasers thereof the
Pledged Collateral so sold. Each such purchaser at any such sale shall hold
the property sold absolutely free from any claim or right on the part of the
Pledgor, and the Pledgor hereby waives (to the full extent permitted by law)
all rights of redemption, stay or appraisal which the Pledgor now has or may at
any time in the future have under any rule of law or statute now existing or
hereafter enacted. The Trustee shall give the Pledgor ten (10) Business Days'
written notice (which the Pledgor agrees shall be deemed to be reasonable
notification within the meaning of Section 9-504(3) of the NYUCC) of the
Trustee's intention to make any such public or private sale. Any such sale
shall be held at such time or times and at such place or places as the Trustee
may fix. At any such sale, the Pledged Collateral, or portion thereof to be
sold, may be sold as an entirety or in separate portions, as the Trustee may,
in its sole discretion, determine. The Trustee shall not be obligated to make
any sale of the Pledged Collateral if it shall determine not to do so,
regardless of the fact that notice of sale of the Pledged Collateral may have
been given. The Trustee may, without notice or publication, adjourn any public
or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for sale, and such sale may, without
further notice, be made at the time and place to which the same was so
adjourned. In case sale of all or any part of the Pledged Collateral is made
on credit for future delivery, the Pledged Collateral so sold may be retained
by the Trustee until the sale price is paid by the purchaser or purchasers
thereof, but the Trustee shall not incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Pledged
Collateral so sold and, in case of any such failure, such Pledged Collateral
may be sold again upon like notice. As an alternative to exercising the power
of sale herein conferred upon it, the Trustee may proceed by suit or suits at
law or in equity to exercise its remedies regarding the Pledged Collateral and
sell the Pledged Collateral or any portion thereof

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<PAGE> 9
pursuant to judgment or decree of a court or courts having competent
jurisdiction. If under mandatory requirements of applicable law, the Trustee
shall be required to make disposition of the Pledged Collateral within a period
of time that does not permit the giving of notice to the Pledgor as
hereinbefore provided, the Trustee need give the Pledgor only such notice of
disposition as shall be reasonably practicable in view of such mandatory
requirements of law.

(d) Remedies; Obtaining the Collateral Upon Default. The
Pledgor agrees that if any Event of Default shall have occurred and be
continuing, then and in every such case, and in addition to the rights and
remedies available to a secured party under any applicable provision of the
NYUCC, or any other applicable law, the Trustee may:

(i) personally, or by agents or attorneys, immediately
take possession of the Pledged Collateral or any part thereof from the
Pledgor or any other person who then has possession of any part thereof,
with or without notice or process of law, and for that purpose may enter
upon the Pledgor's premises where any of the Pledged Collateral is
located and remove the same and use in connection with such removal any
and all services, supplies, aids and other facilities of the Pledgor;

(ii) instruct the obligor or obligors on any agreement,
instrument or other obligation constituting Pledged Collateral to make
any payment or render any performance required by the terms of such
agreement, instrument or obligation directly to the Trustee or its
designee;

(iii) sell or otherwise liquidate, or direct the Pledgor
to sell or otherwise liquidate, any or all investments made in whole or
in part with the Pledged Collateral or any part thereof, and take
possession of the proceeds of any such sale or liquidation; and

(iv) take possession of the Pledged Collateral or any part
thereof by directing the Pledgor in writing to deliver the same to the
Trustee at any place or places designated by the Trustee, in which event
the Pledgor shall at its own expense:

(A) forthwith cause the same to be moved to the place or
places so designated by the Trustee and there delivered to the
Trustee;

(B) store and keep any Pledged Collateral so delivered to
the Trustee at such place or places pending further action by the
Trustee as provided in this Section 6(d); and

(C) while any such Pledged Collateral shall be so stored
and kept, provide such guard and maintenance services as shall be
necessary to protect the same and to preserve and maintain such
Pledged Collateral in good condition;

it being understood that the Pledgor's obligation so to deliver the
Pledged Collateral is of the essence of this Pledge Agreement and that,
accordingly, upon application to a court of equity having jurisdiction,
the Trustee shall be entitled to a decree requiring specific performance
by the Pledgor of such obligation.

(e) Preventing Impairment of the Pledged Collateral.
Regardless of whether or not there shall have occurred any Default or Event of
Default, the Trustee may institute and maintain or cause in the name of the
Pledgor or of the Trustee, or any of them, to be instituted and maintained,
such suits and proceedings as the Trustee may be advised by counsel shall be
necessary or expedient to prevent any impairment of the security interest in or
perfection of the Pledged Collateral in contravention of the terms of the
Indenture. The Pledgor agrees not to knowingly take or permit to be taken any
action which would impair the Pledged Collateral or the Trustee's rights in the
Pledged Collateral.

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(f) Requisite Holders. For purposes of this Section 6,
"Requisite Holders" means the Holder or Holders of a majority of the aggregate
principal amount of the outstanding Notes.

Section 7. Trustee Appointed Attorney-in-Fact. The Pledgor
hereby constitutes and appoints the Trustee its attorney-in-fact for the
purpose of carrying out the provisions, but subject to the terms and
conditions, of this Pledge Agreement and taking any action and executing any
instrument, including, without limitation, any financing statement or
continuation statement, and taking any other action to maintain the validity,
perfection, priority and enforcement of the security interest intended to be
created hereunder, that the Trustee may reasonably deem necessary or advisable
to accomplish the purposes hereof, which appointment is irrevocable and coupled
with an interest; provided, however, that nothing herein contained shall be
construed as requiring or obligating the Trustee to make any commitment or to
make any inquiry as to the nature or sufficiency of any payment received by it,
or to present or file any claim or notice, or to take any action with respect
to the Pledged Collateral or any part thereof or the monies due or to become
due in respect thereof or any property covered thereby, and no action taken or
omitted shall give rise to any defense, counterclaim or right of action against
the Trustee, unless the Trustee's actions are taken or omitted to be taken with
gross negligence or bad faith or constitute willful misconduct.

Section 8. Purchase of Pledged Collateral by Trustee or Holders.
At any sale of the Pledged Collateral, whether pursuant to power of sale or
otherwise hereunder, the Trustee or any Holder may, to the extent permitted by
applicable law, bid for and purchase, free from any right of redemption, stay
or appraisal (all such rights being hereby waived and released by the Pledgor
to the extent permitted by law), the Pledged Collateral or any part thereof or
an interest therein and upon compliance with the terms of such sale may hold,
retain, exploit, resell or otherwise dispose of such property without further
accountability to the Pledgor for the proceeds of such sale (except in the
event that there is a surplus of such proceeds in excess of the Indenture
obligations, in which case, the Trustee shall account to the Pledgor for such
surplus). The Pledgor will execute and deliver or cause to be executed and
delivered, such instruments, endorsements, assignments, waivers, certificates
and other documents and take such further action as the Trustee shall request
in connection with any such sale.

Section 9. Disposition of Proceeds. The proceeds of any sale of
the whole or any part of the Pledged Collateral, together with any other monies
held by the Trustee under the provisions of this Pledge Agreement, shall be
applied by the Trustee in accordance with the provisions of the Indenture.

Section 10. Waiver of Claims. Except as otherwise provided in
this Pledge Agreement, THE PLEDGOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, NOTICE OF JUDICIAL HEARING IN CONNECTION WITH THE TRUSTEE'S
TAKING POSSESSION OR THE TRUSTEE'S DISPOSITION OF ANY OF THE PLEDGED
COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICES AND
HEARINGS FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT THE
PLEDGOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE
UNITED STATES OR OF ANY STATE, and to the full extent permitted by applicable
law, the Pledgor hereby further waives:

(a) all damages occasioned by such taking of possession or
disposition except any damages which are the direct result of the Trustee's
gross negligence, bad faith or willful misconduct;

(b) all other requirements as to the time, place and terms
of sale or other requirements, with respect to the enforcement of the Trustee's
rights and powers hereunder; and

(c) except as provided in Section 6(c) hereof, all rights
of redemption, appraisement, valuation, stay, marshalling of assets, extension
or moratorium, existing at law or in equity, by statute or otherwise, now or
hereafter in force, in order to prevent or delay the enforcement of this Pledge
Agreement or the

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sale or other disposition of the Pledged Collateral or any portion thereof, and
the Pledgor, for itself and all who may claim under it, insofar as it now or
hereafter lawfully may, hereby waives all such rights.

Any sale of, or the exercise of any options to purchase, or any other
realization upon, any Pledged Collateral shall operate to divest all right,
title, interest, claim and demand, at law or in equity, of the Pledgor therein
and thereto, and shall be a perpetual bar both at law and in equity against the
Pledgor and against any and all persons claiming or attempting to claim the
Pledged Collateral so sold, optioned or realized upon, or any part thereof,
through and under the Pledgor.

Section 11. Remedies Cumulative; No Waiver. Each right, power
and remedy of the Trustee provided for herein, in the Indenture, the Security
Agreement or in any other agreement pursuant to which a Lien is created in
favor of the Trustee for the benefit of any Holder, or now or hereafter
existing at law or in equity, by statute or otherwise, shall be cumulative and
concurrent and shall be in addition to every other right, power or remedy of
the Trustee or any Holder provided for herein, in the Indenture, the Security
Agreement or in any other agreement pursuant to which a Lien is created in
favor of the Trustee for the benefit of any Holder or now or hereafter existing
at law or in equity, by statute or otherwise. No failure on the part of the
Trustee or any Holder to exercise, and no delay in exercising, any right, power
or remedy hereunder, or under the Indenture, the Security Agreement or under
any other agreement pursuant to which a Lien is created in favor of the Trustee
for the benefit of any Holder or now or hereafter existing at law or in equity,
by statute or otherwise, shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy. No notice to or demand on the Pledgor hereunder shall, of itself,
entitle the Pledgor to any other or further notice or demand in the same,
similar or other circumstances.

Section 12. Additional Collateral. Without notice or consent of
the Pledgor and without impairment of the security interests and rights created
by this Pledge Agreement, the Trustee may accept from any person or persons
additional collateral or other security for the Indenture obligations. Neither
the creation of the security interests created hereunder nor the acceptance of
any such additional collateral or security shall prevent the Trustee from
resorting to such additional collateral or security or to the Pledged
Collateral, in any order, without affecting the Trustee's rights hereunder.

Section 13. Further Assurances. The Pledgor agrees (a) that it
shall, at its own expense, promptly file or record such notices, financing
statements, continuation statements or other documents and take all further
action as may be necessary to perfect, maintain and protect the perfection of
the security interests of the Trustee hereunder or to enable the Trustee to
exercise and enforce its rights and remedies hereunder with respect to the
Pledged Collateral, and as the Trustee may reasonably request, such instruments
to be in form and substance satisfactory to the Trustee, and (b) that it shall,
at its own expense, do such further acts and things and execute and deliver to
the Trustee such additional conveyances, assignments, endorsements, agreements
and instruments as the Trustee may at any time reasonably request in connection
with the administration and enforcement of this Pledge Agreement or relative to
the Pledged Collateral or any part thereof or in order to assure and confirm
unto the Trustee its rights, powers and remedies hereunder.

Section 14. Indemnification and Expenses.

(a) The Pledgor agrees to indemnify the Trustee from and
against any and all claims, losses and liabilities growing out of or resulting
from this Pledge Agreement (including, without limitation, enforcement of this
Pledge Agreement), except (i) valid claims (as determined by a nonappealable
order of any court of competent jurisdiction) arising out of a breach by the
Trustee of this Agreement or (ii) claims, losses or liabilities resulting from
the Trustee's gross negligence, bad faith, recklessness or willful misconduct,
as determined by a final judgment of a court of competent jurisdiction. The
indemnification of the Trustee set forth in the immediately preceding sentence
is cumulative and not exclusive of any indemnity of the Trustee set forth in
the Indenture.

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<PAGE> 12
(b) The Pledgor will pay upon demand to the Trustee the
amount of any and all reasonable out-of-pocket expenses, including the
reasonable fees and charges of its counsel and of any experts and agents, that
the Trustee may incur in connection with (i) the negotiation, execution and
enforcement of this Pledge Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from or other realization upon, any of
the Pledged Collateral, (iii) the exercise or enforcement of any of the rights
of the Trustee or the Holders hereunder or (iv) the failure by the Pledgor to
perform or observe any of the provisions hereof, and all amounts so incurred by
the Trustee shall be entitled to the benefits of Section 7.7 of the Indenture.

Section 15. Registration Rights, etc.

(a) If the Trustee determines that the registration of any
of the securities included in the Pledged Collateral under, or other compliance
with, the Securities Act or any similar Federal or state law is desirable, upon
or at any time after an Event of Default and acceleration of the Notes in
accordance with Section 6.2 of the Indenture, the Pledgor will use its best
efforts to cause such registration or compliance to be effectively made, at no
expense to the Trustee or to the Holders, and to continue any such registration
effective for such time as may be reasonably necessary in the opinion of the
Trustee. The Pledgor will reimburse the Trustee upon demand for any expenses
incurred by the Trustee (including reasonable attorneys' fees) incurred in
connection therewith, which obligation to pay such expenses shall be secured
hereunder.

(b) If the Pledgor is unable to effect a public sale of
any or all of the Pledged Collateral or if the Trustee determines that it is
desirable to sell the Pledged Collateral in one or more private sales, the
Trustee may limit such sales to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire such securities for their own
account for investment and not with a view to distribution or resale. The
Pledgor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable to the seller than if such sale were a public
sale and, notwithstanding such circumstances, agrees that any such private sale
shall be deemed to have been made in a commercially reasonable manner. The
Trustee shall be under no obligation to delay a sale of any of the Pledged
Collateral for the period of time necessary to permit the issuer of such
securities to register such securities for public sale under the Securities Act
or under applicable state securities laws even if such issuer would agree to do
so.

(c) The Pledgor further agrees to do or use all reasonable
efforts to cause to be done, to the extent the Pledgor may legally do so, all
such other acts and things as may be necessary to make such sale or sales of
all or any part of the Pledged Collateral valid and binding and in compliance
with any and all applicable laws, rules and regulations and orders and decrees
of any and all courts having jurisdiction over such sales, all at the Pledgor's
expense. The Pledgor further agrees that a breach of any of the covenants
contained in this Pledge Agreement will cause irreparable injury to the
Trustee, as secured party, for which the Trustee would have no adequate remedy
at law in respect of such breach and, as a consequence, agrees that each and
every covenant contained in this Section 15 shall be specifically enforceable
against the Pledgor and, to the full extent permitted by applicable law, the
Pledgor waives and agrees not to assert as a defense against an action for
specific performance of such covenants that (i) Pledgor's failure to perform
such covenants will not cause irreparable injury to the Trustee or the Holders
or (ii) the Trustee on behalf of the Holders has an adequate remedy at law in
respect of such breach.

Section 16. Pledgor's Indenture Obligations Absolute. The
liability of the Pledgor under this Pledge Agreement shall remain in full force
and effect without regard to, and shall not be released, suspended, discharged,
terminated or otherwise affected by: (a) any change in the time, place or
manner of payment of all or any of the Indenture obligations, or in any other
term of the Indenture, the Security Agreement or the Notes, any waiver,
indulgence, renewal, extension, amendment or modification of or addition,
consent or supplement to or deletion from or any other action or inaction under
or in respect of the Indenture, the Security Agreement or the Notes, or any
assignment or transfer thereof; (b) any lack of validity or enforceability, in
whole or in part, of the Indenture, the Security Agreement or the Notes, (c)
any furnishing of any additional security for the Indenture obligations or any
acceptance thereof or any release or non-perfection of any security interest in
property; (d) any

9
<PAGE> 13
limitation on any party's liability or obligations under the Indenture, the
Security Agreement or the Notes; (e) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other like
proceeding relating to the Pledgor or any Person other than the Pledgor, or any
action taken with respect to this Pledge Agreement by any trustee or receiver,
or by any court, in any such proceeding, whether or not the Pledgor shall have
notice or knowledge of any of the foregoing; or (f) any exchange, release or
amendment or waiver of or consent to departure from the Security Agreement any
other agreement pursuant to which a Lien is created in favor of the Trustee for
the benefit of the Holder, pursuant to which a person other than the Pledgor
has granted a security interest.

Section 17. Waiver. To the extent permitted by applicable law,
the Pledgor hereby waives promptness, diligence, notice of acceptance and any
other notice with respect to any of the Indenture obligations and this Pledge
Agreement and any requirement that the Trustee protect, secure, perfect or
insure any security interest or any property subject thereto or exhaust any
right or take any action against the Pledgor or any other person or entity;
provided, however, that the Trustee shall in any event take such care in the
handling of any Pledged Securities in its possession as it takes with respect
to its own property of a similar nature in its possession.

Section 18. Termination. Upon indefeasible payment and
performance in full and satisfaction of all of the Indenture obligations and
all other amounts payable under this Pledge Agreement, this Pledge Agreement
shall terminate and the Trustee shall continue to hold, or shall otherwise
deliver the Pledged Collateral, pursuant to the terms of the Mortgage Notes
Company Pledge Agreement. In the event that the Mortgage Notes Company Pledge
Agreement shall not then be in full force and effect and otherwise shall have
terminated, the Company shall assign and redeliver to the Pledgor all of the
Pledged Collateral hereunder that has not been sold, disposed of, retained or
applied by the Trustee in accordance with the terms hereof and the Indenture.
Such reassignment and redelivery shall be without warranty by or recourse to
the Trustee, and shall be at the expense of the Pledgor. At such time, this
Pledge Agreement shall no longer constitute a Lien upon or a grant of any
security interest in any of the Pledged Collateral, and the Trustee shall, at
the Pledgor's expense deliver to the Pledgor written acknowledgment thereof and
of cancellation of this Pledge Agreement in a form reasonably requested by the
Pledgor; provided, however, that this Pledge Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any of the Indenture obligations is rescinded or must otherwise be returned
upon the insolvency, bankruptcy or reorganization of the Pledgor all as though
such payment had not been made.

Section 19. Notices. Any notices or other communications
required or permitted hereunder shall be in writing, and shall be sufficiently
given if made by hand delivery, by telex, by facsimile or registered or
certified mail, postage prepaid, return receipt requested, addressed as
provided in Section 13.2 of the Indenture.

Section 20. Binding Agreement; Assignment. This Pledge
Agreement shall be binding upon and inure to the benefit of the Trustee, the
Pledgor and their respective successors and permitted assigns. Neither this
Pledge Agreement nor any interest herein or in the Pledged Collateral, or any
part thereof, may be assigned by the Pledgor without the prior written consent
of the Trustee (which consent shall not be unreasonably withheld), except as
expressly permitted herein or in the Indenture. This Pledge Agreement shall be
deemed to be automatically assigned by the Trustee to any person who succeeds
to the Trustee in accordance with Section 7.8 or Section 7.9 of the Indenture,
and its assignee shall have all rights and powers of, and act as, the Trustee
hereunder.

Section 21. Governing Law. This Pledge Agreement shall be
construed in accordance with, and this Pledge Agreement and the transactions
described herein shall be governed by, the laws of the State of New York as to
all issues, including (without limitation) issues of validity, interpretation,
effect, performance and remedies.

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<PAGE> 14
Section 22. Amendments. This Pledge Agreement may not be
amended or modified, except in accordance with Article IX of the Indenture.

Section 23. Severability. In the event that any provision
contained in this Pledge Agreement shall for any reason be held to be illegal
or invalid under the laws of any jurisdiction, such illegality or invalidity
shall in no way impair the effectiveness of any other provision hereof, or of
such provision under the laws of any other jurisdiction; provided, that in the
construction and enforcement of such provision under the laws of the
jurisdiction in which such holding of illegality or invalidity exists, and to
the extent only of such illegality or invalidity, this Pledge Agreement shall
be construed and enforced as though such illegal or invalid provision had not
been contained herein.

Section 24. Headings. Section headings used herein are inserted
for convenience only and shall not in any way affect the meaning or
construction of any provision of this Pledge Agreement.

Section 25. Counterparts. This Pledge Agreement may be executed
in any number of counterparts, each of which when so executed and delivered
shall be an original, and all of which shall together constitute but one and
the same instrument. A complete set of counterparts shall be lodged with the
Trustee.

Section 26. Cooperation of TransTexas. The Pledgor shall use
reasonable efforts to cause TransTexas to take all actions necessary to
facilitate the Pledgor's compliance with the terms hereof.

Section 27. Confidentiality. The parties agree that they and
their employees have maintained and will maintain, in confidence, all data,
summaries, reports or information of all kinds, whether oral or written,
provided pursuant to this Pledge Agreement or acquired or developed in any
manner from the other party's personnel or files (the "Confidential
Information"), and that they have not and will not reveal the same to any
persons not employed by the other party except: (a) at the written direction
of such party; (b) to the extent necessary to comply with the law, reporting
requirements imposed by the Securities and Exchange Commission, or the valid
order of a court of competent jurisdiction, in which event the disclosing party
shall so notify the other party as promptly as practicable (and, if possible,
prior to making any disclosure) and shall seek confidential treatment of such
information, or in connection with any arbitration proceeding; (c) as part of
its normal reporting or review procedure to its parent company, its auditors
and its attorneys, and such parent company, auditors and attorneys agree to be
bound by the provisions of this Section; (d) in order to enforce any of its
rights pursuant to, or in any other dispute with respect to, this Agreement;
(e) if, at the time of disclosure to the recipient, the Confidential
Information is in the public domain; (f) if, after disclosure to the recipient,
the Confidential Information becomes part of the public domain by written
publication through no fault of the recipient; or (g) to any one or more
Holders and their representatives and agents.

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<PAGE> 15
IN WITNESS WHEREOF, the Pledgor and the Trustee have caused this
Pledge Agreement to be duly executed and delivered by its officer thereunto
duly authorized as of the date first above written.

TRANSAMERICAN REFINING CORPORATION

By: /s/ Ed Donahue
-------------------------------
Authorized Signatory

FIRST UNION NATIONAL BANK, as
Trustee

By: /s/ W. Jeffrey Kramer
-------------------------------
Authorized Signatory

12
<PAGE> 16
SCHEDULE A

Pledged Securities

Class of Stock Certificate Par
Stock Issue Stock No.(s) Value Number of Shares
- ------------------------ ----------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C>
TransTexas Gas Common TTXG-0037 $0.01 5,000,000
Corporation Stock
</TABLE>

A-1

<PAGE> 1
EXHIBIT 4.11

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

TRANSAMERICAN REFINING CORPORATION

and

FIRST UNION NATIONAL BANK,
as Trustee

____________________________

SECURITY AGREEMENT

Dated as of March 14, 1997

____________________________

$36,000,000 Senior Secured Notes due March 14, 1998

================================================================================
<PAGE> 2
SECURITY AGREEMENT

This SECURITY AGREEMENT, together with any amendments, replacements and
supplements hereafter entered into (the "Security Agreement"), dated as of
March 14, 1997, between TransAmerican Refining Corporation (together with its
successors and assigns, the "Company") and First Union National Bank, (together
with its successors and assigns, the "Trustee"), is made for the benefit of the
Holders. As used herein, all capitalized terms not otherwise defined herein
shall have the meanings set forth in the Indenture (the "Indenture"), dated the
date hereof, between the Company and the Trustee, relating to the Company's
Senior Secured Notes due March 14, 1998 (the "Notes"), as amended from time to
time in accordance with the terms thereof.

W I T N E S S E T H:

WHEREAS, the Company will issue $36,000,000 aggregate principal amount
of Notes pursuant to the Indenture;

WHEREAS, pursuant to the Disbursement Agreement, the Company has opened
the custodial account described in Schedule I hereto (the "Collateral Account")
at and with First Union National Bank, (the "Disbursement Agent"), at its
corporate trust offices at 40 Broad Street, Suite 550, New York, New York
10004, and will make an initial deposit of $36,000,000 to the Collateral
Account, consisting of the entire proceeds of the sale of the Notes; and

WHEREAS, in order to secure the payment and performance in full of the
Indenture obligations, the parties hereto desire to set forth their mutual
understanding and certain agreements regarding the terms and conditions of the
granting of a security interest in the Account Collateral(as defined below)
made by the Company to the Trustee for the benefit of the Holders of the Notes.

NOW, THEREFORE, in consideration of the premises and other benefits to
the Company, the receipt and sufficiency of which are hereby acknowledge, the
parties hereto hereby agree as follows:

Section 1. Grant of Security. The Company hereby assigns and pledges
to the Trustee for the ratable benefit of the Holders, and hereby grants to the
Trustee for the ratable benefit of the Holders, a security interest in all of
the Company's right, title and interest in and to all of the following
(collectively, the "Account Collateral"):

(a) the Collateral Account, all funds therein and all
certificates and instruments, if any, from time to time representing or
evidencing the Collateral Account;

(b) all Collateral Investments (as hereinafter defined) from
time to time and all certificates and instruments, if any, from time to time
representing or evidencing the Collateral Investments;

(c) all notes, certificates of deposit, deposit accounts,
checks and other instruments from time to time hereafter delivered to or
otherwise possessed by the Trustee for or on behalf of the Company, in
substitution for or in addition to any or all of the then existing Account
Collateral; and

(d) all interest, dividends, cash, instruments and other
property and assets from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the then existing
Account Collateral.

Section 2. Security for Obligations. This Security Agreement secures
the prompt and complete payment and performance of all obligations under the
Indenture including, without limitation, the payment of all amounts owed by the
Company to the Trustee or the Holders under or with respect to the Indenture,
the Notes or any Security Document.

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<PAGE> 3
Section 3. The Company Remains Liable. Anything herein to the contrary
notwithstanding,

(a) the Company shall remain liable under the contracts and
agreements included in the Account Collateral to the extent set forth therein
to perform all of the Company's duties and obligations thereunder to the same
extent as if this Security Agreement had not been executed:

(b) the exercise by the Trustee of any of the rights hereunder
shall not release the Company from any of its duties or obligations under the
contracts and agreements included in the Account Collateral; and

(c) neither the Trustee nor any Holder shall have any
obligation or liability under the contracts and agreements included in the
Account Collateral by reason of this Security Agreement, nor shall the Trustee
or any Holder be obligated to perform any of the obligations or duties of the
Company thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.

Section 4. Delivery of Account Collateral. All certificates or
instruments representing or evidencing Account Collateral shall be delivered to
and held by the Disbursement Agent on behalf of the Trustee for the benefit of
the Holders of the Notes pursuant to this Agreement and the Disbursement
Agreement and shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank,
all in form and substance reasonably satisfactory to the Trustee. The Trustee
shall have the right, at any time and without notice to the Company, to
transfer to or to register in the name of the Trustee or any of its nominees
any or all of the Account Collateral. In addition, the Trustee shall have the
right at any time to exchange certificates or instruments representing or
evidencing Account Collateral for certificates or instruments of smaller or
larger denominations.

Section 5. Maintaining the Collateral Account. So long as any
Indenture obligation shall remain unpaid and until such time as the Indenture
shall have been satisfied and discharged in accordance with Article VIII
thereof;

(a) the Company shall maintain the Collateral Account only
with the Disbursement Agent, and with the sole dominion and control of the
Trustee and the Disbursement Agent; and

(b) except as permitted by the Disbursement Agreement, it
shall be a term and condition of the Collateral Account, notwithstanding any
term or condition to the contrary in any other agreement relating to such
Collateral Account and except as otherwise provided in Section 12 hereof, that
no amount (including interest on Collateral Investments) shall be paid or
released to or for the account of, or withdrawn by or for the account of, the
Company or any other Person from the Collateral Account.

The Collateral Account shall be subject to such applicable laws, and such
applicable regulations of the Board of Governors of the Federal Reserve System
and of any other appropriate banking or governmental authority, as may now or
hereafter be in effect.

Section 6. Investing of Amounts in the Collateral Account. The Trustee
will, upon receipt of the written instructions of the Company from time to
time, subject to Section 12 hereof, instruct the Disbursement Agent to

(a) invest amounts on deposit in the Collateral Account in
such Cash Equivalents and Marketable Securities in the name of the Trustee as
the Company may select; and

(b) invest interest paid on the Cash Equivalents and
Marketable Securities referred to in clause (a) above, and reinvest other
proceeds of any such Cash Equivalents or Marketable Securities that may mature
or be sold in the name of the Trustee as the Company may select.

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<PAGE> 4
The Cash Equivalents and Marketable Securities referred to in clauses (a) and
(b) above are herein referred to, collectively, "Collateral Investments".
Interest and proceeds that are not invested or reinvested in Collateral
Investments as provided in the immediately preceding sentence shall be
deposited and held in the Collateral Account. The Trustee shall have no
liability for investments made in accordance with the Company's written
instructions, except for losses and damages due to the gross negligence,
recklessness or willful misconduct of the Trustee.

Section 7. Representations and Warranties. The Company represents and
warrants for itself and the Account Collateral as follows:

(a) The Company is the legal and beneficial owner of the
Account Collateral in which it is granting a security interest free and clear
of any Lien, except for Liens created hereunder in favor of the Trustee and
Permitted Liens (as such term is defined in the Indenture). No effective
financing statement or other instrument similar in effect covering all or any
part of the Account Collateral is on file in any recording office, except such
as may have been filed in favor of the Trustee relating to this Security
Agreement or such as may relate to Permitted Liens.

(b) The Company is authorized to enter into this Security
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Security Agreement represents a legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as enforceability hereof may be limited by
bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or
other similar laws relating to creditors' rights generally and by general
principals of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).

(c) This Security Agreement and the pledge and assignment of
the Account Collateral pursuant hereto create a valid security interest in the
Account Collateral, securing the payment of the Indenture obligations.

(d) Neither the execution and delivery of this Security
Agreement by the Company, the consummation of the transactions herein
contemplated nor the fulfillment of the terms hereof will (i) violate the
Company's charter or bylaws, (ii) violate the terms of any agreement,
indenture, mortgage, deed of trust, equipment lease, instrument or other
document to which the Company is a party, the violation of which would (x) have
a material adverse effect on the business, assets, operation or condition of
the Company or (y) materially impair the rights of the benefits available to
the Trustee under this Security Agreement or (z) materially impair the value of
the Account Collateral, (iii) violate any law, order, rule or regulation
applicable to the Company of any court or any other governmental body having
jurisdiction over the Company or its properties, the violation of which would
(x) have a material adverse effect on the business, assets, operation or
condition of the Company or (y) materially impair the rights of the benefits
available to the Trustee under this Security Agreement or (z) materially impair
the value of the Account Collateral, or (iv) result in or require the creation
or imposition of any Lien (other than the Lien contemplated hereby) upon or
with respect to any of the Account Collateral.

(e) No authorization, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body or
other third party is required for (i) the grant by the Company of the pledge,
assignment and security interest granted hereby or the execution, delivery or
performance of this Security Agreement by the Company, (ii) the perfection or
maintenance of the pledge, assignment and security interest crated hereby, or
(iii) the exercise by the Trustee of its rights provided for in this Security
Agreement or the remedies in respect of the Account Collateral pursuant to this
Security Agreement, other than those authorizations, approvals, actions,
notices and filings which have been obtained, taken, given or made, as
applicable.

Section 8. Certain Covenants. So long as the payment or performance of
any Indenture obligation remains outstanding and until such time as the
Indenture shall have been satisfied and discharged in accordance with Article
VIII hereof, the Company shall:

4
<PAGE> 5
(a) comply, and cause each of its Subsidiaries to comply, in
all material respects, with all applicable laws, rules, regulations and orders,
such compliance to include, without limitation, compliance with the Employment
Retirement Income Security Act of 1974, as amended, and the Racketeer
Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act
of 1970;

(b) pay and discharge, and cause each of its Subsidiaries to
pay and discharge, before the same shall become delinquent (i) all taxes,
assessments and governmental charges or levies imposed upon the Account
Collateral and (ii) all lawful claims that, if unpaid, might by law become a
Lien upon the Account Collateral in accordance with, and to the extent required
under, Section 4.7 of the Indenture;

(i) promptly execute and deliver all further
instruments and documents, and take all further action, that may be
necessary or reasonably desirable, or that the Trustee may reasonably
request, in order to perfect and protect any pledge, assignment or
security interest granted or purported to be granted hereby or to enable
the Trustee to exercise and enforce its rights and remedies hereunder
with respect to any Account Collateral; and

(ii) furnish to the Trustee statements and schedules
further identifying and describing the Account Collateral and such other
reports in connection with the Account Collateral as the Trustee may
reasonably request, all in reasonable detail (provided, however, that
the Trustee shall have no liability in the event that it determines not
to make such request).

The Company hereby authorizes the Trustee to file one or more financing or
continuation statements, and amendments thereto, relating to all or any party
of the Account Collateral without the signature of the Company where permitted
by law and by power of attorney where acquired. A photocopy or other
reproduction of this Security Agreement or any financing statement covering the
Account Collateral or any part thereof shall be sufficient as a financing
statement where permitted by law;

(d) permit the Trustee, for the benefit of the Holders, at all
times to have full and free access during normal business hours to all the
books, correspondence and records of the Company relating to the Account
Collateral (other than information which is privileged and confidential), and
the Trustee, for the benefit of the Holders, may examine the same, make
abstracts therefrom and make photocopies thereof, and the Company agrees to
render to the Trustee, for the benefit of the Holders, at the Company's sole
cost and expense, such clerical and other assistance as may be reasonably
requested with regard thereto;

(e) not change its name or conduct any significant portion of
its business under any new tradenames, identity or corporate structure until
(i) it shall have given to the Trustee, for the benefit of the Holders, not
less than thirty (30) days prior written notice of its intention to do so in
the case of a change of name, identity or corporate structure, or thirty (30)
days prior written notice of its intention to do so in the case of a new
tradename, clearly describing such new name, identity or corporate structure or
such new tradename and providing such other information in connection therewith
as the Trustee, for the benefit of the Holders, may reasonably request, and
(ii) with respect to such new name, identity or corporate structure or such new
tradename, it shall have taken all action satisfactory to the Trustee, as the
Trustee, for the benefit of the Holders, may reasonably request to maintain the
security interest in the Account Collateral intended to be granted hereby at
all times fully perfected with the same or better priority and in full force
and effect;

(f) not take or permit to be taken any action which is
reasonably likely to impair the Account Collateral or the Trustee's rights in
the Account Collateral;

(g) not create, incur or permit to exist, will defend the
Account Collateral against, and will take such other action as is necessary to
remove, any Lien or claim on or to the Account Collateral, other than the

5
<PAGE> 6
Liens created hereby and Permitted Liens and will defend the right, title and
interest of the Trustee for the benefit of the Holders in and to any of the
Account Collateral against the claims and demands of all Persons whomsoever
(other than the holders of a Permitted Lien); and

(h) not sell, assign (by operation of law or otherwise) or
otherwise dispose of, or grant any option with respect to, any of the Account
Collateral.

Section 9. Trustee Appointed Attorney-in-Fact. The Company hereby
appoints the Trustee the Company's attorney-in-fact, effective upon the
occurrence and during the continuance of an Event of Default, which appointment
is irrevocable and coupled with an interest, with full authority in the place
and stead of the Company and in the name of the Company or otherwise, from time
to time, to take any action and to execute any instrument necessary to
accomplish the purposes of this Security Agreement, including, without
limitation, to file any claims or take any action or institute any proceedings
necessary for the collection of any of the Account Collateral, to enforce
compliance with the terms and conditions of any agreements that are part of the
Account Collateral or to enforce the rights of the Trustee with respect to any
of the Account Collateral.

Section 10. Trustee May Perform. If the Company fails to perform any
agreement contained herein, the Trustee may itself perform, or cause
performance of, such agreement, and the expenses of the Trustee incurred in
connection therewith shall be payable by the Company under Section 15(b)
hereof. Regardless of whether or not there shall have occurred any Default or
Event of Default, the Trustee may institute and maintain or cause in the name
of the Company or the Trustee, or any of them, to be instituted and maintained,
such suits and proceedings as the Trustee may be advised by counsel shall be
necessary or expedient to prevent any impairment of the security interest in or
perfection of the Account Collateral in contravention of the terms of the
Indenture.

Section 11. Trustee's Duties. The powers conferred on the Trustee
hereunder are solely to protect its interest in the Account Collateral and
shall not impose any duty upon it to exercise any such powers. Except for the
safe custody of any Account Collateral in its actual possession or under its
exclusive control, and the accounting for moneys actually received by it
hereunder, and except as otherwise expressly set forth herein, in the Indenture
and in the Disbursement Agreement, the Trustee shall have no duty as to any
Account Collateral, or as to the taking of any necessary steps to preserve
rights against any parties or any other rights pertaining to any Account
Collateral.

Section 12. Default; Remedies.

(a) "Event of Default" shall have the meaning set forth in the
Indenture.

(b) If an Event of Default shall have occurred and be
continuing to the actual knowledge of the Trustee, the Trustee shall commence
the taking of such actions (or refrain from taking actions) toward collection
or enforcement of the Security Agreement and the Account Collateral (or any
portion thereof), including, without limitation, action toward foreclosure upon
any Account Collateral, as it deems appropriate in its sole discretion or as
instructed by the Requisite Holders (as defined in Section 12(g) below) to the
extent allowed by law. If any Event of Default that was the basis for the
commencement of such action shall have been cured or waived, and, in the case
where there has been an acceleration, rescission of such acceleration shall
have occurred, in each case in accordance with the terms of the Indenture, any
direction to the Trustee to take any action in connection with the
aforementioned notice shall be deemed rescinded upon notification by that
percentage of Holders necessary to effect such waiver with respect to such
Event of Default as provided for in the Indenture. The Trustee shall have no
obligation to take any collection or enforcement action except upon
satisfaction of the conditions set forth in Section 6.7 and 6.11 of the
Indenture applied to this Security Agreement.

(c) If an Event of Default shall have occurred and be
continuing, the Trustee itself or by its agents or attorneys may (i) exercise
any or all of its rights and remedies under the Indenture, any Security
Document or any other instrument or agreement securing, evidencing or relating
to the Indenture obligations or

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<PAGE> 7
under applicable laws, (ii) retain, gain or acquire possession of the Account
Collateral of (iii) sell, assign, transfer or dispose of, or endorse and
deliver, the whole or, from time to time, any part of the Account Collateral at
public or private sale or sales, at any exchanges, brokers board or at any of
the Trustee's offices or elsewhere, for cash, upon credit or for other
property, for immediate or future delivery and, to the extent permitted by law,
for such price or prices and on such other terms as the Trustee may deem
commercially reasonable. Upon consummation of any such sale, the Trustee shall
have the right to assign, transfer, endorse and deliver to the purchaser or
purchasers thereof the Account Collateral so sold. Each such purchaser at any
such sale shall holder the property sold absolutely free from any claim or
right on the part of the Company, and the Company hereby waives (to the full
extent permitted by law) all rights of redemption, stay or appraisal that the
Company now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted. The Trustee shall give the Company
ten (10) business days' notice (which the Company agrees shall be deemed to be
reasonable notification within the meaning of Section 9-504(3) of the UCC) of
the Trustee's intention to make any such public or private sale. Any such sale
shall be held at such time or times and at such place or places as the Trustee
may fix. At any such sale, the Account Collateral, or portion thereof to be
sold, may be sold as an entirety or in separate portions, as the Trustee may,
in its sole discretion, determine. The Trustee shall not be obligated to make
any sale of the Account Collateral if it shall determine not to do so,
regardless of the fact that notice of sale of the Account Collateral may have
been given. The Trustee may, without notice or publication, adjourn any public
or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for sale, and such sale may, without
further notice, be made at the time and place to which the same was so
adjourned. In case sale of all or any part of the Account Collateral is made
on credit for future delivery, the Account Collateral so sold may be retained
by the trustee until the sale price is paid by the purchaser or purchasers
thereof, but the Trustee shall not incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Account
Collateral so sold and, in case of any such failure, such Account Collateral
may be sold again upon like notice. As an alternative to exercising the power
of sale herein conferred upon it, the Trustee may proceed by suits or suits at
law or in equity to foreclose the lien created by this Security Agreement and
sell the Account Collateral or any portion thereof pursuant to judgment or
decree of a court or courts having competent jurisdiction. If under mandatory
requirements of applicable law, the Trustee shall be required to make
disposition of the Account Collateral within a period of time that does not
permit the giving of notice to the Company as hereinbefore provided, the
Trustee need give the Company only such notice of disposition as shall be
reasonably practicable in view of such mandatory requirements of law.

(d) The Company agrees that, if any Event of Default shall
have occurred and be continuing, than and in every case, and in addition to the
rights and remedies available to a secured party under any applicable provision
of the UCC, or any other applicable law, the Trustee may:

(i) instruct the obligor or obligors on any instrument
or other obligation constituting the Account Collateral to make any
payment or render any performance required by the terms of such
instrument or obligation directly to the Trustee or its designee;

(ii) sell or otherwise liquidate, or direct the Company
to sell or other liquidate, any or all investments made in whole or in
part with the Account Collateral or any part thereof, and take
possession of the proceeds of any such sale or liquidation;

(iii) exercise any and all rights and remedies of the
Company in respect of the Account Collateral, including, without
limitation, any and all rights of the Company to demand or otherwise
require payment of any amount under, or performance of any provision of,
any agreement, and all payments received by the Company under or in
connection with any agreement, and all payments received by the Company
under or in connection with any agreement or otherwise in respect of the
Account Collateral shall be received in trust for the benefit of the
Trustee, shall be segregated from other property and funds of the
Company and shall be forthwith paid over to the Trustee in the same form
as so received (with any necessary endorsement); or

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<PAGE> 8
(iv) without notice to the Company except as required by
law and at any time or from time to time, charge, set off and otherwise
apply all or any part of the Account Collateral against all or any part
of the Indenture obligation and, in connection therewith, the Trustee,
without notice to the Company, may instruct the Disbursement Agent in
writing to deliver all or any part of the Account Collateral to the
Trustee.

(e) At any public sale of the Account Collateral, whether
pursuant to power of sale or otherwise hereunder, the Trustee or any Holder
may, to the extent permitted by applicable law, bid for and purchase, free from
any right of redemption, stay or appraisal (all such rights being hereby waived
and released by the Company to the extent permitted by law), the Account
Collateral or any part thereof or an interest therein and upon compliance with
the terms of such public sale may hold, retain, exploit, resell or otherwise
dispose of such property without further accountability to the Company for the
proceeds of such public sale, except to the extent that there is a surplus of
such proceeds in excess of the Indenture obligations, in which case, such
surplus shall be delivered to the Company. The Company will execute and
deliver or cause to be executed and delivered, such instruments, endorsements,
assignments, waivers, certificates and other documents and take such further
action as the Trustee shall request in connection with any such public sale.

(f) If an Event of Default shall have occurred and be
continuing, all proceeds received by the Trustee in respect of any sale of,
collection from, or other realization upon all or any of the Account
Collateral, together with any monies held by the Trustee under the provisions
of this Security Agreement, shall be applied by the Trustee in accordance with
the provisions of Section 6.6 of the Indenture. All payments received by the
Company under or in respect of the Account Collateral shall be received in
trust for the benefit of the Trustee, shall be segregated from other property
of the Company shall be forthwith paid over to the Trustee in the same form as
received (with any necessary endorsement).

(g) For purposes of this Section 12, "Requisite Holders" means
the Holder or Holders of a majority of the aggregate principal amount of the
outstanding Notes.

Section 13. Sale of Account Collateral. If the Trustee shall determine
to exercise its right to sell, assign or transfer all or any of the Account
Collateral pursuant to Section 12 hereof, the Company agrees that, upon request
of the Trustee, the Company will do or cause to be done all acts and things as
may be necessary to make such sale, assignment or transfer of the Account
Collateral or any part thereof valid and binding and in compliance with
applicable law. The Trustee is authorized, in connection with any sale of the
Account Collateral pursuant to Section 12 hereof, to deliver or otherwise
disclose to any prospective purchaser of the Collateral any information in its
possession relating to the Account Collateral. The Company acknowledges the
impossibility of ascertaining the amount of damages that would be suffered by
the Trustee or the Holders by reason of the failure by the Company to perform
any of the covenants contained in this Section 13 and, consequently, agrees
that, if the Company shall fail to perform any of such covenants, it shall pay,
as liquidated damages and not as a penalty, an amount equal to the value of the
Account Collateral on the date the Trustee shall demand compliance with this
Section 13.

Section 14. Regulatory Matters.

(a) The Company shall take all action that the Trustee may
request in the exercise of its rights and remedies hereunder. In furtherance
of this right, the Company shall:

(i) cooperate fully with the Trustee in obtaining all
approvals and consents from each governmental authority that the Trustee
may deem necessary or advisable to accomplish any transfer or assignment
of any part of the Account Collateral;

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<PAGE> 9
(ii) prepare, execute and file with any government authority
any application request for consent, certificate or instrument that the
Trustee may deem necessary or advisable to accomplish any such transfer
or assignment of any part of the Account Collateral; and

(iii) do or cause to be done all such other acts and things as
may be necessary to make any sale or sales of all or any part of the
Account Collateral valid and binding and in compliance with any and all
applicable laws, rules, regulations, orders or decrees, all at the
Company's expense.

The Company further agrees that a breach of any of the covenants contained in
this Section 14 will cause irreparable injury to the Trustee, as secured party,
for which the Trustee would have no adequate remedy at law in respect for such
breach and, as a consequence, agrees that each and every covenant contained in
this Section 14 shall be specifically enforceable against the Company and the
Company waives and agrees not to assert any defenses against an action for
specific performance of such covenants.

(b) To enforce the provisions of this Section 14, the Trustee
is authorized to request the consent or approval of any governmental authority
to a voluntary or involuntary transfer of control of any of the Account
Collateral. In connection with the exercise of its remedies under this
Security Agreement, the Trustee may obtain the appointment of a trustee or
receiver to assume, upon receipt of all necessary consents and approvals of any
judicial or other governmental authority, control of the Account Collateral.
Such trustee or receiver shall have all rights and powers provided to it by law
or by court order or provided to the Trustee under this Security Agreement.

Section 15. Indemnity and Expenses.

(a) The Company agrees to indemnify the Trustee from and
against any and all claims, losses and liabilities growing out of or resulting
from this Security Agreement (including, without limitation, enforcement of the
Security Agreement), except (i) valid claims (as determined by a nonappealable
order of any court of competent jurisdiction) arising out of a breach by the
Trustee of this Agreement or the Disbursement Agreement, or (ii) claims, losses
or liabilities resulting from the Trustee's gross negligence, bad faith,
recklessness or willful misconduct, as determined by a final judgment of a
court of competent jurisdiction. The indemnification of the Trustee set forth
in the immediately preceding sentence is cumulative and not exclusive of any
indemnity of the Trustee set forth in the Indenture.

(b) The Company will pay upon demand to the Trustee the amount
of any and all reasonable out-of-pocket expenses, including the reasonable fees
and expenses of its counsel and of any experts and agents, that the Trustee may
incur in connection with (i) the negotiation, execution and enforcement of this
Security Agreement, (ii) the custody, preservation, use or operation of, or the
sale of, collection from or other realization upon, any of the Account
Collateral, (iii) the exercise or enforcement of any of the rights of the
Trustee or the Holders hereunder or (iv) the failure by the Company to perform
or observe any of the provisions hereof, and all amounts so incurred by the
Trustee shall be entitled to the benefits of Section 7.7 of the Indenture.

Section 16. Amendments; Waivers; Etc. No amendment or waiver of any
provision of this Security Agreement, and no consent to any departure by the
Company herefrom, shall in any event be effective unless the same shall be in
writing and signed by the Trustee, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. No failure on the part of the Trustee to exercise, and no delay in
exercising any right hereunder, shall operate as a waiver thereof or consent
thereto, nor shall any single or partial exercise of any such right preclude
any other or further exercise thereof or the exercise of any other right.

Section 17. Notices. Any notices or other communications required or
permitted hereunder shall be in writing, and shall be sufficiently given if
made by hand delivery, by telex, by facsimile or registered or certified mail,
postage prepaid, return receipt requested, addressed as provided in Section
14.2 of the Indenture. Any

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<PAGE> 10
party hereto may by notice to the other party designate such additional or
different addresses as shall be furnished in writing by such party. Any notice
or communication to any party shall be deemed to have been given or made as of
the date so delivered, if personally delivered; when answered back, if telexed;
when receipt is acknowledged, if faxed; and five (5) calendar days after
mailing, if sent by registered or certified mail (except that a notice of
change of address shall not be deemed to have been given until actually
received by the addressee). The Company may give notice to the Holders at the
addresses set forth for them in the register kept by the Registrar under the
Indenture or may request that the Trustee notify the Holders at such addresses.

Section 18. Continuing Security Interest; Assignment Under the
Indenture. This Security Agreement shall create a continuing security interest
in the Account Collateral and shall (a) remain in full force and effect until
the date on which the Indenture obligations shall have been indefeasibly paid
in full and the Indenture shall have been satisfied and discharged in
accordance with Article VIII thereof, (b) be binding upon the Company, its
successors and assigns and (c) inure, together with the rights and remedies of
the Trustee hereunder, to the benefit of the Trustee, the Holders and their
respective successors, transferees and assigns. Without limiting the
generality of the foregoing clause (c), any Holder may assign or otherwise
transfer all or any portion of its rights and obligations under the Notes held
by it to any other Person, and such other Person shall thereupon become vested
with all the benefits in respect thereof granted to such Holder herein or
otherwise, in each case as provided in the Indenture.

Section 19. Release and Termination. On the date on which the
Indenture obligations shall have been indefeasibly paid and performed in full
and the Indenture shall have been satisfied and discharged in accordance with
Article VIII thereof, the pledge, assignment and security interest granted
hereby shall terminate and all rights to the Account Collateral shall revert to
the Company. Upon any such termination, the Trustee, at the Company's expense,
will return to the Company such of the Account Collateral in its possession as
shall not have been sold, transferred or otherwise applied pursuant to the
terms of the Notes, the Indenture and the Security Documents, and will execute
and deliver to the Company such documents prepared by the Company and delivered
to the Trustee as the Company shall reasonably request to evidence such
termination, provided, however, that this Security Agreement shall continue to
be effective or be reinstated, as the case may be, if at any time any payment
of any of the Indenture obligations is rescinded or must otherwise be returned
upon the insolvency, bankruptcy or reorganization of the Company as if such
payment had not been made.

Section 20. Governing Law; Terms. This Security Agreement shall be
construed in accordance with, and this Security Agreement and the transactions
described herein shall be governed by, the laws of the State of New York as to
all issues, including, without limitation, issues of validity, interpretation,
effect, performance and remedies. Unless otherwise defined herein or in the
Indenture, terms used in Article 9 of the New York Uniform Commercial Code are
used herein as therein defined.

Section 21. Waiver of Claims. Except as otherwise provided in this
Security Agreement, THE COMPANY HEREBY WAIVES, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, NOTICE OF JUDICIAL HEARING IN CONNECTION WITH THE TRUSTEE'S
TAKING POSSESSION OR THE TRUSTEE'S DISPOSITION OF ANY OF THE ACCOUNT
COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICES AND
HEARINGS FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT THE
COMPANY WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE
UNITED STATES OR OF ANY STATE, and to the full extent permitted by applicable
law, the Company hereby further waives:

(a) all damages occasioned by such taking of possession except any
damages which are the direct result of the Trustee's gross negligence, bad
faith or willful misconduct;

(b) all other requirements as to the time, place and terms of sale or
other requirements, with respect to the enforcement of the Trustee's rights and
powers hereunder; and

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<PAGE> 11
(c) except as provided in Section 12(c) hereof, all rights of
redemption, appraisement, valuation, stay, marshalling of assets, extension or
moratorium, existing at law or in equity, by statute or otherwise, now or
hereafter in force, in order to prevent or delay the enforcement of this
Security Agreement or the sale or other disposition of the Account Collateral
or any portion thereof, and the Company, for itself and all who may claim under
it, insofar as it now or hereafter lawfully may, hereby waives all such rights.

Any sale of, or the exercise of any options to purchase, or any other
realization upon, any Account Collateral shall operate to divest all right,
title, interest, claim and demand, at law or in equity, of the Company therein
and thereto, and shall be a perpetual bar, both at law and in equity, against
the Company and against any and all persons claiming or attempting to claim the
Account Collateral so sold, optioned or realized upon, or any part thereof,
through and under the Company.

Section 22. Waiver of Jury Trial. THE COMPANY HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS SECURITY AGREEMENT, OR THE ACTIONS OF ANY PARTY HERETO IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.

Section 23. Remedies Cumulative; No Waiver. Each right, power and
remedy of the Trustee provided for herein, in the Indenture or any Security
Document or in another agreement pursuant to which a Lien is created in favor
of the Trustee for the benefit of any Holder, or now or hereafter existing at
law or in equity, by statute or otherwise, shall be cumulative and concurrent
and shall be in addition to every other right, power or remedy of the Trustee
or any Holder provided for herein, in the Indenture or any Security Document or
in another agreement pursuant to which a Lien is created in favor of the
Trustee for the benefit of any Holder, or now or hereafter existing at law or
in equity, by statute or otherwise. No failure on the part of the Trustee or
any Holder to exercise, and no delay in exercising, any right, power or remedy
hereunder, or under the Indenture or any Security Document or under another
agreement pursuant to which a Lien is created in favor of the Trustee for the
benefit of any Holder, or now or hereafter existing at law or in equity, by
statute or otherwise, shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
No notice to or demand on the Company hereunder shall, of itself, entitle the
Company to any other or further notice or demand in the same, similar or other
circumstances.

Section 24. Additional Collateral. Without notice or consent of the
Company and without impairment of the security interests and rights created by
this Security Agreement, the Trustee may accept from any person or persons
additional collateral or other security for the Indenture obligations. The
creation of the security interests created hereunder and the acceptance of any
such additional collateral or security shall not prevent the Trustee from
resorting to such additional collateral or security or to the Account
Collateral, in any order, and shall not affect the Trustee's rights hereunder.

Section 25. Waiver. To the extent permitted by applicable law, the
Company hereby waives promptness, diligence, notice of acceptance and any other
notice with respect to any of the Indenture obligations and this Security
Agreement and any requirement that the Trustee protect, secure, perfect or
insure any security interest or any property subject thereto or exhaust any
right or take any action against the Company or any other person or entity.

Section 26. Severability. In the event that any provision contained in
this Security Agreement shall for any reason be held to be illegal or invalid
under the laws of any jurisdiction, such illegality or invalidity shall in no
way impair the effectiveness of any other provision hereof, or of such
provision under the laws of any other jurisdiction; provided, that in the
construction and enforcement of such provision under the laws of the
jurisdiction in which such holding of illegality or invalidity exists, and to
the extent only of such illegality or invalidity, this

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Security Agreement shall be construed and enforced as though such illegal or
invalid provision had not been contained herein.

Section 27. Headings. Section headings used herein are inserted for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Security Agreement.

Section 28. Execution in Counterparts. This Security Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
agreement. A complete set of counterparts shall be lodged with the Trustee.

Section 29. Confidentiality. The parties agree that they and their
employees have maintained and will maintain, in confidence, all data,
summaries, reports or information of all kinds, whether oral or written,
provided pursuant to this Security Agreement or acquired or developed in any
manner from the other party's personnel or files (the "Confidential
Information"), and that they have not and will not reveal the same to any
persons not employed by the other party except: (a) at the written direction
of such party; (b) to the extent necessary to comply with the law, reporting
requirements imposed by the Securities and Exchange Commission, or the valid
order of a court of competent jurisdiction, in which event the disclosing party
shall no notify the other party as promptly as practicable (and, if possible,
prior to making any disclosure) and shall seek confidential treatment of such
information, or in connection with any arbitration proceeding; (c) as part of
its normal reporting or review procedure to its parent company, its auditors
and its attorneys, and such parent company, auditors and attorneys agree to be
bound by the provisions of this Section; (d) in order to enforce any of its
rights pursuant to, or in any other dispute with respect to, this Agreement;
(e) if, at the time of disclosure to the recipient, the Confidential
Information is in the public domain; (f) if, after disclosure to the recipient,
the Confidential Information becomes part of the public domain by written
publication through no fault of the recipient; or (g) to any one or more
Holders and their representatives and agents.

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IN WITNESS WHEREOF, the Company and the Trustee have caused this
Security Agreement to be duly executed and delivered by its officer thereunto
duly authorized as of the date first above written.

TRANSAMERICAN REFINING CORPORATION

By: /s/ Ed Donahue
------------------------------------
Authorized Signatory

FIRST UNION NATIONAL BANK, as Trustee

By: /s/ W. Jeffrey Kramer
------------------------------------
Authorized Signatory

<PAGE> 1
EXHIBIT 4.12

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

TRANSAMERICAN REFINING CORPORATION,

FIRST UNION NATIONAL BANK
as Trustee,

and

FIRST UNION NATIONAL BANK
as Disbursement Agent,

_______________________________

CASH COLLATERAL AND DISBURSEMENT AGREEMENT

Dated as of March 14, 1997

_______________________________

$36,000,000 Senior Secured Notes due March 14, 1998

================================================================================
<PAGE> 2
CASH COLLATERAL AND DISBURSEMENT AGREEMENT, dated as of March 14,
1997 (the "Agreement"), among TransAmerican Refining Corporation, a Texas
corporation (the "Company"), First Union National Bank, as trustee for the
Holders (in such capacity, together with its successor in trust appointed
pursuant to the Indenture, the "Trustee") under an Indenture, dated the date
hereof, between the Company and the Trustee (such Indenture, as amended,
supplemented or otherwise modified from time to time, the "Indenture"), and
First Union National Bank, as Disbursement Agent (the "Disbursement Agent").

WHEREAS, the Company has entered into the Indenture pursuant to
which the Company will issue $36,000,000 aggregate principal amount of Senior
Secured Notes due March 14, 1998 (the "Notes");

WHEREAS, as security for the prompt and complete payment and
performance in full of the Company's obligations under the Indenture, the
Company has granted to the Trustee a security interest in, among other things,
the Collateral Account (as defined below); and

WHEREAS, the Disbursement Agent has agreed to take such action
with respect to the Collateral Account as is specified herein.

NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Certain Defined Terms. Capitalized terms used but
not defined herein and in any schedule and exhibits hereto shall have the
meanings set forth in the Indenture.

Section 1.2 Computation of Time Periods. In this Agreement, in
the computation of periods of time from a specified date to a later specified
date, the word from means "from and including" and the words "to" and "until"
each means "to but excluding."

ARTICLE II

DISBURSEMENT AGENT

Section 2.1 Appointment and Duties.

(a) The Company and the Trustee (on behalf of the
Holders of Notes) hereby designate and appoint First Union National Bank, as
the Disbursement Agent under this Agreement, and authorize the Disbursement
Agent to take such actions, exercise such powers and perform such duties as are
expressly delegated to the Disbursement Agent by the terms of this Agreement,
together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere herein, the
Disbursement Agent shall not have any duties or responsibilities except those
expressly set forth herein, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or otherwise exist against the Disbursement Agent.

(b) The Disbursement Agent shall give written notice to
the Trustee of any action taken by it hereunder (provided that no such notice
need be given under circumstances in which the Trustee shall have received such
notice by any other Person pursuant to the terms of any such document); such
notice shall be given prior

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<PAGE> 3
to the taking of such action unless the Disbursement Agent determines that to
do so would be detrimental to the interests of the Holders of Notes, in which
event such notice shall be given promptly after the taking of such action.

(c) The Disbursement Agent shall maintain appropriate
books and records with respect to the Collateral Account in which shall be
recorded all deposits and disbursements hereunder and any Investments made by
the Disbursement Agent and shall permit the Trustee or any of its agents or
representatives to inspect and to make copies of such books and records at the
Company's sole cost and expense.

(d) The Disbursement Agent shall use its good faith
efforts and utilize prudence in performing its duties hereunder consistent with
those of similar and prudent institutions disbursing disbursement control
funds.

Section 2.2 Rights of Disbursement Agent.

(a) The Disbursement Agent may execute any of its
duties under this Agreement by or through agents or attorneys-in-fact and shall
be entitled to rely on advice of counsel concerning all matters pertaining to
such duties, and protected in respect of any action taken in good faith and in
accordance with such advice.

(b) Neither the Disbursement Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates shall
be (i) liable for any action lawfully taken or omitted to be taken by it or
such Person under or in connection with this Agreement (except for its or such
Person's own gross negligence or willful misconduct), or (ii) responsible in
any manner to any of the Holders of Notes for any recitals, statements,
representations or warranties made by the Company or any officer thereof
contained in any certificate, report, statement or other document referred to
or provided for in, or received by the Disbursement Agent under or in
connection with, this Agreement. The Disbursement Agent shall not be under any
obligation to any Holders of Notes to inspect the properties, books or records
of the Company.

(c) The Disbursement Agent shall be entitled to rely,
and shall be fully protected in relying, upon any note, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy,
telex or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Company), independent
accountants and other experts selected by the Disbursement Agent. The
Disbursement Agent shall be fully justified in failing or refusing to take any
action hereunder if such action would, in the opinion of the Disbursement
Agent, be contrary to law or the terms of this Agreement.

(d) If, with respect to a proposed action to be taken
by it, the Disbursement Agent shall determine in good faith that the provisions
of this Agreement relating to the functions or responsibilities or
discretionary powers of the Disbursement Agent are or may be ambiguous or
inconsistent, the Disbursement Agent shall notify the Company and the Trustee
(identifying the proposed action and the provisions that it considers are or
may be ambiguous or inconsistent) and may decline either to perform such
function or responsibility or to exercise such discretionary power unless it
has received the written confirmation of the Company and the Trustee that it
concurs in the circumstance that the action proposed to be taken by the
Disbursement Agent is consistent with the terms of this Agreement or is
otherwise appropriate.

(e) The Disbursement Agent shall not be deemed to have
knowledge or notice of the occurrence of any Event of Default unless the
Disbursement Agent has received written notice from the Trustee or the Company,
describing such Event of Default and stating that such notice is a "notice of
default." The Disbursement Agent shall take such action with respect to such
Event of Default as shall be required by this Agreement. No provision of this
Agreement shall require the Disbursement Agent to expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder or in the exercise of any of its rights or powers, if it shall
have

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reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.

Section 2.3 Resignation and Removal of Disbursement Agent.

(a) Subject to the appointment and acceptance of a
successor Disbursement Agent as provided below, the Disbursement Agent may, at
any time, give a notice of resignation to the Trustee and the Company. Upon
receipt of any such notice of resignation, the Company shall have the right to
appoint a successor Disbursement Agent, which shall be a bank or trust company
reasonably acceptable to the Trustee. If no successor Disbursement Agent shall
have been Appointed by the Company and shall have accepted such appointment
within 30 days after the retiring Disbursement Agent's giving of notice of
resignation, then the retiring Disbursement Agent may appoint a successor
Disbursement Agent, which shall be a bank or trust company reasonably
acceptable to the Company and the Trustee.

(b) Each of the Trustee and the Company shall have the
right, upon the expiration of thirty (30) days following delivery of written
notice to the Disbursement Agent and the other party, to cause the Disbursement
Agent to be relieved of its duties hereunder and to select a successor
Disbursement Agent to serve hereunder, which shall be a bank or trust company
reasonably acceptable to the other party.

(c) Upon the acceptance of any appointment as
Disbursement Agent hereunder by a successor Disbursement Agent, (i) such
successor Disbursement Agent, the Trustee and the Company shall enter into an
agreement substantially identical to this Agreement, (ii) such agreement shall
provide that such successor Disbursement Agent shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the
retiring Disbursement Agent, and that the retiring Disbursement Agent shall be
discharged from its duties and obligations hereunder and (iii) the retiring
Disbursement Agent shall promptly transfer all Collateral within its possession
or control to the possession or control of the successor Disbursement Agent and
shall execute and deliver such notices, instructions and assignments as may be
necessary to transfer the rights of the Disbursement Agent with respect to the
Collateral to the successor Disbursement Agent. After any retiring
Disbursement Agent's resignation or removal hereunder as Disbursement Agent,
the provisions of this Article shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting
as Disbursement Agent.

ARTICLE III

COLLATERAL ACCOUNT

Section 3.1 Establishment of Account. There is hereby
established with and at the Disbursement Agent a custodial account in the name
of the Company, as more fully identified on Schedule I to the Security
Agreement (the "Collateral Account"), under the sole dominion and control of
the Trustee and the Disbursement Agent. Funds shall be released from the
Collateral Account only in accordance with Article IV.

Section 3.2 Deposits to Collateral Account. The Company shall
initially deposit to the Collateral Account the net proceeds received by it
from the issuance and sale of the Notes.

Section 3.3 Security Interest.

(a) As security for the prompt and complete payment and
performance in full of all obligations under the Indenture, the Company has
agreed, pursuant to the Security Agreement, to pledge, assign and grant to the
Trustee, for the equal and ratable benefit of the Holders, a security interest
in all of its right, title and interest in and to the Collateral Account and
all funds deposited therein.

4
<PAGE> 5
(b) The Disbursement Agent acknowledges notice of, and
consents to the terms and provisions of, the Security Agreement and agrees
that:

(i) notwithstanding anything to the contrary in
this or any other agreement relating to the Collateral Account, the Collateral
Account is and will be subject to the terms and conditions of the Security
Agreement, will be held in trust on behalf of the Trustee for the equal and
ratable benefit of the Holders and not commingled with any ordinary deposit or
commercial bank account, will be maintained with the corporate trust department
of the Disbursement Agent solely for the Trustee for the equal and ratable
benefit of the Holders pursuant to the Security Agreement and will be subject
to the written instructions of the Trustee given in accordance with the
Security Agreement.

(ii) in accordance with written instructions
received from the Company, the Disbursement Agent shall, unless otherwise
instructed by the Trustee, (A) invest amounts on deposit in the Collateral
Account in such Cash Equivalents and Marketable Securities in the name of the
Trustee as the Company may select, (B) invest interest paid on the Cash
Equivalents and Marketable Securities referred to in clause (A) above, and
reinvest other proceeds of any such Cash Equivalents or Marketable Securities
that may mature or be sold in the name of the Trustee as the Company may select
(the Cash Equivalents and Marketable Securities referred to in clauses (A) and
(B) above being, collectively, "Collateral Investments" and (C) deposit and
hold in the Collateral Account all interest and proceeds that are not invested
or reinvested in Collateral Investments;

(iii) all disbursements and releases made pursuant
to this Agreement shall be made by the Disbursement Agent irrespective of, and
without deduction for, any counterclaim, defense, recoupment or set-off and
shall be final, and the Disbursement Agent will not seek to recover from the
Trustee for any reason any such payment once made;

(iv) all service charges and fees with respect to
this Agreement or the Collateral Account shall be paid by the Company; and

(v) the Trustee shall be entitled to exercise
any and all rights of the Company in respect of the Collateral Account in
accordance with the terms of the Security Agreement, and the Disbursement Agent
shall comply in all respects with such exercise.

Section 3.4 Valuation of Collateral Account. For purposes of
determining the value of any amount in the Collateral Account, all Collateral
Investments shall be valued at the lower of cost or market value.

ARTICLE IV

DISBURSEMENTS FROM THE COLLATERAL ACCOUNT

Section 4.1 Priority Releases. Funds in the Collateral Account
shall be released by the Disbursement Agent to any account specified by the
Trustee, upon receipt of a Trustee's Certificate substantially in the form of
Exhibit A hereto (each a "Trustee's Certificate"), certifying that such amounts
will promptly be used for the purpose of making payments to Holders of Notes
pursuant to the terms of the Indenture.

Section 4.2 Conditions to Disbursement of Funds. Funds in the
Collateral Account shall be disbursed for the account of the Company pursuant
to Section 4.3(b) only upon satisfaction of the following conditions:

(a) The Company shall have delivered to the
Disbursement Agent and the Trustee a written notice substantially in the form
of Exhibit B attached hereto (the "Disbursement Certificate"), specifying the
amount and date of the requested disbursement. The Disbursement Certificate
shall be executed by a duly authorized

5
<PAGE> 6
officer of the Company and shall be in form and substance reasonably
satisfactory to the Disbursement Agent. The Disbursement Certificate shall be
completed and certified to be accurate by the Company.

(b) Neither a Default nor an Event of Default under the
Indenture shall have occurred and be continuing.

(d) (i) The amount of the requested disbursement shall
be equal to (A) $12,000,000 or less on March 14, 1997, (B) $9,000,000 or less
on April 14, 1997, (C) $7,000,000 or less on May 14, 1997, and (D) the balance
in the Collateral Account on June 14, 1997.

(ii) In the event that the Company shall not have
requested the full amount that may be disbursed to it on any date set forth in
subsection 4.2(d)(i), then the Company may request that the amount to be
disbursed to it on any subsequent date be the amount set forth in subsection
4.2(d)(i) corresponding to such date, plus the maximum amount the Company was
entitled to request for any preceding date and the difference between the
amount disbursed to the Company prior to such date.

Section 4.3 Disbursements.

(a) Subject to the terms and conditions of the Security
Agreement, the Disbursement Agent shall sell such portion of the investments
held in the Collateral Account (with the investments having the shortest
maturities sold first) as shall be necessary to fund the requested disbursement
in accordance with written instructions of the Company delivered to the
Disbursement Agent at least one Business Day prior to any proposed date of
disbursement (as set forth in the Disbursement Certificate or the written
notice pursuant to Section 4.3(c)). Notwithstanding the foregoing, if, on any
Date of Disbursement, the cash on deposit in the Collateral Account is less
than the amount of the disbursement to be made on such date, the Disbursement
Agent shall not be required to make any portion of such disbursement.

(b) Subject to Section 4.3(a), if the Company has
delivered a Disbursement Certificate, the Disbursement Agent shall make the
requested disbursement from the Collateral Account by the requested Date of
Disbursement.

(c) Subject to Section 4.3(a), all disbursements
pursuant to Section 4.3(b) shall be made to, or as directed by, the Company.

ARTICLE V

COVENANTS

Section 5.1 Covenants of the Company. The Company shall
promptly, but no later than thirty (30) days after its receipt of an invoice,
pay the reasonable fees and expenses of the Disbursement Agent in connection
with this Agreement.

Section 5.2 Covenants of the Trustee. The Trustee shall give
prompt written notice to the Disbursement Agent upon (i) the occurrence of an
Event of Default under the Indenture known to it and (ii) upon the cure or
waiver of any such Event of Default known to it.

6
<PAGE> 7
ARTICLE VI

MISCELLANEOUS

Section 6.1 Amendments, Etc. No amendment, modification or
waiver of any provision of this Agreement may be made except by written
agreement of the parties hereto and, with respect to the Company and the
Trustee, in accordance with Article IX of the Indenture.

Section 6.2 Notices, Etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be sufficiently
given if made by hand delivery, by telex, by facsimile or registered or
certified mail, postage prepaid, return receipt requested, addressed as
follows:

To the Disbursement Agent:

First Union National Bank
40 Broad Street
Suite 550
New York, New York 10004
Attention: Corporate Trust Administration

To the Trustee:

First Union National Bank
40 Broad Street
Suite 550
New York, New York 10004
Attention: Corporate Trust Administration

To the Company:

TransAmerican Refining Corporation
1300 East North Belt
Suite 320
Houston, Texas 77032
Attention: Ed Donahue

Any party hereto may by notice to each other party designate such
additional or different addresses as shall be furnished in writing by such
party. Any notice or communication to any party shall be deemed to have been
given or made as of the date so delivered, if personally delivered; when
answered back, if telexed; when receipt is acknowledged, if faxed; five
calendar days after mailing, if sent by registered or certified mail; and one
business day after mailing, if sent by overnight delivery service (except that
a notice of change of address shall not be deemed to have been given until
actually received by the addressee).

Section 6.3 No Waiver; Remedies. No failure on the part of the
Disbursement Agent, the Trustee or any Holder to exercise, and no delay in
exercising, any right under any Security Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right preclude
any other or further exercise thereof or the exercise of any other right.

7
<PAGE> 8
Section 6.4 Indemnity and Expenses.

(a) The Company agrees to indemnify the Trustee, the
Holders, the Disbursement Agent and their officers, directors, employees,
agents, attorneys-in-fact and affiliates (the "Indemnified Parties"), from and
against any and all claims, losses and liabilities directly or indirectly
caused by, related to or resulting from this Agreement (including, without
limitation, enforcement of this Agreement), except claims, losses or
liabilities resulting from (i) valid claims of the Company against such
Indemnified Party arising out of a breach of this Agreement by such Indemnified
Party or (ii) such Indemnified Party's bad faith, gross negligence or willful
misconduct, in either case, as determined by a final judgment of a court of
competent jurisdiction.

(b) The Company shall, promptly upon demand, pay to the
Disbursement Agent, and the Trustee the amount of any and all reasonable
expenses, including the reasonable fees and expenses of its counsel and of any
experts and agents, that the Disbursement Agent, or the Trustee may incur in
connection with (i) this Agreement, (ii) the exercise or enforcement of any
rights hereunder or (iii) the failure by the Company to perform or observe any
of the provisions hereof.

Section 6.5 Execution in Counterparts. This Agreement may be
executed in any number of separate counterparts and by different parties hereto
in separate counterparts, each of which, when so executed, shall be deemed to
be an original and all of which, taken together, shall constitute one and the
same agreement. Delivery of an executed counterpart of a signature page to
this Agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this Agreement. A complete set of counterparts shall
be lodged with the Trustee.

Section 6.6 Relationship of Trustee. The Trustee and the
Disbursement Agent shall not be under any responsibility in respect of the
validity or sufficiency of this Agreement or the execution and delivery hereof
or in respect of the validity or sufficiency of any document or agreement
delivered in connection herewith, including, but not limited to, any document
or agreement the forms of which are attached hereto as Exhibits to this
Agreement. Neither the Trustee nor the Disbursement Agent shall be accountable
for the use or application of the funds in the Collateral Account or for
disbursements therefrom, except as set forth in the Indenture and this
Agreement.

Section 6.7 Governing Law. This Agreement shall be construed in
accordance with, and this Agreement and the transactions described herein shall
be governed by, the laws of the State of New York as to all issues, including
(without limitation) issues of validity, interpretation, effect, performance
and remedies.

Section 6.8 Waiver of Jury Trial. THE COMPANY HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR THE ACTIONS OF ANY PARTY HERETO IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.

Section 6.9 Certain Rights. Neither the Disbursement Agent, the
Trustee, the Company, nor any of the Holders shall have any rights with respect
to the Collateral Account except as specifically set forth in the Indenture,
the Security Agreement, and this Agreement.

Section 6.10 Confidentiality. The parties agree that they and
their employees have maintained and will maintain, in confidence, all data,
summaries, reports or information of all kinds, whether oral or written,
provided pursuant to this Agreement or acquired or developed in any manner from
the other party's personnel or files (the "Confidential Information"), and that
they have not and will not reveal the same to any persons not employed by the
other party except: (a) at the written direction of such party; (b) to the
extent necessary to comply with the law, reporting requirements imposed by the
Securities and Exchange Commission, or the valid order of a court of competent
jurisdiction, in which event the disclosing party shall so notify the other
party as promptly as practicable (and, if possible, prior to making any
disclosure) and shall seek confidential treatment of such information, or in
connection with

8
<PAGE> 9
any arbitration proceeding; (c) as part of its normal reporting or review
procedure to its parent company, its auditors and its attorneys, and such
parent company, auditors and attorneys agree to be bound by the provisions of
this Section; (d) in order to enforce any of its rights pursuant to, or in any
other dispute with respect to, this Agreement; (e) if, at the time of
disclosure to the recipient, the Confidential Information is in the public
domain; (f) if, after disclosure to the recipient, the Confidential Information
becomes part of the public domain by written publication through no fault of
the recipient; or (g) to any one or more Holders and their representatives and
agents.

Section 6.11 Termination. This Agreement shall terminate
automatically thirty (30) days following disbursement of all funds remaining in
the Collateral Account.

Section 6.12 Invalidity. If, for any reason whatsoever, any one
or more of the provisions of this Agreement shall be held or deemed to be
inoperative, unenforceable or invalid in a particular case or in all cases, it
is the parties intent that such circumstances shall not have the effect of
rendering any of the other provisions of this Agreement inoperative,
unenforceable or invalid, and the inoperative, unenforceable or invalid
provision shall be construed as if it were written so as to effectuate to the
maximum extent possible, the companies' intent.

Section 6.13 Assignment. This Agreement is personal to the
companies hereto, and the rights and duties of any party hereunder shall not be
assignable except with the prior written consent of the other parties. In any
event, this Agreement shall inure to and be binding upon the parties and their
successors and permitted assigns.

Section 6.14 Entire Agreement. This Agreement contains the
entire agreement among the parties with respect to the subject matter hereof
and supersedes any and all prior agreements, understandings and commitments,
whether oral or written. This Agreement may only be amended as provided
herein.

Section 6.15 Captions. Captions in this Agreement are for
convenience only and shall not be considered or referred to in resolving
questions of interpretation of this Agreement.

9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized, as of
the date first above written.

TRANSAMERICAN REFINING CORPORATION

By: /s/ Ed Donahue
----------------------------------
Authorized Signatory

FIRST UNION NATIONAL BANK, as Trustee

By: /s/ W. Jeffrey Kramer
----------------------------------
Authorized Signatory

FIRST UNION NATIONAL BANK, as
Disbursement Agent

By: /s/ W. Jeffrey Kramer
----------------------------------
Authorized Signatory

<PAGE> 1
EXHIBIT 4.13

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

TRANSAMERICAN REFINING CORPORATION,

FIRST UNION NATIONAL BANK
as Trustee,

and

FIRST UNION NATIONAL BANK
as Disbursement Agent,

__________________________

FIRST AMENDMENT TO

CASH COLLATERAL AND DISBURSEMENT AGREEMENT

Dated as of April 3, 1997

__________________________

$36,000,000 Senior Secured Notes due March 14, 1998

================================================================================
<PAGE> 2
FIRST AMENDMENT TO CASH COLLATERAL AND DISBURSEMENT AGREEMENT,
dated as of April 3, 1997 (the "Agreement"), among TransAmerican Refining
Corporation, a Texas corporation (the "Company"), First Union National Bank, as
trustee for the Holders (in such capacity, together with its successor in trust
appointed pursuant to the Indenture, the "Trustee") under an Indenture, dated
March 14, 1997, between the Company and the Trustee (such Indenture, as
amended, supplemented or otherwise modified from time to time, the
"Indenture"), and First Union National Bank, as Disbursement Agent (the
"Disbursement Agent").

WHEREAS, the Company has entered into the Indenture pursuant to
which the Company issued $36,000,000 aggregate principal amount of Senior
Secured Notes due March 14, 1998 (the "Notes"); and

WHEREAS, the Company and the Trustee and Disbursement Agent have
entered into a Cash Collateral and Disbursement Agreement dated as of March 14,
1997; and

WHEREAS, the Company and Trustee and Disbursement Agent, with the
consent of the Holders of not less than a majority in aggregate principal
amount of the Notes outstanding, desire to amend the Cash Collateral and
Disbursement Agreement with respect to the schedule for disbursement of funds
in the Collateral Account, all in accordance with the Company's Consent
Solicitation Statement dated April 1, 1997.

Section 1. Sections 4.2(c) and (d) of the Cash Collateral and
Disbursement Agreement are hereby amended to read in full as follows:

(c) The Disbursements shall be made on each of March
14, 1997, April 1, 1997, May 1, 1997 and June 1, 1997, or as soon thereafter as
the Company has delivered a Disbursement Certificate.

(d) (i) The amount of the requested disbursement shall
be equal to (A) $12,000,000 or less on March 14, 1997, (B) $9,000,000 or less
on April 1, 1997, (C) $7,000,000 or less on May 1, 1997, and (D) the balance in
the Collateral Account on June 1, 1997.

Section 2. The remaining provisions of the Cash Collateral and
Disbursement Agreement are unchanged by this Amendment and remain in full force
and effect.

2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized, as of
the date first above written.

TRANSAMERICAN REFINING CORPORATION

By: /s/ R. Glenn McGinnis
--------------------------------
Authorized Signatory

FIRST UNION NATIONAL BANK, as
Trustee

By: /s/ W. Jeffrey Kramer
--------------------------------
Authorized Signatory

FIRST UNION NATIONAL BANK, as
Disbursement Agent

By: /s/ W. Jeffrey Kramer
--------------------------------
Authorized Signatory

<PAGE> 1

EXHIBIT 11.1

TRANSAMERICAN REFINING CORPORATION

COMPUTATION OF NET INCOME (LOSS) PER SHARE
(DOLLARS IN THOUSANDS -- EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JULY 31,
--------------------- ---------------------- -------------------
1997 1996 1996 1995 1995 1994
------- ----------- -------- ----------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Primary:
Weighted average shares outstanding..... 30,000 30,000 30,000 30,000 30,000 30,000
Common equivalent shares related to:
Common stock purchase Warrants.......... 7,458 -- -- -- -- --
------- -------- -------- -------- -------- --------
Weighted average shares and common stock
equivalents........................... 37,458 30,000 30,000 30,000 30,000 30,000
------- -------- -------- -------- -------- --------
Net Income (Loss)....................... $ 9,406 $(67,258) $(26,071) $(23,150) $(64,337) $(17,353)
------- -------- -------- -------- -------- --------
Net Income (Loss) per share............. $ 0.25 $ (2.24) $ (0.87) $ (0.77) $ (2.14) $ (0.58)
======= ======== ======== ======== ======== ========
</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET
AT JANUARY 31, 1997 AND THE STATEMENT OF OPERATIONS FOR THE YEAR ENDED JANUARY
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 613
<SECURITIES> 0
<RECEIVABLES> 22
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,289
<PP&E> 555,816
<DEPRECIATION> 16,930
<TOTAL-ASSETS> 564,241
<CURRENT-LIABILITIES> 408,307
<BONDS> 0
<COMMON> 300
0
0
<OTHER-SE> 81,063
<TOTAL-LIABILITY-AND-EQUITY> 564,241
<SALES> 10,857
<TOTAL-REVENUES> 10,857
<CGS> 11,544
<TOTAL-COSTS> 65,852
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,663
<INCOME-PRETAX> 9,406
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,406
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,406
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0

</TABLE>