TRANSAMERICAN REFINING CORP, S-4, 1998-05-28

TRANSAMERICAN REFINING CORP
S-4, 1998-05-28
PETROLEUM REFINING

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<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1998
REGISTRATION NO. 333-_______
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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

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

TEXAS 2911 76-0229632
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Identification No.)
Number)

1300 NORTH SAM HOUSTON PARKWAY EAST, SUITE 320, HOUSTON, TEXAS 77032-2949,
(281) 986-8811
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)

ED DONAHUE, VICE PRESIDENT AND SECRETARY
1300 NORTH SAM HOUSTON PARKWAY EAST, SUITE 320, HOUSTON, TEXAS 77032-2949,
(281) 986-8811
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

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

copy to:

C. ROBERT BUTTERFIELD
GARDERE & WYNNE, L.L.P.
3000 THANKSGIVING TOWER
DALLAS, TEXAS 75201
(214) 999-3000

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this registration statement becomes effective.

If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]

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

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
===========================================================================================================================
Title Of Each Amount Proposed Maximum Proposed Maximum Amount of
Class Of To Be Offering Price Aggregate Registration
Securities To Be Registered Registered Per Note Offering Price Fee(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
16% Series B Senior Subordinated Notes due 2003 $ 200,000,000 100% $ 200,000,000 $ 59,000
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 200,000,000 100% $ 200,000,000 $ 59,000
===========================================================================================================================
</TABLE>

(1) Calculated pursuant to Rule 457(f)(2). For purposes of this calculation,
the Offering Price per Note was assumed to be the principal amount as
shown on the face of the Exchange Notes.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2

PROSPECTUS
OFFER TO EXCHANGE

16% SERIES B SENIOR SUBORDINATED NOTES DUE 2003
($200,000,000 PRINCIPAL AMOUNT)

FOR

ALL OUTSTANDING

16% SERIES A SENIOR 16% SERIES C SENIOR
SUBORDINATED NOTES DUE 2003 AND SUBORDINATED NOTES DUE 2003
($175,000,000 PRINCIPAL AMOUNT ($25,000,000 PRINCIPAL AMOUNT
OUTSTANDING) OUTSTANDING)

TRANSAMERICAN REFINING CORPORATION

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

The Exchange Offer will expire at 5:00 p.m., New York City time on
__________, 1998, unless extended.

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

TransAmerican Refining Corporation, a Texas corporation ("TARC" or the
"Company"), hereby offers (the "Exchange Offer"), upon the terms and subject to
the conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange up to an aggregate
principal amount of $200,000,000 of its 16% Series B Senior Subordinated Notes
due 2003 (the "Exchange Notes") for an equal aggregate principal amount of its
16% Series A Senior Subordinated Notes due 2003 (the "Series A Notes") and 16%
Series C Senior Subordinated Notes due 2003 (the "Series C Notes" and, together
with the Series A Notes, the "Outstanding Notes") in integral multiples of
$1,000. The Exchange Notes and the Outstanding Notes are sometimes
collectively referred to as the "Notes." The Exchange Notes will be
subordinated unsecured obligations of the Company and are substantially
identical (including principal amount, interest rate, maturity and redemption
rights) to the Outstanding Notes for which they may be exchanged pursuant to
this Exchange Offer, except for certain transfer restrictions and registration
rights relating to the Outstanding Notes and except for certain interest
provisions relating to such rights. The Exchange Notes will be issued under an
Indenture dated as of December 30, 1997 (the "Indenture"), among the Company
and First Union National Bank, as trustee (the "Trustee"). See "Description of
the Exchange Notes." There will be no proceeds to the Company from this
offering; however, pursuant to Registration Rights Agreements dated as of
December 30, 1997 and March 16, 1998 (the "Registration Rights Agreements")
among the Company and the original purchaser of the Outstanding Notes (the
"Initial Purchaser"), the Company will bear certain offering expenses.

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

SEE "RISK FACTORS" ON PAGE 6 FOR A DISCUSSION OF CERTAIN RISKS TO BE
CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND IN EVALUATING AN
INVESTMENT IN THE EXCHANGE NOTES.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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

The date of this Prospectus is _________, 1998.
<PAGE> 3
The Company will accept for exchange any and all Outstanding Notes
validly tendered on or prior to 5:00 p.m., New York City time on __________,
1998, unless extended (the "Expiration Date"). Tenders of Outstanding Notes
may be withdrawn at any time prior to 5:00 p.m., New York City time on the
Expiration Date; otherwise such tenders are irrevocable. First Union National
Bank is acting as Exchange Agent in connection with the Exchange Offer. The
Exchange Offer is not conditioned upon any minimum principal amount of
Outstanding Notes being tendered for exchange, but is otherwise subject to
certain customary conditions.

The Exchange Notes will bear interest at a rate of 16% per annum
payable semi-annually in cash in arrears on June 30 and December 30 of each
year, commencing December 30, 1998. The Exchange Notes will mature on June 30,
2003. The Exchange Notes will be redeemable at the option of the Company, in
whole or in part, at the redemption prices set forth therein, plus accrued and
unpaid interest, if any, to and including the date of redemption. Upon the
occurrence of a Change of Control (as defined), the Company will be required to
make an offer to purchase all of the outstanding Exchange Notes at a price
equal to 101% of the principal amount thereof, together with accrued and unpaid
interest, if any, to and including the date of purchase.

The Series A Notes and the Series C Notes were sold by the Company on
December 30, 1997 and March 16, 1998, respectively, to the Initial Purchaser in
transactions not registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon the exemption provided by Section 4(2) of
the Securities Act. The Initial Purchaser subsequently placed the Outstanding
Notes with qualified institutional buyers in reliance upon Rule 144A under the
Securities Act. Accordingly, the Outstanding Notes may not be reoffered,
resold or otherwise transferred in the United States unless so registered or
unless an applicable exemption from the registration requirements of the
Securities Act is available. The Exchange Notes are being offered hereunder in
order to satisfy the obligations of the Company under the Registration Rights
Agreements between the Company and the Initial Purchaser. See "The Exchange
Offer."

Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that Exchange Notes issued pursuant to this
Exchange Offer may be offered for resale, resold and otherwise transferred by a
holder who is not an affiliate of the Company without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the holder is acquiring the Exchange Notes in its ordinary course of
business and is not participating in and has no arrangement or understanding
with any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes. Persons wishing to exchange Outstanding
Notes in the Exchange Offer must represent to the Company that such conditions
have been met.

Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer (a "Participating Broker-Dealer") must
acknowledge that it will deliver a prospectus in connection with any resale of
Exchange Notes. The Letter of Transmittal for the Exchange Offer states that
by so acknowledging and delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Outstanding Notes where such
Outstanding Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
to make this Prospectus available to any Participating Broker-Dealer for use in
connection with any such resale for a period of up to 180 days from the date of
consummation of the Exchange Offer. See "Plan of Distribution."

The Company does not intend to list the Exchange Notes on any national
securities exchange or to seek the admission thereof to trading on The Nasdaq
Stock Market. The Initial Purchaser has advised the Company that it intends to
make a market in the Exchange Notes; however, it is not obligated to do so and
any market-making activities may be discontinued at any time without notice.
Accordingly, no assurance can be given that an active public or other market
will develop for the Exchange Notes or as to the liquidity of or the trading
market for the Exchange Notes.

Any Outstanding Notes not tendered and accepted in the Exchange Offer
will remain outstanding. To the extent that any Outstanding Notes of other
holders are tendered and accepted in the Exchange Offer, a holder's ability to
sell untendered Outstanding Notes could be adversely affected. Following
consummation of the Exchange Offer, the holders of Outstanding Notes will
continue to be subject to the existing restrictions upon transfer thereof.

ii
<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
Special Note Regarding Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . iv
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . 25
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Management of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . 49
Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Certain Federal Income Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Certain Legal Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Description of Existing Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Description of the Exchange Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>

iii
<PAGE> 5
AVAILABLE INFORMATION

The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form S-4 (the "Registration Statement") under the
Securities Act with respect to the securities offered by this Prospectus.
Certain of the information contained in the Registration Statement is omitted
from this Prospectus, and reference is hereby made to the Registration
Statement and exhibits and schedules relating thereto for further information
with respect to the Company and the securities offered by this Prospectus. The
Company is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith,
files reports and other information with the Commission. Such reports and
other information are available for inspection at, and copies of such materials
may be obtained upon payment of the fees prescribed therefor by the rules and
regulations of the Commission from, the Commission at its principal offices
located at Judiciary Plaza, 450 Fifth Street, Room 1024, Washington, D.C.
20549, and at the Regional Offices of the Commission located at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; and at 7 World Trade Center, Suite 1300, New York, New York 10048.
The Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding the Company and other registrants that file
electronically with the Commission.

So long as the Company is subject to the periodic reporting
requirements of the Exchange Act, it is required to furnish the information
required to be filed with the Commission to the Trustee and the holders of the
Notes. The Company has agreed that, even if it is entitled under the Exchange
Act not to furnish such information to the Commission, it will nonetheless
continue to furnish information that would be required to be furnished by the
Company by Section 13 of the Exchange Act to the Trustee and the holders of the
Notes as if it were subject to such periodic reporting requirements.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The forward-looking statements provided throughout this document
(collectively, "Forward-Looking Statements") involve certain risks and
uncertainties that could cause actual results to differ materially from those
projected in the Forward-Looking Statements. The Company cautions that the
Forward-Looking Statements are subject to all the risks and uncertainties
discussed under the captions "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." See "Risk Factors
- -- Risks Related to Forward Looking Statements and Estimates."

iv
<PAGE> 6
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more
detailed information and the financial statements (including notes thereto)
included elsewhere in this Prospectus. Unless the context indicates otherwise,
references in this Prospectus to the "Company" or "TARC" are to TransAmerican
Refining Corporation and the business and assets that were transferred to it on
or before February 23, 1995 by TransAmerican Natural Gas Corporation (together
with its predecessors, "TransAmerican"), references to "TEC" are to
TransAmerican Energy Corporation, and references to "TransTexas" are to
TransTexas Gas Corporation and its subsidiaries and the business and assets
that were transferred to TransTexas on August 24, 1993 by TransAmerican. In
January 1996, the Board of Directors of TARC elected to change its fiscal year
end for financial reporting purposes from July 31 to January 31. As a result,
all references herein to fiscal 1996 are to the six-month period ended January
31, 1996.

THE COMPANY

TARC owns a large petroleum refinery 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 its gross 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 (the "1995 Program") designed to reactivate the refinery
and increase its complexity. From February 1995 through May 1997, TARC spent
approximately $251 million on the 1995 Program, procured a majority of the
essential equipment required and completed substantially all of the process
design engineering and a substantial portion of the remaining engineering
necessary for its completion.

In order to capitalize on the progress on the refinery made through
its expenditures on the 1995 Program, in June 1997 TARC commenced a modified
two-phase construction and expansion program (the "Capital Improvement
Program"). TARC spent approximately $215 million on the Capital Improvement
Program during the period between June 1997 and January 31, 1998. The design
and estimated timing and cost of the Capital Improvement Program are based on
substantial input from several engineering and construction firms which have
been engaged to perform design engineering and construction management
services.

Phase I of the Capital Improvement Program includes the completion and
start-up of several units, including the Delayed Coking Unit, one of the
refinery's major conversion units. Phase II of the Capital Improvement Program
includes the completion and start-up of the Fluid Catalytic Cracking Unit
utilizing state-of-the-art MSCC(SM) technology and the installation of
additional equipment expected to further improve operating margins by allowing
for a significant increase in the refinery's capacity to produce gasoline.
After completion of the Capital Improvement Program, TARC will own and operate
one of the largest independent refineries in the Gulf Coast region, with a
replacement cost estimated by management to be approximately $1.4 billion.
TARC currently believes that the costs of construction of the refinery will
exceed the budget established in June 1997, but that sufficient cash will be
available to fund such costs. See "Business -- Capital Improvement Program --
Capital Budget Status" and "-- Completion Status." The foregoing estimates, as
well as other estimates and projections herein, are subject to substantial
revision upon the occurrence of future events, such as unavailability of
financing, engineering problems, work stoppages and cost overruns, over which
TARC may not have any control, and there can be no assurance that any such
projections or estimates will prove accurate.

1
<PAGE> 7
THE EXCHANGE OFFER

The Outstanding Notes . . . . . The Series A Notes and the Series C Notes
were sold by the Company on December 30,
1997 and March 16, 1998, respectively, to
the Initial Purchaser pursuant to Note
Purchase Agreements dated December 23,
1997 and March 6, 1998, respectively (the
"Purchase Agreements").

Registration Requirements . . . Pursuant to the Purchase Agreements, the
Company and the Initial Purchaser entered
into the Registration Rights Agreements,
which grant the holders of the
Outstanding Notes certain exchange and
registration rights. The Exchange Offer
is intended to satisfy such exchange and
registration rights. If applicable law
or applicable interpretations of the
staff of the Commission do not permit the
Company to effect the Exchange Offer, or
if certain other conditions apply, the
Company has agreed to file a shelf
registration statement (the "Shelf
Registration Statement") covering resales
of the Outstanding Notes. See "The
Exchange Offer -- Shelf Registration
Statement."

The Exchange Offer . . . . . . The Company is offering to exchange
$1,000 principal amount (as shown on the
face thereof) of the Exchange Notes for
each $1,000 principal amount (as shown on
the face thereof) of Outstanding Notes.
As of the date hereof, $200,000,000
aggregate principal amount of the
Outstanding Notes are outstanding. The
Company will issue the Exchange Notes to
holders of Outstanding Notes on
_________, 1998 (the "Exchange Date").

Based on an interpretation of the staff
of the Commission set forth in no-action
letters issued to third parties, the
Company believes that Exchange Notes
issued pursuant to the Exchange Offer in
exchange for Outstanding Notes may be
offered for resale, resold and otherwise
transferred by any holder thereof (other
than any such holder which is an
"affiliate" of the Company within the
meaning of Rule 405 under the Securities
Act) without compliance with the
registration and prospectus delivery
provisions of the Securities Act,
provided that such Exchange Notes are
acquired in the ordinary course of such
holder's business and that such holder
does not intend to participate and has no
arrangement or understanding with any
person to participate in the distribution
of such Exchange Notes.

Each Participating Broker-Dealer must
acknowledge that it will deliver a
prospectus in connection with any resale
of Exchange Notes. The Letter of
Transmittal for the Exchange Offer states
that by so acknowledging and by
delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. This Prospectus, as it
may be amended or supplemented from time
to time, may be used by a broker-dealer
in connection with resales of Exchange
Notes received in exchange for
Outstanding Notes where such Outstanding
Notes were acquired by such broker-dealer
as a result of market-making activities
or other trading activities. The Company
has agreed to make this Prospectus
available to any Participating
Broker-Dealer for use in connection with
any such resale for a period of up to 180
days from the consummation of the
Exchange Offer. See "Plan of
Distribution."

Any holder who tenders in the Exchange
Offer with the intention to participate,
or for the purpose of participating, in a
distribution of the Exchange Notes cannot
rely on the position of the staff of the
Commission enunciated in Exxon Capital
Holdings Corporation (available April 13,
1989) or similar no-action letters and,
in the absence of an exemption therefrom,

2
<PAGE> 8
must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with the
resale transaction. Failure to comply
with such requirements in such instance
may result in such holder incurring
liability under the Securities Act for
which the holder is not indemnified by
the Company.

Expiration Date . . . . . . . . 5:00 p.m., New York City time
on ________, 1998.

Procedures for Tendering
Outstanding Notes . . . . . . Each holder of Outstanding Notes wishing
to accept the Exchange Offer must
complete, sign and date the accompanying
Letter of Transmittal, or a facsimile
thereof, in accordance with the
instructions contained herein and
therein, and mail or otherwise deliver
such Letter of Transmittal, or such
facsimile, together with the Outstanding
Notes and any other required
documentation to the Exchange Agent at
the address set forth herein or otherwise
comply with the procedures for tendering
set forth in "The Exchange Offer --
Procedures for Tendering." By tendering
Outstanding Notes, each holder will
represent to the Company that, among
other things, the holder or the person
receiving such Exchange Notes, whether or
not such person is the holder, is
acquiring the Exchange Notes in the
ordinary course of business and that
neither the holder nor any such other
person has any arrangement or
understanding with any person to
participate in the distribution of such
Exchange Notes. In lieu of physical
delivery of the certificates representing
Outstanding Notes, tendering holders may
transfer Outstanding Notes pursuant to
the procedures for book-entry transfer as
set forth under "The Exchange
Offer--Procedures for Tendering."

Special Procedures for
Beneficial Owners . . . . . . Any beneficial owner whose Outstanding
Notes are registered in the name of a
broker-dealer, commercial bank, trust
company or other nominee and who wishes
to tender should contact such registered
holder promptly and instruct such
registered holder to tender on such
beneficial owner's behalf.

If such beneficial owner wishes to tender
on such owner's own behalf, such owner
must, prior to completing and executing
the Letter of Transmittal and delivering
its Outstanding Notes, either make
appropriate arrangements to register
ownership of the Outstanding Notes in
such owner's name or obtain a properly
completed bond power from the registered
holder. The transfer of registered
ownership may take considerable time.

Guaranteed Delivery
Procedures . . . . . . . . . Holders of Outstanding Notes who wish to
tender their Outstanding Notes and whose
Outstanding Notes are not immediately
available or who cannot deliver their
Outstanding Notes, the Letter of
Transmittal or any other documents
required by the Letter of Transmittal to
the Exchange Agent (or comply with the
procedures for book-entry transfer) prior
to the Expiration Date must tender their
Outstanding Notes according to the
guaranteed delivery procedures set forth
in "The Exchange Offer -- Guaranteed
Delivery Procedures."

Withdrawal Rights . . . . . . . Tenders may be withdrawn at any time
prior to 5:00 p.m., New York City time on
the Expiration Date pursuant to the
procedures described under "The Exchange
Offer -- Withdrawal of Tenders."

3
<PAGE> 9
Acceptance of Outstanding
Notes and Delivery of
Exchange Notes . . . . . . . Subject to certain conditions, the
Company will accept for exchange any and
all Outstanding Notes that are properly
tendered in the Exchange Offer prior to
5:00 p.m., New York City time on the
Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer
will be delivered on the Exchange Date.
See "The Exchange Offer -- Terms of the
Exchange Offer."

Federal Income Tax
Consequences . . . . . . . . The exchange pursuant to the Exchange
Offer should not be a taxable event for
federal income tax purposes. See
"Certain Federal Income Tax
Considerations."

Effect on Holders of
Outstanding Notes . . . . . . As a result of the making of this
Exchange Offer, the Company will have
fulfilled one of its obligations under
the Registration Rights Agreements, and,
with certain exceptions noted below,
holders of Outstanding Notes who do not
tender their Outstanding Notes will not
have any further registration rights
under their respective Registration
Rights Agreements or otherwise. Such
holders will continue to hold the
untendered Outstanding Notes and will be
entitled to all the rights and subject to
all the limitations applicable thereto
under the indentures pursuant to which
they were issued, except to the extent
such rights or limitations, by their
terms, terminate or cease to have further
effectiveness as a result of the Exchange
Offer. All untendered Outstanding Notes
will continue to be subject to certain
restrictions on transfer. Accordingly,
if any Outstanding Notes are tendered and
accepted in the Exchange Offer, the
trading market of the untendered
Outstanding Notes could be adversely
affected. See "Risk Factors -- Exchange
Offer Procedures."

Private Exchange Notes . . . . The Registration Rights Agreements
provide that if, prior to consummation of
the Exchange Offer, the Initial Purchaser
holds any Outstanding Notes acquired by
it and having the status of an unsold
allotment in the initial distribution,
the Company upon the request of such
Initial Purchaser shall, simultaneously
with the delivery of the Exchange Notes
in the Exchange Offer, issue and deliver
to the Initial Purchaser, in exchange
(the "Private Exchange") for such
Outstanding Notes held by the Initial
Purchaser a like principal amount of debt
securities of the Company that are
identical in all material respects to the
Exchange Notes (the "Private Exchange
Notes") (and which were issued pursuant
to the Indenture). The Private Exchange
Notes are not covered by the registration
statement of which this Prospectus is a
part and are not being offered hereby.
Any Private Exchange Notes will be
entitled to all the rights and subject to
all the limitations applicable thereto
under the Indenture, and will be subject
to the same restrictions on transfer
applicable to untendered Outstanding
Notes. See "The Exchange Offer --
Consequences of Failure to Exchange."
Pursuant to the Registration Rights
Agreements, however, holders of Private
Exchange Notes have certain rights to
require the Company to file and maintain
a shelf registration statement that would
allow resale of such Private Exchange
Notes.

Exchange Agent . . . . . . . . First Union National Bank

Information Agent . . . . . . . D.F. King & Co., Inc.

4
<PAGE> 10
SUMMARY OF TERMS OF THE EXCHANGE NOTES

Securities Offered . . . . . . $200,000,000 aggregate principal amount
of 16% Series B Senior Subordinated
Notes due 2003.

Maturity Date . . . . . . . . . June 30, 2003 (the "Maturity Date").

Interest on Exchange Notes . . The Exchange Notes will bear interest at
a rate of 16% per annum. Interest will
accrue from the most recent date on
which interest has been paid or, if no
interest has been paid, from June 30,
1998. Interest on the Exchange Notes
will be payable semi-annually in cash in
arrears on June 30 and December 30 of
each year, commencing December 30, 1998.

Ranking . . . . . . . . . . . . The Exchange Notes will be senior
subordinated obligations of the Company
and will be subordinated in right of
payment to all existing and future
Senior Debt of the Company. As of
January 31, 1998, the Company had
approximately $810.7 million in
aggregate principal amount (or, with
respect to the TARC Intercompany Loan,
the accreted value) of Senior Debt
outstanding. The Indenture permits the
Company to incur additional
indebtedness, including Senior Debt,
under certain circumstances. The
Company may not incur any Debt which is
contractually subordinate or junior in
right of payment (to any extent) to any
Debt of the Company and which is not
expressly by the terms of the instrument
creating such Debt made pari passu with,
or subordinated and junior in right of
payment to, the Exchange Notes. See
"Description of the Exchange Notes."

Optional Redemption . . . . . . The Exchange Notes will be redeemable at
the option of the Company, in whole or
in part, at the redemption prices set
forth therein, plus accrued and unpaid
interest, if any, to and including the
date of redemption.

Mandatory Redemption . . . . . None.

Change of Control . . . . . . . Upon the occurrence of a Change of
Control, the Company will be required to
make an offer to purchase the Exchange
Notes at a price equal to 101% of the
principal amount thereof, together with
accrued and unpaid interest, if any, to
and including the date of purchase.

Certain Covenants . . . . . . . The Indenture contains certain
covenants, including covenants that
limit: (i) indebtedness; (ii) restricted
payments; (iii) transactions with
affiliates; (iv) liens; (v) asset sales;
(vi) dividend and other payment
restrictions affecting restricted
subsidiaries; (vii) line of business and
(viii) mergers, consolidations and sales
of assets. See "Description of the
Exchange Notes -- Covenants" and "--
Limitation on Merger, Sale or
Consolidation."

RISK FACTORS

See "Risk Factors" for a discussion of certain risks that should be
carefully considered in connection with the Exchange Offer and in evaluating an
investment in the Exchange Notes.

5
<PAGE> 11
RISK FACTORS

Prospective investors in the Exchange Notes should carefully consider
the risk factors set forth below as well as the other information contained in
this Prospectus.

SIGNIFICANT LEVERAGE. At January 31, 1998, total long-term debt, less
current maturities, of TARC (including the TARC Intercompany Loan) was
approximately $970.9 million, which represented approximately 85.8% of the total
capitalization of TARC. In addition, the accretion on the TARC Intercompany
Loan (as defined) will increase the indebtedness represented thereby from
approximately $745.3 million at January 31, 1998, to $920 million by June 15,
1999. The high degree of leverage will have significant consequences, including
(i) a substantial portion of net cash provided by operations will be committed
to the payment of interest expense and principal repayment obligations and (ii)
TARC will be more highly leveraged than other companies in its industry, which
may place it at a competitive disadvantage. The Exchange Notes will be
unsecured obligations of the Company and will be subordinated in right of
payment to the prior payment in full of all Senior Debt (as defined), including,
without limitation, the TARC Intercompany Loan. The Company is the sole obligor
with respect to the Outstanding Notes and will be the sole obligor with respect
to the Exchange Notes, and the Notes will not be obligations of, or guaranteed
by, TEC or, initially, any other person or entity.

The Company may require sources of liquidity other than cash flow from
operations, including asset sales or equity or debt financings, to retire or
otherwise refinance the principal amount of its debt, including the Notes, on
or prior to maturity. The agreement governing the TARC Intercompany Loan
contains various covenants that restrict the Company's ability to enter into
asset sales or equity or debt financings.

SUBORDINATION. The payment of principal of, premium, if any, and
interest on, the Exchange Notes will be subordinated in right of payment to the
prior payment in full of all Senior Debt of the Company, whether outstanding at
the date of the Indenture or later incurred. In the event of any default in
the payment of the principal or interest with respect to any Senior Debt, no
payment with respect to the principal of, premium, if any, or interest on, the
Exchange Notes will be made by the Company unless and until such default has
been cured or waived. In addition, upon the occurrence of any other event of
default entitling the holders of Senior Debt to accelerate the maturity thereof
and receipt by the Trustee (as defined) of written notice of such occurrence,
the holders of Senior Debt will be able to block payment on the Notes for up to
179 days in each period of 360 consecutive days.

Upon any payment or distribution of the Company's assets to creditors
upon any dissolution, winding up, liquidation, reorganization, bankruptcy,
insolvency, receivership or other proceedings relating to the Company, whether
voluntary or involuntary, the holders of Senior Debt will be entitled first to
receive payment in full of all amounts due thereon before the holders of the
Exchange Notes will be entitled to receive any payment upon the principal of,
or premium, if any, or interest on, the Exchange Notes. By reason of such
subordination, in the event of the insolvency of the Company, holders of the
Exchange Notes may recover less, ratably, than holders of Senior Debt and other
creditors of the Company or may recover nothing. The terms and conditions of
the subordination provisions pertinent to the Exchange Notes are described in
more detail in "Description of Exchange Notes--Subordination."

ORIGINAL ISSUE DISCOUNT. The Exchange Notes will be issued with
original issue discount for federal income tax purposes ("OID"). Consequently,
holders of the Exchange Notes generally will be required to include OID over
the period that they hold the Exchange Notes in ordinary income for federal
income tax purposes in advance of the receipt of the cash attributable thereto.
See "Certain Federal Income Tax Considerations" for a more detailed discussion
of the federal income tax consequences of the purchase, ownership and
disposition of the Exchange Notes.

If a bankruptcy case is commenced by or against the Company under the
Bankruptcy Code after the issuance of the Notes, the claim of a holder of Notes
with respect to the principal amount thereof may be limited to an amount equal
to the sum of (i) the initial offering price and (ii) that portion of the OID
(if any) that is deemed not to constitute "unmatured interest" for purposes of
the Bankruptcy Code. Any OID that was not amortized as of any such bankruptcy
filing would constitute "unmatured interest."

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<PAGE> 12
AGREEMENT TO GRANT A LIEN. The Company has agreed that, upon payment
in full of the TARC Intercompany Loan (other than pursuant to a Qualifying
Refinancing, as defined), it will grant a Lien (the "Subject Lien") to secure
the Notes on substantially all of its assets (exclusive of Inventory,
Receivables and Equipment, and the Catofin(R) Unit, each as defined in the TEC
Notes Indenture) (the "Subject Assets"). A "Qualifying Refinancing" is any
refinancing of all or any portion of the TARC Intercompany Loan at lower cost
of capital than the effective cost of capital on the portion of the TARC
Intercompany Loan refinanced.

In the event a bankruptcy proceeding is filed by or against the
Company within 90 days of perfection of the Subject Lien, the Subject Lien
would be subject to avoidance and termination as a bankruptcy preference if the
Company is shown to have been insolvent on the date on which the Subject Lien
was perfected. In addition, the priority of the Subject Lien will not be
established until the time of its perfection and, consequently, the Subject
Lien will be inferior to any Lien now or hereafter encumbering the Subject
Assets (or any portion thereof), that is perfected or is deemed to have been
perfected as of a date prior to the date of perfection of the Subject Lien.

There can be no assurance that the Company's agreement to grant the
Subject Lien will be specifically enforceable against the Company and, if a
bankruptcy proceeding is filed by or against the Company prior to the date on
which the Subject Lien is granted, the obligation of the Company to grant the
Subject Lien may not be enforceable against the Company's estate in bankruptcy.
Finally, the Subject Lien, if and when granted, will encumber only the right,
title and interest of the Company in and to the Subject Assets, if any, owned
by the Company on the date on which the Subject Lien is granted, and there can
be no assurance as to the Company's continued ownership of all of the assets
now comprising the Subject Assets.

LIMITED OPERATING HISTORY. TARC has a limited operating history.
TARC's predecessor and indirect parent corporation, TransAmerican, acquired the
refining facility in 1971 and, between 1978 and 1983, invested approximately
$900 million in capital improvements to expand capacity and increase refining
complexity. The refinery operated at a loss in fiscal 1981 and 1982, and in
January 1983, financial difficulties prevented TransAmerican from completing
certain units of the refinery and forced a shutdown of operations. See "--
Certain Bankruptcy Considerations." TARC recommenced partial operations at the
refinery in March 1994 and operated the No. 2 Vacuum Unit intermittently until
January 1997. TARC has historically incurred losses and negative cash flows
from operating activities as a result of limited refining operations that did
not cover the fixed costs of operating the refinery, increased working capital
requirements and losses on refined product sales due to financing costs and low
operating margins. TARC may operate the No. 2 Crude Unit and/or the No. 2
Vacuum Unit if market conditions are favorable. TARC's decision to commence or
suspend operations will be based on the availability of working capital,
current operating margins and the need to tie-in units as they are completed.
No assurance can be given that such operations will not generate losses and
negative cash flow, or that TARC will ultimately achieve positive cash flow
from operations.

CAPITAL IMPROVEMENT PROGRAM REQUIREMENTS; CONSTRUCTION RISKS. Major
construction projects, such as the Capital Improvement Program, entail
significant risks, including possible unanticipated shortages of materials or
skilled labor, unforeseen engineering or environmental problems, work
stoppages, weather interference, unanticipated cost increases and regulatory
problems. Adverse developments in any of these areas could delay the project or
increase its costs. TARC currently believes that Capital Improvement Program
costs will exceed the $427 million budget established in June 1997 by as much
as $45 million, but that sufficient cash will be available to fund such costs.
See "Business -- Capital Improvement Program -- Capital Budget Status" and "--
Completion Status." If engineering problems, further cost overruns or delays
occur, TARC may not be able to complete the entire Capital Improvement Program.
Although TARC expects to have a credit facility to meet its working capital
needs in place by the completion of Phase I, TARC currently does not have such
facility in place. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

TARC has engaged a number of specialty consultants and engineering and
construction firms to assist it in completing the individual projects that
comprise the Capital Improvement Program. However, TARC will act as the general
contractor for the Capital Improvement Program, and TARC or one of its
affiliates will construct certain portions of the facilities. TARC's
predecessor commenced two major construction projects in the 1970s, one of
which involved

7
<PAGE> 13
the refinery, neither of which was completed. In addition, expenditures
incurred in connection with the 1995 Program substantially exceeded the budget
therefor, partially because of changes in the scope of such program.

VOLATILITY OF GROSS REFINING MARGINS; CURRENT MARKET CONDITIONS.
TARC's income and cash flow will be derived from the difference between its
costs to obtain and refine crude oil and other feedstocks and the price for
which it can sell its refined products. TARC will buy crude oil and other
feedstocks and sell refined petroleum products on the spot market. TARC will
maintain inventories of crude oil, other feedstocks, intermediate products and
refined products, the values of which are subject to fluctuations in market
prices. Factors that are beyond the control of TARC may cause the cost of crude
oil and other feedstocks 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 and other feedstocks, or a decrease in
market prices for refined products, could have an adverse impact on TARC's
income and cash flow.

In order to manage its exposure to price risks in the marketing of its
refined products, TARC may enter into fixed price delivery contracts, financial
swaps and futures contracts as hedging devices. To ensure a fixed price for its
products, TARC may sell a futures contract and thereafter either (i) make
physical delivery of its product to comply with such contract or (ii) buy a
matching futures contract to unwind its futures position and sell its products
to a customer. Such contracts may restrict the ability of TARC to benefit from
unexpected increases in refined product prices. Hedging by TARC has in the past
resulted in financial losses and may in the future expose TARC to the risk of
financial loss in certain circumstances. There can be no assurance that hedging
devices utilized by TARC will protect against its exposure to price risk.

DEPENDENCE ON SINGLE SITE OF OPERATIONS; OPERATIONAL RISKS. All of
TARC's refining activities are conducted at one location. Refining operations
are subject to inherent risks including fires, floods, accidents, explosions
and chemical releases into the air and water. As a result, the operations of
TARC could be subject to significant interruption if the refinery or the
pipelines that it utilizes were to experience a fire, flood, major accident,
shutdown or equipment failure, or if it were damaged by severe weather or other
natural disaster. Although TARC expects to have sufficient insurance at all
times, there can be no assurance that TARC can obtain increased coverage
amounts in the future at rates or on terms it considers reasonable or
acceptable or that all losses from business interruption and damages or
liability for an accident will be covered by insurance. The occurrence of
significant events against which TARC is not fully insured or of a number of
lesser events against which TARC is fully insured but subject to substantial
deductibles could materially and adversely affect TARC's operations and
financial condition. See "Business -- Insurance." In addition, the refinery
will receive substantially all of its crude oil and other feedstocks at its
docks on the Mississippi River. The weather or any obstruction of the river
could interrupt supplies of crude oil feedstock, shipments of refined products
or otherwise materially affect operations.

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. See "Business -- Competition."

ENVIRONMENTAL 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
now, and has included in the Capital Improvement Program sufficient capital
additions to remain, in substantial compliance with applicable Pollution
Control Laws. However, Pollution Control Laws that may be enacted in the
future, as well as increasingly strict enforcement

8
<PAGE> 14
of existing Pollution Control Laws, may require TARC to make additional 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. However, there is
no assurance that TARC will remain in compliance with environmental
regulations.

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 has 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 financial position, results of operations or cash flow.

In September 1997, TARC purchased a tank storage facility located
adjacent to the refinery for a cash purchase price of $40 million (which does
not include a $3.1 million liability recorded for environmental remediation, as
discussed below). Environmental investigations conducted by the previous owner
of the facilities have indicated soil and groundwater contamination in several
areas on the property. As a result, the former owner submitted to the
Louisiana Department of Environmental Quality (the "LDEQ") plans for the
remediation of any significant indicated contamination in such areas. TARC has
analyzed these investigations and has carried out further Phase II
Environmental Assessments to verify their results. TARC intends to incorporate
any required remediation into its ongoing work at the refinery. In connection
with the purchase of the facilities, TARC agreed to indemnify the seller for
all cleanup costs and certain other damages resulting from contamination of the
property, and created a $5 million escrow account to fund required remediation
costs and indemnification claims by the seller. As a result of TARC's Phase II
Environmental Assessment, TARC believes that the amount in escrow should be
sufficient to fund the remediation costs associated with identified
contamination; however, because the LDEQ has not yet approved certain of the
remediation plans, there can be no assurance that the funds set aside in the
escrow account will be sufficient to pay all required remediation costs. As of
January 31, 1998, TARC has recognized a liability of $3.1 million for this
contingency.

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. Until the refinery is
in full operation, however, there can be no assurance that the regulations will
not have such an effect.

In addition, the EPA promulgated National Emission Standards for
Hazardous Air Pollutants for Hazardous Organics (the "Hazardous Organic
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 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. Until the refinery is in full operation,
however, there can be no assurance that the regulations will not have such an
effect.

9
<PAGE> 15
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 EPA recently promulgated final
National Ambient Air Quality Standards ("NAAQS") that revise the standards for
particulate matter and ozone. The number and extent of the areas subject to
reformulated gasoline standards may increase in the future after the NAAQS 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 refiners 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
regulatory relief. TARC will continue to pursue regulatory relief with the EPA.
However, there can be no assurance that regulatory relief will be granted.
There can be no assurance that any action taken by the EPA will not have a
material adverse effect on TARC's future financial position, results of
operations or cash flow.

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 Title V Operating Permit is necessary for TARC to
produce at projected levels upon completion of the Capital Improvement Program.
TARC has submitted its Title V Operating Permit Application covering the
refinery and the adjacent tank storage facility. TARC believes that its
application will be approved. However, there can be no assurance that it will be
approved as submitted or 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.

TARC also is subject to federal, state and local laws, regulations and
ordinances that impose liability for the costs of clean up related 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).

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 the 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, submitted a work plan to the LDEQ to
determine which areas may require further investigation and remediation. TARC
submitted further information in January 1998 which was requested by the LDEQ.
Based on the workplan submitted and additional requests by the LDEQ, TARC
believes that any further action will not have a material adverse effect on its
financial position, results of operations or cash flow.

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<PAGE> 16
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 in this regard 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 or other
actions brought pursuant or relating 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 believes that its ultimate environmental liabilities will not be
significant; however, it is not possible to determine the ultimate
environmental liabilities, if any, that may arise from the matters discussed
above.

YEAR 2000 COMPLIANCE. The year 2000 issue relates to computer
programs or computer equipment designed to use two digits rather than four
digits to define the applicable year. As a result, computer systems with
time-sensitive software may not accurately calculate, store or use a date
subsequent to December 31, 1999. This could result in system failures or
miscalculations and disruptions of operations, including among other things, a
temporary inability to process transactions or engage in other normal business
activities.

In June 1997, management began a Company-wide program to prepare its
computer systems for year 2000 compliance. In January 1998, TARC began
implementation of new client/server based systems which are anticipated to be
completed by January 1999. TARC estimates the cost of upgrading its computer
systems to be approximately $2 million. There can be no assurance that TARC
will timely complete the implementation of the new systems.

MATERIAL PROCEEDINGS. TARC has been and continues to be involved in a
number of legal proceedings. The adverse resolution in any reporting period of
one or more of any such matters could have a material adverse impact on the
results of operations of TARC for that period. See "Business -- Legal
Proceedings."

RISKS RELATED TO FORWARD LOOKING STATEMENTS AND ESTIMATES. This
Prospectus includes "forward-looking statements" as defined in Section 27A of
the Securities Act and Section 21E of the Exchange Act. All statements other
than statements of historical facts included in this Prospectus regarding the
Company's financial position, business strategy, plans and objectives of
management for future operations and indebtedness covenant compliance,
including but not limited to words such as "anticipates," "expects,"
"estimates," "intends," "projects," "believes" and "likely," are
forward-looking statements. Management of the Company believes that their
current views and expectations are

11
<PAGE> 17
based on reasonable assumptions; however, there are significant risks and
uncertainties that could significantly affect expected results. Important
factors that could cause actual results to differ materially from those in the
forward- looking statements are disclosed throughout this Prospectus and
include, without limitation, engineering problems, work stoppages, cost
overruns, personnel or materials shortages, fluctuations in the commodity
prices for petroleum and refined products, casualty losses, conditions in the
capital markets and competition. The Company does not intend to update or
otherwise revise the forward-looking statements contained herein to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

POTENTIAL TAX LIABILITIES. Part of the refinancing of TransAmerican's
debt in 1993 involved the cancellation of approximately $65.9 million of
accrued interest and of a contingent liability for interest of $102 million
owed by TransAmerican. TransAmerican has taken the federal tax position that
the entire amount of this debt cancellation is excluded from its income under
the cancellation of indebtedness provisions (the "COD Exclusion") of the
Internal Revenue Code of 1986, as amended, and has reduced its tax attributes
(including its net operating loss and credit carry forwards) as a consequence
of the COD Exclusion. No federal tax opinion was rendered with respect to this
transaction, however, and TransAmerican has not obtained a ruling from the
Internal Revenue Service (the "IRS") regarding this transaction. The Company
has been advised that TransAmerican believes that there is substantial legal
authority to support the position that the COD Exclusion applies to the
cancellation of TransAmerican's indebtedness. However, due to factual and
legal uncertainties, there can be no assurance that the IRS will not challenge
this position, or that such challenge would not be upheld. Under an agreement
between TNGC Holdings Corporation ("TNGC"), TransAmerican and certain of
TransAmerican's subsidiaries (the "Tax Allocation Agreement"), TransTexas has
agreed to pay an amount equal to any federal tax liability (which would be
approximately $25.4 million) attributable to the inapplicability of the COD
Exclusion. Any such tax would be offset in future years by alternative minimum
tax credits and retained loss and credit carryforwards to the extent
recoverable from TransAmerican. As a member of the TNGC Consolidated Group
(defined below), each of TransTexas, TEC and TARC will be severally liable for
any tax liability resulting from the above-described transactions. The IRS has
commenced an audit of the consolidated federal income tax returns of the TNGC
Consolidated Group for its taxable years ended July 31, 1994 and 1995. Because
the audit is in its initial stages, it is not possible to predict the scope of
the IRS' review or whether any tax deficiencies will be proposed by the IRS as
a result of its review.

The Company has been advised that TransTexas has determined, based upon
independent legal advice, including an opinion from a nationally recognized law
firm, that it will not report any significant federal income tax liability as a
result of its sale (the "Lobo Sale") of TransTexas Transmission Corporation
("TTC"), its subsidiary that owned substantially all of TransTexas' producing
properties and related pipeline transmission system located in the Lower Wilcox
Lobo Trend (the "Lobo Trend") in Webb and Zapata Counties, Texas. There are,
however, significant uncertainties regarding TransTexas' tax position and no
assurance can be given that TransTexas' position will be sustained if
challenged by the IRS. TransTexas is part of an affiliated group for tax
purposes (the "TNGC Consolidated Group"), which includes TNGC, the sole
stockholder of TransAmerican. No letter ruling has been or will be obtained
from the IRS regarding the Lobo Sale by any member of the TNGC Consolidated
Group. If the IRS were to successfully challenge TransTexas' position, each
member of the TNGC Consolidated Group, including TARC, would be severally
liable under the consolidated tax return regulations for the resulting taxes,
in the estimated amount of up to $250 million (assuming the use of existing tax
attributes of the TNGC Consolidated Group), possible penalties equal to 20% of
the amount of the tax, and interest at the statutory rate (currently 8%) on the
tax and penalties (if any). The Tax Allocation Agreement has been amended so
that TransAmerican is obligated to fund the entire tax deficiency (if any)
resulting from the Lobo Sale. There can be no assurance that TransAmerican
would be able to fund any such payment at the time due and the other members of
the TNGC Consolidated Group, thus, may be required to pay the tax.

DECONSOLIDATION FOR FEDERAL INCOME TAX PURPOSES. Under certain
circumstances, TransAmerican 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 members of the TNGC Consolidated Group (excluding TransTexas) is less than
80% (measured by voting power and value), TransTexas will no longer be a member
of the TNGC Consolidated Group for federal tax purposes ("Deconsolidation")
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.

12
<PAGE> 18
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 represents more than 20% of the
voting power or equity value of TARC, then a Deconsolidation of TARC would
occur. Upon a Deconsolidation of TransTexas, members of the TNGC Consolidated
Group that own TransTexas common stock could incur a substantial amount of
federal income tax liability. If such Deconsolidation occurred during the
fiscal year ending January 31, 1999, the aggregate amount of this tax liability
is estimated to be approximately $100 million, assuming no reduction for tax
attributes of the TNGC Consolidated Group. However, such tax liability
generally would be substantially reduced or eliminated in the event that the IRS
successfully challenged TransTexas' position on the Lobo Sale. Each member of a
consolidated group filing a consolidated federal income tax return is severally
liable to the IRS for the consolidated federal income tax liability of the
consolidated group. There can be no assurance that each TNGC Consolidated Group
member will have the ability to satisfy any tax obligation attributable to the
foregoing transactions at the time due and, therefore, other members of the
group, including TEC, TransTexas or TARC, may be required to pay the tax.

Generally, under the Tax Allocation Agreement, if net operating losses
of TARC are used by other members of the TNGC Consolidated Group, then TARC is
entitled to the benefit (through reduced current taxes payable) of such losses
in later years to the extent TARC has taxable income, remains a member of the
TNGC Consolidated Group and the other group members have the ability to pay
such taxes. There is no assurance that TARC will receive any benefit for its
NOL carryforwards. If TransAmerican, TEC or TARC transfers shares of common
stock of TARC (or transfers options or other rights to acquire such shares)
and, as a result of such transfer, Deconsolidation of TARC occurs, TARC would
not thereafter receive any benefit pursuant to the Tax Allocation Agreement for
net operating losses of TARC used by other members of the TNGC Consolidated
Group prior to the Deconsolidation of TARC.

POTENTIAL EFFECTS OF A CHANGE OF CONTROL. The Indenture provides
that, upon the occurrence of a change of control (as defined therein), each
holder of the Notes will have the right to require TARC to repurchase such
holder's Notes at 101% of the principal amount thereof plus accrued and unpaid
interest. Pursuant to the terms of the TARC Intercompany Loan, upon the
occurrence of a change of control, TEC would have the right to require TARC to
repay the principal of the TARC Intercompany Loan in an amount equal to a pro
rata share of the amount TEC is required to pay under the TEC Notes Indenture.
Such pro rata share would be calculated using the ratio of the accreted value
of the outstanding principal amount of the TARC Intercompany Loan to the sum of
(i) the outstanding principal amount of the TransTexas Intercompany Loan plus
(ii) the accreted value of the outstanding principal amount of the TARC
Intercompany Loan. A change of control would be deemed to occur under the
Indenture in the case of certain changes or other events in respect of the
ownership of TARC, including any circumstances pursuant to which any person or
group other than John R. Stanley (or his heirs, his estate or any trust in
which he or his immediate family members have, directly or indirectly, a
beneficial interest in excess of 50%) and his subsidiaries or the TEC Indenture
Trustee is or becomes the beneficial owner of more than 50% of the total voting
power of TARC's then outstanding voting stock and during the 90- day period
thereafter the rating on the notes is downgraded or withdrawn. A change of
control would be deemed to occur under the TARC Intercompany Loan in the case
of certain changes or other events in respect of the ownership or control of
TEC, TransTexas or TARC including any circumstance pursuant to which (i) any
person or group, other than John R. Stanley (or his heirs, his estate or any
trust in which he or his immediate family members have, directly or indirectly,
a beneficial interest in excess of 50%) and his subsidiaries or the TEC
Indenture Trustee is or becomes the beneficial owner of more than 50% of the
total voting power of TEC's then outstanding voting stock or (ii) TEC or any of
its subsidiaries own some of TransTexas' or TARC's capital stock, respectively,
but less than 50% of the total voting stock or economic value of TransTexas or
TARC, respectively, unless the TEC Notes have an investment grade rating for
the period of 120 days thereafter. The term "person," as used in the
definition of change of control, means a natural person, company, government or
political subdivision, agency or instrumentality of a government and also
includes a "group," which is defined as two or more persons acting as a
partnership, limited partnership or other group. In the event of a change of
control under the Indenture or TARC Intercompany Loan, there can be no
assurance that TARC will have sufficient funds to satisfy any such payment
obligations.

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<PAGE> 19
A change of control or other event that results in Deconsolidation of
TransTexas and TransAmerican for federal income tax purposes could result in
acceleration of a substantial amount of federal income taxes. See "--
Deconsolidation for Federal Income Tax Purposes."

CERTAIN BANKRUPTCY CONSIDERATIONS. An investment in the Exchange Notes
involves certain risks in the event that the Company or any of its related
entities were to become a debtor in a case under the Bankruptcy Code, including
substantive consolidation and fraudulent transfer risks, as well as risks
discussed elsewhere herein. If any of John R. Stanley, TNGC, TransAmerican,
TransTexas, TEC or any other related entity becomes a debtor in a case under
the Bankruptcy Code, and if the bankruptcy court enters an order "substantively
consolidating" TARC and the debtor in that case, payment of the Notes could be
delayed or impaired. In a substantive consolidation, the assets and liabilities
of the affected entities are combined, so that the creditors of all entities
share in the consolidated pool of assets. Such a consolidation would expose the
holders of the Notes not only to the usual impairments resulting from
bankruptcy, such as a stay of the Trustee's right to foreclose, but also to
potential dilution of the amount recoverable because of the larger creditor
base. See "-- Original Issue Discount."

It should be noted that TransAmerican and its affiliates filed a
voluntary bankruptcy petition in 1975 and began operating pursuant to a
confirmed plan of reorganization in May 1980. TransAmerican filed a voluntary
bankruptcy petition again in 1983 and emerged from bankruptcy in 1987. In both
of those cases, TransAmerican's creditors received less than the amounts to
which they were otherwise entitled.

CONTROL BY SOLE STOCKHOLDER; POTENTIAL CONFLICTS OF INTEREST. TEC is
the sole holder of common stock of the Company. As a member of the board of
directors and chief executive officer of TransAmerican, TEC and TransTexas, as
chairman of the board of TARC, and as the sole stockholder, chairman of the
board and chief executive officer of TNGC, John R. Stanley is in a position to
control or significantly influence the management and operations of TEC,
TransTexas and TARC, including actions with respect to pending and future
litigation. The directors of TARC generally will have fiduciary obligations to
TEC, the sole stockholder of the Company, and not to the holders of the Notes.
There can be no assurance that conflicts will not arise between TNGC,
TransAmerican, TEC, TransTexas, TARC, Mr. Stanley in his various capacities and
the holders of the Notes.

The Tax Allocation Agreement provides for TNGC and all of its
subsidiaries to file federal income tax returns as members of a consolidated
group. The Tax Allocation Agreement requires TEC, TransTexas and TARC to make
certain payments to TNGC to enable TNGC to pay its federal or alternative
minimum tax. In the event of an IRS audit or examination, the Tax Allocation
Agreement gives TNGC the authority to compromise or settle disputes and to
control litigation, subject to the approval of TEC, TransTexas or TARC, as the
case may be, where such compromise or settlement affects the determination of
the separate tax liability of that company. See "Certain Relationships and
Related Transactions."

ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES. The Company does
not intend to apply for listing of the Exchange Notes on any securities
exchange or to seek the admission thereof to trading in The Nasdaq Stock
Market. The Initial Purchaser has informed the Company that it currently
intends to make a market in the Exchange Notes. However, it is not so
obligated, and any such market making may be discontinued at any time without
notice. In addition, such market making activity will be subject to the limits
imposed by the Securities Act and the Exchange Act and may be limited during
the Exchange Offer or the pendency of the Shelf Registration Statement. See
"Description of the Exchange Notes -- Registration Rights." Accordingly, no
assurance can be given that an active public or other market will develop for
the Exchange Notes.

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<PAGE> 20
If a market for the Exchange Notes does not develop, holders may not
be able to resell any of the Exchange Notes for an extended period of time, if
at all. If a market for the Exchange Notes does develop, the Exchange Notes may
trade at a discount from the initial offering price of the Outstanding Notes,
depending upon prevailing interest rates, results of operations of TARC, the
market for similar securities and other factors. There can be no assurance that
a holder of Exchange Notes will be able to sell such securities in the future
or that such sale will be at a price equal to or greater than the initial
offering price of the Outstanding Notes.

EXCHANGE OFFER PROCEDURES. Issuance of the Exchange Notes in exchange
for Outstanding Notes pursuant to the Exchange Offer will be made only after
timely receipt by the Company of such Outstanding Notes, a properly completed
and duly executed Letter of Transmittal and all other required documents.
Therefore, holders of the Outstanding Notes desiring to tender such Outstanding
Notes in exchange for Exchange Notes should allow sufficient time to ensure
timely delivery. The Company is under no duty to give notification of defects
or irregularities with respect to the tenders of Outstanding Notes for
exchange. Outstanding Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof. Upon consummation
of the Exchange Offer, the registration rights under the Registration Rights
Agreements will terminate except that if any holder notifies the Company within
six months of consummation of the Exchange Offer that (i) due to a change in
law or policy it was not entitled to participate in the Exchange Offer or (ii)
such holder received Exchange Notes that may not be sold without material
restriction under state and federal securities laws, then the Company has
agreed to file and maintain for a period of two years the Shelf Registration
Statement. The Company has also agreed to file and maintain a Shelf
Registration Statement after consummation of a Private Exchange, if the Initial
Purchaser so requests by December 30, 1998. In addition, any holder of
Outstanding Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Outstanding Notes, where
such Outstanding Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
See "Plan of Distribution." To the extent that Outstanding Notes are tendered
and accepted in the Exchange Offer, the trading market for untendered and
tendered but unaccepted Outstanding Notes could be adversely affected. See
"The Exchange Offer."

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<PAGE> 21
THE EXCHANGE OFFER

PURPOSE AND EFFECT OF THE EXCHANGE OFFER

The Series A Notes and the Series C Notes were sold by the Company on
December 30, 1997 and March 16, 1998, respectively, to the Initial Purchaser
pursuant to the Purchase Agreements. As a condition of the purchase of the
Outstanding Notes by the Initial Purchaser, the Company entered into the
Registration Rights Agreements with the Initial Purchaser, which require, among
other things, that the Company file with the Commission a registration
statement under the Securities Act with respect to an offer by the Company to
the holders of the Outstanding Notes to issue and deliver to such holders, in
exchange for Outstanding Notes, a like principal amount of Exchange Notes. The
Company is required to use its best efforts to cause the Registration Statement
relating to the Exchange Offer to be declared effective by the Commission under
the Securities Act and commence the Exchange Offer. The Exchange Notes are to
be issued without a restrictive legend and may be reoffered and resold by the
holder without restrictions or limitations under the Securities Act (other than
any such holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act). Copies of the Registration Rights
Agreements have been filed as exhibits to the Registration Statement of which
this Prospectus is a part. The term "Holder" with respect to the Exchange
Offer means any person in whose name the Outstanding Notes are registered on
the books of the Company or any other person who has obtained a properly
completed bond power from the registered holder.

TERMS OF THE EXCHANGE OFFER

Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Company will accept any and
all Outstanding Notes validly tendered and not withdrawn prior to 5:00 p.m.,
New York City time, on the Expiration Date. On the Exchange Date, the Company
will issue $1,000 principal amount of Exchange Notes in exchange for $1,000
principal amount of Outstanding Notes accepted in the Exchange Offer. Holders
may tender some or all of their Outstanding Notes pursuant to the Exchange
Offer. However, Outstanding Notes may be tendered only in integral multiples
of $1,000.

The form and terms of the Exchange Notes are substantially the same as
the form and terms of the Outstanding Notes except that (i) the Exchange Notes
have been registered under the Securities Act and hence will not bear legends
restricting the transfer thereof and (ii) the holders of the Exchange Notes
will not be entitled to certain rights under the Registration Rights
Agreements. The Exchange Notes will evidence the same debt as the Outstanding
Notes and will be entitled to the benefits of the Indenture.

The Company has fixed the close of business on ________, 1998 as the
record date for the Exchange Offer for purposes of determining the persons to
whom this Prospectus and the Letter of Transmittal will be mailed initially.

Holders of Outstanding Notes do not have any appraisal or dissenters'
rights under the Texas Business Corporation Act or the indentures pursuant to
which they were issued in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the
Commission thereunder, including Rule 14e-1 thereunder.

The Company shall be deemed to have accepted validly tendered
Outstanding Notes when, as and if the Company has given oral or written notice
thereof to the Exchange Agent. The Exchange Agent will act as agent for the
tendering Holders for the purpose of receiving the Exchange Notes from the
Company.

If any tendered Outstanding Notes are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, the certificates for any such unaccepted Outstanding Notes
will be returned, without expense, to the tendering Holder thereof as promptly
as practicable after the Expiration Date.

Holders who tender outstanding Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the

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<PAGE> 22
exchange of Outstanding Notes pursuant to the Exchange Offer. The Company will
pay all charges and expenses, other than transfer taxes in certain
circumstances, in connection with the Exchange Offer. See "-- Fees and
Expenses."

INTEREST ON THE EXCHANGE NOTES

The Exchange Notes will bear interest at a rate of 16% per annum.
Interest on the Exchange Notes will accrue from the most recent date on which
interest has been paid or, if no interest has been paid, from June 30, 1998.
Interest on the Exchange Notes will be payable semi-annually in cash in arrears
on June 30 and December 30 of each year, commencing December 30, 1998.

PROCEDURES FOR TENDERING

Only a Holder of Outstanding Notes may tender such Outstanding Notes
in the Exchange Offer. To tender in the Exchange Offer, a Holder must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, have
the signatures thereon guaranteed if required by the Letter of Transmittal and
mail or otherwise deliver such Letter of Transmittal or such facsimile,
together with the Outstanding Notes and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
The Company is not asking any Holder for a proxy, and no Holder is requested to
send the Company a proxy. To be tendered effectively, the Outstanding Notes,
Letter of Transmittal and other required documents must be received by the
Exchange Agent at the address set forth below under "Exchange Agent" prior to
5:00 p.m., New York City time, on the Expiration Date. Delivery of the
Outstanding Notes may be made by book-entry transfer in accordance with the
procedures described below. Confirmation of such book-entry transfer must be
received by the Exchange Agent prior to the Expiration Date.

By executing the Letter of Transmittal, each Holder will make to the
Company the representations set forth below in the second paragraph under the
heading "-- Resale of Exchange Notes."

The tender by a Holder and the acceptance thereof by the Company will
constitute an agreement between such Holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.

THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND THE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE
AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OUTSTANDING
NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE
BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE
ABOVE TRANSACTIONS FOR SUCH HOLDERS.

Any beneficial owner whose Outstanding Notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact the registered holder promptly and instruct
such registered Holder to tender on such beneficial owner's behalf.

Signatures on the Letter of Transmittal or a notice of withdrawal, as
the case may be, must be by an Eligible Institution (as defined below) unless
the Outstanding Notes tendered pursuant thereto are tendered (i) by a
registered Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a member firm
of a registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution").

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<PAGE> 23
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Outstanding Notes listed therein, such Outstanding
Notes must be endorsed or accompanied by a properly completed bond power,
signed by such registered Holder as such registered Holder's name appears on
such Outstanding Notes with the signature thereon guaranteed by an Eligible
Institution.

If the Letter of Transmittal or any Outstanding Notes or bond powers
are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority to so act must be submitted with the Letter of Transmittal.

The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect
to the Exchange Notes at The Depository Trust Company ("DTC" or the "Book-Entry
Transfer Facility") for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in the Book-Entry Transfer Facility's system may make book-entry
delivery of the Outstanding Notes by causing such Book-Entry Transfer Facility
to transfer such Outstanding Notes into the Exchange Agent's account with
respect to the Outstanding Notes in accordance with the Book-Entry Transfer
Facility's procedures for such transfer. Although delivery of the Outstanding
Notes may be effected through book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility, an appropriate Letter of
Transmittal properly completed and duly executed with any required signature
guarantee and all other required documents must in each case be transmitted to
and received or confirmed by the Exchange Agent at its address set forth below
on or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures; provided, however, that a participant in DTC's book-entry system
may, in accordance with DTC's Automated Tender Offer Program procedures and in
lieu of physical delivery to the Exchange Agent of a Letter of Transmittal,
electronically acknowledge its receipt of, and agreement to be bound by, the
terms of the Letter of Transmittal. Delivery of documents to the Book-Entry
Transfer Facility does not constitute delivery to the Exchange Agent.

All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Outstanding Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Outstanding Notes not properly tendered or any Outstanding Notes the
Company's acceptance of which would, in the opinion of counsel for the Company,
be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Outstanding Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Outstanding Notes must be cured within such time as
the Company shall determine. Although the Company intends to notify Holders of
defects or irregularities with respect to tenders of Outstanding Notes, neither
the Company, the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Outstanding Notes will not
be deemed to have been made until such defects or irregularities have been
cured or waived. Any Outstanding Notes received by the Exchange Agent that are
not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned by the Exchange Agent to the tendering
Holders, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.

GUARANTEED DELIVERY PROCEDURES

Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available, (ii) who cannot deliver their
Outstanding Notes, the Letter of Transmittal or any other required documents to
the Exchange Agent or (iii) who cannot complete the procedures for book-entry
transfer, prior to the Expiration Date, may effect a tender if:

(a) the tender is made through an Eligible Institution;

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<PAGE> 24
(b) prior to the Expiration Date, the Exchange Agent receives from
the Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail
or hand delivery) setting forth the name and address of the
Holder, the certificate number(s) of such Outstanding Note(s)
tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading
days after the Expiration Date, the Letter of Transmittal (or
facsimile thereof), together with the certificate(s)
representing the Outstanding Notes (or a confirmation of book-
entry transfer of such Outstanding Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility) and any
other documents required by the Letter of Transmittal, will be
deposited by the Eligible Institution with the Exchange Agent;
and

(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing
all tendered Outstanding Notes in proper form for transfer and
all other documents required by the Letter of Transmittal, are
received by the Exchange Agent within three New York Stock
Exchange trading days after the Expiration Date.

Upon request to the Exchange Agent, a Notice of Guaranteed Delivery
will be sent to Holders who wish to tender their Outstanding Notes according to
the guaranteed delivery procedures set forth above.

WITHDRAWAL OF TENDERS

Except as otherwise provided herein, tenders of Outstanding Notes may
be withdrawn at any time prior to 5:00 P.M., New York City time, on the
Expiration Date.

To withdraw a tender of Outstanding Notes in the Exchange Offer, a
written or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Outstanding Notes to be
withdrawn (the "Depositor"), (ii) identify the Outstanding Notes to be
withdrawn (including the certificate number(s) and principal amount of such
Outstanding Notes or, in the case of Outstanding Notes transferred by
book-entry transfer, the name and number of the account at the Book-Entry
Transfer Facility to be credited), (iii) be signed by the Holder in the same
manner as the original signature on the Letter of Transmittal by which such
Outstanding Notes were tendered (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Outstanding Notes register the transfer of such Outstanding
Notes into the name of the person withdrawing the tender, (iv) specify the
name in which any such Outstanding Notes are to be registered, if different
from that of the Depositor, and (v) if applicable because the Outstanding Notes
have been tendered pursuant to book-entry procedures, specify the name and
number of the participant's account at DTC to be credited, if different from
that of the Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Outstanding
Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer and no Exchange Notes will be issued with
respect thereto unless the Outstanding Notes so withdrawn are validly
retendered. Any Outstanding Notes which have been tendered but which are not
accepted for exchange will be returned to the Holder thereof without cost to
such Holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Outstanding Notes may be
retendered by following one of the procedures described above under "Procedures
for Tendering" at any time prior to the Expiration Date.

EXCHANGE AGENT

First Union National Bank has been appointed as Exchange Agent for the
Exchange Offer. Properly completed Letters of Transmittal, Outstanding Notes
and all other required documents should be directed to the Exchange Agent
addressed as follows:

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<PAGE> 25

<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Facsimile: By Overnight Mail or Hand:

First Union National Bank First Union National Bank First Union National Bank
Corporate Trust Department Corporate Trust Department Corporate Trust Department
1525 W. T. Harris Boulevard (704) 590-7626 1525 W. T. Harris Boulevard
Charlotte, North Carolina 28288-1153 Confirm by telephone: Charlotte, North Carolina 28288-1153
(704) 590-7408
</TABLE>

INFORMATION AGENT

D.F. King & Co., Inc. has been appointed as Information Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus, the Letter of Transmittal or Notice of Guaranteed
Delivery may be directed to the Exchange Agent or to the Information Agent
addressed as follows:

D.F. King & Co., Inc.
77 Water Street
New York, New York 10005

Banks and brokers, call collect: (212) 425-1395
All others, call toll-free: (800) [ - ]

FEES AND EXPENSES

The expenses of soliciting tenders pursuant to the Exchange Offer will
be borne by the Company. The principal solicitation is being made by mail;
however, additional solicitation may be made by telegraph, telephone, facsimile
or in person by officers and regular employees of the Company and its
affiliates.

The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or others soliciting
acceptances of the Exchange Offer. The Company, however, will pay the Exchange
Agent and the Information Agent reasonable and customary fees for their
services and registration expenses, including fees and expenses of the Trustee,
filing fees, blue sky fees and printing and distribution expenses.

The Company will pay all transfer taxes, if any, applicable to the
exchange of the Outstanding Notes pursuant to the Exchange Offer. If, however,
certificates representing the Exchange Notes or the Outstanding Notes for the
principal amounts not tendered or accepted for exchange are to be delivered to,
or are to be issued in the name of, any person other than the person signing
the Letter of Transmittal, or if a transfer tax is imposed for any reason other
than the exchange of the Outstanding Notes pursuant to the Exchange Offer, then
the amount of any such transfer taxes (whether imposed on the registered Holder
or any other person) will be payable by the tendering Holder.

ACCOUNTING TREATMENT

The Exchange Notes will be recorded at the same carrying value as the
Outstanding Notes as reflected in the Company's accounting records on the date
of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer will be amortized over the term
of the Exchange Notes.

RESALE OF EXCHANGE NOTES

Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in exchange for Outstanding Notes
may be offered for resale, resold and otherwise transferred by any holder of
such Exchange Notes (other than any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange

20
<PAGE> 26
Notes are acquired in the ordinary course of such holder's business and such
holder does not intend to participate and has no arrangement or understanding
with any person to participate in the distribution of such Exchange Notes. Any
holder who tenders in the Exchange Offer with the intention to participate, or
for the purpose of participating, in a distribution of the Exchange Notes may
not rely on the position of the staff of the Commission enunciated in Exxon
Capital Holdings Corporation (available April 13, 1989) and Morgan Stanley &
Co., Incorporated (June 5, 1991), or similar no-action letters, but rather must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. In addition, any
such resale transaction should be covered by an effective registration
statement containing the selling security holders information required by Item
507 of Regulation S-K of the Securities Act. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Outstanding Notes, where
such Outstanding Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
See "Plan of Distribution."

By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is a Holder,
(ii) neither the Holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and (iii) the Holder and such other person acknowledge that if
they participate in the distribution of the Exchange Notes (a) they must, in
the absence of an exemption therefrom, comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the Exchange Notes and cannot rely on the no-action letters
referenced above and (b) failure to comply with such requirements in such
instance could result in such Holder incurring liability under the Securities
Act for which such Holder is not indemnified by the Company. Further, by
tendering in the Exchange Offer, each Holder that may be deemed an "affiliate"
(as defined under Rule 405 of the Securities Act) of the Company will represent
to the Company that such Holder understands and acknowledges that the Exchange
Notes may not be offered for resale, resold or otherwise transferred by that
Holder without registration under the Securities Act or an exemption therefrom.

As set forth above, affiliates of the Company are not entitled to rely
on the foregoing interpretations of the staff of the Commission with respect to
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act.

PRIVATE EXCHANGE NOTES

The Registration Rights Agreements provide that if, prior to
consummation of the Exchange Offer, the Initial Purchaser holds any Outstanding
Notes acquired by it and having, or which are reasonably likely to be
determined to have, the status of an unsold allotment in the initial
distribution, or any other holder of Outstanding Notes is not entitled to
participate in the Exchange Offer, the Company upon the request of such Initial
Purchaser or any such holder shall, simultaneously with the delivery of the
Exchange Notes in the Exchange Offer, issue and deliver to such Initial
Purchaser and any such holder, in exchange (the "Private Exchange") for such
Outstanding Notes held by such Initial Purchaser and any such holder, Private
Exchange Notes. Any Private Exchange Notes will be issued pursuant to the same
Indenture as the Exchange Notes. The Private Exchange Notes are not covered by
the registration statement of which this Prospectus is a part and are not being
offered hereby. Any Private Exchange Notes will be entitled to all the rights
and subject to all the limitations applicable thereto under the Indenture, and
will be subject to the same restrictions on transfer applicable to untendered
Outstanding Notes. However, pursuant to the Registration Rights Agreements,
holders of Private Exchange Notes have certain rights to require the Company to
file and maintain a shelf registration statement that would allow resales of
such Private Exchange Notes owned by such holders. See "-- Shelf Registration
Statement."

SHELF REGISTRATION STATEMENT

If (i) prior to the consummation of the Exchange Offer, either the
Company or the holders of a majority in aggregate principal amount of
Outstanding Notes determines in its or their reasonable judgment that (A) the
Exchange

21
<PAGE> 27
Notes would not, upon receipt, be tradeable by the holders thereof without
restriction under the Securities Act and the Exchange Act and without material
restrictions under applicable Blue Sky or state securities laws, or (B) the
interests of the holders under the Registration Rights Agreements, taken as a
whole, would be materially adversely affected by the consummation of the
Exchange Offer, (ii) applicable interpretations of the staff of the Commission
would not permit the consummation of the Exchange Offer prior to October 26,
1998, (iii) subsequent to the consummation of a Private Exchange but prior to
December 30, 1998, the Initial Purchaser so requests, (iv) the Exchange Offer
is not consummated by September 26, 1998 for any reason or (v) in the case of
any holder not permitted to participate in the Exchange Offer or of any holder
participating in the Exchange Offer that receives Exchange Notes that may not
be sold without material restriction under state and federal securities laws
(other than due solely to the status of such holder as an affiliate of the
Company within the meaning of the Securities Act) and, in either case
contemplated by this clause (v), such holder notifies the Company within six
months of consummation of the Exchange Offer, then the Company has agreed to
file and maintain a registration statement that would allow resales of transfer
restricted Outstanding Notes, Exchange Notes or Private Exchange Notes owned by
such holders.

OTHER

Participation in the Exchange Offer is voluntary and Holders should
carefully consider whether to accept. Holders of the Outstanding Notes are
urged to consult their financial and tax advisors in making their own decision
on what action to take.

The Company may in the future seek to acquire untendered Outstanding
Notes in open market or privately negotiated transactions through subsequent
exchange offers or otherwise. The Company has no present plans to acquire any
Outstanding Notes that are not tendered in the Exchange Offer or to file a
registration statement to permit resales of any untendered Outstanding Notes.

USE OF PROCEEDS

This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreements and the Registration Rights
Agreements. The Company will not receive any cash proceeds from the issuance
of the Exchange Notes offered hereby. In consideration for issuing the
Exchange Notes contemplated in this Prospectus, the Company will receive
Outstanding Notes in like principal amount, the form and terms of which are
substantially similar to the form and terms of the Exchange Notes, except as
otherwise described herein. The Outstanding Notes surrendered in exchange for
Exchange Notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in any increase or
decrease in the indebtedness of the Company.

22
<PAGE> 28
THE COMPANY

TARC was incorporated in Texas in 1987 to hold and operate the
refinery assets of TransAmerican. TARC is a wholly owned subsidiary of TEC,
which is a wholly owned subsidiary of TransAmerican. The address of the
Company's principal executive offices is 1300 North Sam Houston Parkway East,
Suite 320, Houston, Texas 77032-2949 and its telephone number at that address
is (281) 986-8811.

23
<PAGE> 29
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 three years ended
January 31, 1998, the six months ended January 31, 1996 and 1995 and each of
the three years ended July 31, 1995. This data 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 year ended July 31, 1993 represent the results of operations
and financial position of TARC prior to the reactivation of the refinery.
During this period, TARC had only maintenance expenses and lease income from
storage facilities. The data for the year ended July 31, 1994 reflects limited
operations of the refinery and expenses related to reactivation of portions of
the refinery. The No. 2 Vacuum Unit was operated intermittently between March
1994 and January 1997. TARC does not consider its historical results to be
indicative of future results.

<TABLE>
<CAPTION>
Six Months Ended
Year Ended January 31, January 31, Year Ended July 31,
----------------------------- ----------------- ----------------------------
1998 1997 1996 1996 1995 1995 1994 1993
---- ---- ---- ---- ---- ---- ---- ----
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Product sales .......................$ -- $ 10,857 $ 176,229 $ 107,237 $ 71,035 $ 140,027 $ 174,143 $ --
Other ............................... 2,828 -- 1 -- 551 552 3,035 5,178
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenues .................... 2,828 10,857 176,230 107,237 71,586 140,579 177,178 5,178
Operating costs and expenses ........ 30,030 54,004 206,798 121,770 86,383 171,411 187,208 13,238
General and administrative
expenses (1) ...................... 19,196 11,848 12,610 7,438 8,442 13,614 4,496 11,341
--------- --------- --------- --------- --------- --------- --------- ---------
Operating loss ...................... (46,398) (54,995) (43,178) (21,971) (23,239) (44,446) (14,526) (19,401)
Equity in income (loss) before
extraordinary item of TransTexas .. 44,552 12,325 (2,584) (156) -- (2,428) -- --
Other income (expense) (2) .......... (15,251) 52,076 (9,999) (3,944) 89 (5,966) (2,827) 28
Extraordinary items (3) ............. (94,911) -- (11,497) -- -- (11,497) -- --
Net income (loss) ................... (112,008) 9,406 (67,258) (26,071) (23,150) (64,337) (17,353) (19,373)
Net income (loss) per common
share: (4)
Basic ............................. (3.73) 0.31 (2.24) (0.87) (0.77) (2.14) (0.58) (0.65)
Diluted ........................... (3.73) 0.25 (2.24) (0.87) (0.77) (2.14) (0.58) (0.65)
Dividends declared per
common share (5) .................. -- -- -- -- -- -- -- --
Ratio of earnings to fixed charges(6) -- -- -- -- -- -- -- --
</TABLE>

<TABLE>
<CAPTION>
January 31, July 31,
----------------------------------------------- --------------------------------
1998 1997 1996 1995 1995 1994 1993
----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) ..... $ 70,501 $ (40,814) $ (17,707) $ (35,509) $ 5,965 $ (16,838) $ (1,494)
Total assets .................. 1,195,449 564,241 518,323 229,462 499,879 176,327 70,900
Total long-term liabilities ... 979,805 440,775 368,091 112,719 352,696 45,373 64,512
Stockholder's equity .......... 160,408 81,363 71,957 77,250 87,837 100,400 4,253
</TABLE>

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

(1) Includes a charge to operations of approximately $2.2 million of
intangible costs for the year ended January 31, 1998 and litigation
accruals of $2.0 million, $4.5 million and $9.0 million for the six
months ended January 31, 1996, and the years ended July 31, 1995 and
1993, respectively.

(2) Other income for the year ended January 31, 1997 includes a gain of
$56.2 million related to the sale of 4.55 million shares of TransTexas
stock in March 1996.

(3) Represents loss on early extinguishment of debt for the year ended
January 31, 1998 and TARC's equity in the early extinguishment of debt
at TransTexas for the years ended January 31, 1998 and 1996 and July
31, 1995.

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

(5) TARC's debt instruments contain certain restrictions with respect to
the payment of dividends on TARC's common stock.

(6) Earnings for the years ended January 31, 1998, 1997 and 1996, the six
months ended January 31, 1996 and 1995, and the years ended July 31,
1995, 1994 and 1993 were inadequate to cover fixed charges by $239.4
million, $71.8 million, $94.7 million, $52.1 million, $26.7 million,
$69.3 million, $17.4 million and $19.4 million, respectively.

24
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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. The No. 2 Vacuum Unit
was operated intermittently between March 1994 and January 1997. TARC may
operate the No. 2 Crude Unit and the No. 2 Vacuum Unit if market conditions are
favorable. TARC's decision to commence or suspend operations will depend on
the availability of working capital, 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.

TARC believes, based on current estimates of refining margins and
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. 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, and in constructing and operating a large-scale refinery, 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.

Year Ended January 31, 1998, Compared with the Year Ended January 31, 1997

There were no product sales for the year ended January 31, 1998 as
compared to $10.9 million for the year ended January 31, 1997, due primarily to
TARC not operating the No. 2 Vacuum Unit since January 1997 and TARC's use
during fiscal 1998 of processing arrangements pursuant to which TARC processed
feedstocks owned by third parties (as opposed to TARC's purchase of feedstock
and sale of refined product).

Other revenues of $2.8 million for the year ended January 31, 1998
resulted primarily from rental income from TARC's tank storage facility
acquired in September 1997.

There were no costs of products sold for the year ended January 31,
1998 as compared to $11.5 million for the year ended January 31, 1997, due
primarily to TARC not operating the No. 2 Vacuum Unit since January 1997 and
TARC's use during fiscal 1998 of processing arrangements pursuant to which TARC
processed feedstocks owned by third parties (as opposed to TARC's purchase of
feedstock and sale of refined product).

During 1997 and 1998, TARC entered into other processing arrangements
whereby TARC did not take title to feedstocks or refined products but received
a fee based on margins, if any, realized by the counterparty to the
arrangement. TARC retained all market and production risks related to barrels
processed. These arrangements, which are recorded net in the statement of
operations, resulted in income of $1.4 million and a loss of $7.1 million for
the years ended January 31, 1998 and 1997, respectively. Income and losses
were primarily due to unfavorable prices for refined products and unfavorable
results of price management activities.

25
<PAGE> 31
Operations and maintenance expense for the year ended January 31, 1998
decreased $12.1 million to $11.8 million from $23.9 million for the year ended
January 31, 1997, primarily due to TARC not operating the No. 2 Vacuum Unit
since January 1997, a $1.9 million decrease in labor costs, and a decrease of
$1.9 million in tank rentals due to the acquisition of a tank storage facility
adjacent to the refinery and the settlement of a tank rental dispute during
1996.

Depreciation and amortization expense for the year ended January 31,
1998 increased $1.2 million to $8.4 million from $7.2 million for the year
ended January 31, 1997, primarily due to depreciation related to the tank
storage facility acquired in September 1997.

General and administrative expenses increased $7.4 million to $19.2
million for the year ended January 31, 1998 from $11.8 million for the year
ended January 31, 1997, primarily due to a charge to operations of
approximately $2.2 million of certain intangible costs, increased fees of
approximately $3.7 million related to a new services agreement entered into
among TransAmerican, TEC, TARC and TransTexas and increased professional fees
related to the modification and issuance of debt.

Taxes other than income taxes for the year ended January 31, 1998
decreased $0.8 million to $3.4 million from $4.2 million for the year ended
January 31, 1997, primarily due to decreased property tax expense.

Loss on purchase commitments for the year ended January 31, 1998
consists of a $7.8 million loss related to a commitment to purchase 0.6 million
barrels of feedstock. These barrels have been sold to a third party the
Company intends to subject them to a processing agreement with the third party.
TARC remains subject to market risk related to these barrels.

Interest income for the year ended January 31, 1998 increased $5.0
million as compared to the year ended January 31, 1997, primarily due to the
investment of proceeds from the TARC Intercompany Loan and Series A Notes.
Interest expense for the year ended January 31, 1998 increased $39.9 million,
primarily due to interest on the TARC Intercompany Loan and Series A Notes.
During the year ended January 31, 1998, TARC capitalized approximately $93.0
million of interest related to property and equipment additions at TARC's
refinery compared to $68.8 million for the year ended January 31, 1997. The
increase was primarily due to higher capital spending.

Equity in income of TransTexas before extraordinary item for the year
ended January 31, 1998 increased to $44.6 million as compared to $12.3 million
for the year ended January 31, 1997, due primarily to a $543 million gain on
the sale by TransTexas of a subsidiary. In September 1997, TARC sold
approximately 8.5 million shares of TransTexas common stock pursuant to the
TransTexas share repurchase program. TARC received $136.2 million in
connection with the repurchase, of which $124.5 million (representing the
excess of the cash received over TARC's carrying value of the stock) was
recorded as a capital contribution. TARC recognized equity in an extraordinary
item of TransTexas of $(10.2) million for the year ended January 31, 1998. The
extraordinary loss of TransTexas is attributable to a loss on the early
extinguishment of debt as a result of the repurchase by TransTexas of its
Senior Secured Notes and an exchange offer by TransTexas for its Subordinated
Notes. The gain on the sale of TransTexas stock of $56.2 million for the year
ended January 31, 1997 was a result of TARC's sale of 4.55 million shares of
TransTexas common stock to third parties in March 1996. In April 1998, TARC
distributed its remaining shares of TransTexas common stock to TEC.

The additional loss on the early extinguishment of debt of $84.8
million for the year ended January 31, 1998 is a result of the completion of
the TARC Notes Tender Offer as described in Note 8 of Notes 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 decrease in the purchase and processing of feedstocks for third
parties compared to the prior year. During fiscal 1997, the refinery's
principal activity was the processing of feedstocks pursuant to third party
processing arrangements.

26
<PAGE> 32
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 decrease in the purchase and processing of feedstocks for third
parties compared to the prior year.

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

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 and not intended for use in the 1995 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 a disbursement account. Interest
expense, net, for the year ended January 31, 1997 decreased $13.8 million,
primarily due to a larger portion of interest capitalized as well as a
reduction of product financing costs in 1997 versus 1996. 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 (which
reduced TARC's interest in TransTexas to 14.1%). The increase of $14.9 million
in the equity in income of TransTexas is primarily the result of higher gas
prices and a favorable litigation settlement.

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.

27
<PAGE> 33
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.

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 decreased property tax expense.

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 a disbursement 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 1995 Program.

LIQUIDITY AND CAPITAL RESOURCES

Although TARC may operate the No. 2 Crude Unit and the No. 2 Vacuum
Unit if it obtains a favorable processing arrangement, TARC anticipates that,
until completion of the Delayed Coking Unit, its liquidity and capital needs
will be limited to expenditures for the Capital Improvement Program, general
and administrative expenses and refinery maintenance costs.

TARC estimates that capital expenditures for the Capital Improvement
Program will be $256 million and $0, respectively, during the fiscal years
ending January 31, 1999 and 2000. TARC currently estimates that Capital
Improvement Program costs may increase by as much as $45 million over the $427
million originally estimated. Although there can be no assurance, TARC
believes that it will have cash sufficient to fund the remaining construction.
See "Business -- Capital Improvement Program -- Capital Budget Status" and "--
Completion Status." If engineering problems, further cost overruns or delays
occur and other financing sources are not available, TARC may not be able to
complete both phases of the Capital Improvement Program. TARC has historically
incurred losses and negative cash flow from operating activities as a result of
limited refinery operations that 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. There is no
assurance that TARC can complete the Capital Improvement Program, fund its
future working capital requirements or achieve positive cash flow from
operations. As a result, there is substantial doubt about TARC's ability to
continue as a going concern. The Financial Statements do not include any
adjustments that might result from the outcome of these uncertainties.

On June 13, 1997, TEC completed a private offering (the "TEC Notes
Offering") of $475 million aggregate principal amount of 11 1/2% Senior Secured
Notes due 2002 (the "TEC Senior Secured Notes") and $1.13 billion aggregate
principal amount of 13% Senior Secured Discount Notes due 2002 (the "TEC Senior
Secured Discount Notes" and, together with the TEC Senior Secured Notes, the
"TEC Notes") for net proceeds of approximately $1.3 billion.

With a portion of the proceeds of the TEC Notes Offering, TEC made an
intercompany loan to TARC in the original amount of $676 million (the "TARC
Intercompany Loan"). The TARC Intercompany Loan will accrete principal at the
rate of 16% per annum, compounded semi-annually until June 15, 1999 to a final
accreted value of $920 million, and cash interest will thereafter accrue at a
rate of 16% per annum, payable semi-annually. The TARC Intercompany Loan will
mature on June 1, 2002. The agreement governing the TARC Intercompany Loan
(the "TARC Intercompany Loan Agreement") contains certain restrictive covenants
including, among others, limitations on incurring additional debt, asset sales,
dividends and transactions with affiliates. If TARC's cash flow from
operations is

28
<PAGE> 34
insufficient to pay interest as it becomes payable on the TARC Intercompany
Loan, TARC may be required to attempt to sell debt or equity securities of
TARC. There can be no assurance that proceeds from such sales would be
adequate to pay interest due. TARC used approximately $103 million of the
proceeds from the TARC Intercompany Loan to repay certain indebtedness,
including $36 million of senior secured notes issued in March 1997 and $66
million of advances and notes payable owed to an affiliate, and used
approximately $437 million to complete the TARC Notes Tender Offer described
below. Remaining proceeds have been or will be used for the Capital
Improvement Program described in Note 2 of Notes to Financial Statements and
for general corporate purposes.

In June 1997, TransTexas implemented a share repurchase program
pursuant to which it repurchased approximately 3.9 million shares of common
stock from public stockholders for an aggregate purchase price of approximately
$61.4 million, and approximately 12.6 million shares from TARC and TEC for an
aggregate purchase price of approximately $201 million. TARC received $136.2
million of the purchase price, of which $124.5 million (representing the excess
of the cash received over TARC's carrying value of the stock) was recorded as a
capital contribution. The amounts received by TEC and TARC were deposited in
the TARC Disbursement Account.

As of January 31, 1998, TARC and TEC had deposited an aggregate of
$529 million into accounts (collectively, the "TARC Disbursement Account") from
which disbursements are made pursuant to a disbursement agreement, as amended
(the "Disbursement Agreement") among TARC, TEC, Firstar Bank of Minnesota,
N.A., as trustee (the "TEC Indenture Trustee") under the indenture governing
the TEC Notes (the "TEC Notes Indenture"), Firstar Bank of Minnesota, N. A., as
Disbursement Agent, and Baker & O'Brien, Inc., as Construction Supervisor. See
Note 3 of Notes to Financial Statements. Of these funds, $427 million was
designated for the Capital Improvement Program, approximately $25.5 million was
designated for general and administrative expenses, $7 million was designated
for outstanding accounts payable, $50 million was designated for working
capital upon completion of the Delayed Coking Unit and certain supporting units
and $19 million was designated for the payment of interest on, or the
redemption, purchase, defeasance or other retirement of, the outstanding TARC
Notes. There is no assurance that the funds deposited in the TARC Disbursement
Account will be adequate for their designated purposes. As of January 31,
1998, $225 million had been disbursed to TARC out of the TARC Disbursement
Account, $18 million for accounts payable and general and administrative
expenses and $19 million for the payment of interest on, and the redemption,
repurchase and defeasance of the TARC Notes.

On June 13, 1997, TARC completed a tender offer (the "TARC Notes
Tender Offer") for the (i) TARC Mortgage Notes for 112% of their principal
amount (plus accrued and unpaid interest) and (ii) TARC Discount Notes for 112%
of their accreted value. TARC Mortgage Notes and TARC Discount Notes with an
aggregate carrying value of $423 million were tendered and accepted by TARC at
a cost to TARC of approximately $437 million (including accrued interest,
premiums and other costs). As a result of the TARC Notes Tender Offer, $22.8
million in debt issuance costs were written off and TARC recorded a total
extraordinary charge of $84.8 million during the year ended January 31, 1998.
As of January 31, 1998, TARC Mortgage Notes and TARC Discount Notes with an
aggregate carrying value of approximately $14.4 million remained outstanding.

On January 14, 1998, TARC called for redemption on February 17, 1998
approximately $7 million in aggregate principal amount of TARC Notes pursuant
to the terms of the indenture governing the TARC Notes. On January 16, 1998,
TARC deposited pursuant to an irrevocable trust agreement approximately $9.8
million for defeasance of the remaining TARC Notes outstanding after the
redemption. The deposited funds are sufficient to pay the principal of the
remaining TARC Notes and interest thereon from the date of deposit to and
including the final redemption date, as well as a call premium of 6%. The
final redemption date is February 15, 1999.

On December 30, 1997, TARC issued in a private offering 175,000 Units
consisting of $175 million in aggregate principal amount of Series A Notes and
175,000 warrants (the "December 1997 Warrants") to purchase 2,335,245 shares of
TARC common stock. Net proceeds to TARC, after deducting fees and expenses of
approximately $8 million, were approximately $167 million. Net proceeds of
$8.2 million from the sale of the Units was allocated to the December 1997
Warrants. TARC deposited $119 million of the net proceeds into the TARC
Disbursement Account for use in the Capital Improvement Program and deposited
$42 million into an interest reserve account for interest

29
<PAGE> 35
payments on the Series A Notes through June 30, 1999. The remaining $6 million
of net proceeds was used for general corporate purposes including the
redemption and defeasance of the TARC Notes.

On March 16, 1998, TARC issued in a private offering 25,000 Units
consisting of $25 million in aggregate principal amount of Series C Notes and
25,000 warrants (the "March 1998 Warrants" and, together with the December 1997
Warrants, the "Warrants") to purchase 333,606 shares of TARC common stock. Net
proceeds to TARC, after deducting fees and expenses of approximately $1.2
million, were approximately $26.2 million. Net proceeds of approximately $2.8
million from the sale of the Units was allocated to the March 1998 Warrants.
TARC deposited $6.0 million into an interest reserve account for interest
payments on the Series C Notes from December 30, 1997 through June 30, 1999.
The remaining $20.2 million of net proceeds has been or will be used for
general corporate purposes.

In April 1996, TARC entered into a processing agreement with a third
party to process feedstocks. Under the terms of the agreement, the processing
fee earned by TARC is based on the margin, if any, earned by the third party
from product sales, after deducting all of its related costs such as feedstock
acquisition, hedging, transportation, processing and inspections plus a
commission for each barrel processed. As of January 31, 1998, TARC has
processed 6.4 million barrels of feedstocks under this agreement. TARC also
entered into processing agreements with this third party to process
approximately 1.1 million barrels of the third party's feedstocks for a fixed
price per barrel. For the years ended January 31, 1998 and 1997, TARC recorded
income (loss) from processing agreements of $1.4 million and $(7.1) million,
respectively. As of January 31, 1998 and 1997, TARC was storing approximately
0.7 million and 1.0 million barrels, respectively, of feedstock and
intermediate or refined products pursuant to these processing agreements.
Included in the 0.7 barrels of product stored at the refinery as of January 31,
1998 is approximately 0.6 million barrels of feedstock owned by a third party
related to a purchase commitment entered into in April 1997. For the year
ended January 31, 1998, TARC incurred a loss of approximately $7.8 million
related to this purchase commitment and remains subject to market risk for
these barrels.

In July and September 1997, TARC received advances from TEC in the
aggregate amount of $46 million. In November and December 1997, TARC repaid
approximately $31 million in principal, and in December 1997 paid approximately
$2.9 million in interest to TEC. See Note 9 of Notes to Financial Statements.

In September 1997, TARC purchased a tank storage facility adjacent to
the refinery for a cash purchase price of $40 million (which does not include a
$3.1 million liability recorded for environmental remediation, as discussed
below). Environmental investigations conducted by the previous owner of the
facilities have indicated soil and groundwater contamination in several areas
of the property. As a result, the former owner submitted to the Louisiana
Department of Environmental Quality (the "LDEQ") plans for the remediation of
any significant indicated contamination in such areas. TARC has analyzed these
investigations and has carried out further Phase II Environmental Assessments
to verify their results. TARC intends to incorporate any required remediation
into its ongoing work at the refinery. In connection with the purchase of the
facilities, TARC agreed to indemnify the seller for all cleanup costs and
certain other damages resulting from contamination on the property, and created
a $5 million escrow account to fund required remediation costs and
indemnification claims by the seller. As a result of TARC's Phase II
Environmental Assessments, TARC believes that the amount in escrow should be
sufficient to fund the remediation costs associated with identified
contamination; however, because the LDEQ has not yet approved certain of the
remediation plans, there can be no assurance that the funds set aside in the
escrow account will be sufficient to pay all required remediation costs. As of
January 31, 1998, TARC has recognized a liability of $3.1 million for this
contingency.

On December 10, 1997, TARC issued to an unaffiliated third party a 13%
Senior Secured Note due 2002 (the "Acquisition Note") in the principal amount
of $36 million to finance a portion of the purchase price of the tank storage
facility purchased in September 1997. The Acquisition Note is secured by a
mortgage on the tank storage facility, and is governed by a Note Purchase
Agreement containing restrictive covenants substantially similar to those
contained in the TARC Intercompany Loan and TEC Notes Indenture. The
Acquisition Note bears interest at 13%, payable semiannually on June 15 and
December 15, and matures on December 15, 2002. TARC deposited $7 million in an
interest reserve account for interest payments on the Acquisition Note through
June 15, 1999.

30
<PAGE> 36
The TEC Notes Indenture permits TARC to obtain a revolving credit
facility but places certain limitations on TARC's ability to incur other
indebtedness. In order to operate the refinery at expected levels after the
completion of Phase I of the Capital Improvement Program, TARC will require
additional working capital. Although TARC and a lender have engaged in
discussions concerning the terms of a revolving credit facility, there can be
no assurance TARC will be able to obtain such a facility.

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 financial condition,
results of operations or cash flow. TARC also has contingent liabilities with
respect to certain legal proceedings as more fully described in Note 14 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
refining margins, which are subject to significant seasonal, cyclical and other
fluctuations that are 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 TEC Notes Indenture.

RECENTLY ISSUED PRONOUNCEMENTS

In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which
establishes standards for reporting and display of comprehensive income and its
components in financial statements. This statement will be adopted by TARC
effective February 1, 1998. TARC believes that adoption of this statement will
not have a material impact on its financial statements.

In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start Up Activities,"
("SOP 98-5") which provides guidance on the financial reporting of start-up
costs and organization costs. This statement of position will be adopted by
TARC effective February 1, 1998. Implementation of the statement requires
start-up activities, such as those related to the Capital Improvement Program,
to be expensed as incurred.

IMPACT OF YEAR 2000 ISSUE

The year 2000 issue relates to computer programs or computer equipment
designed to use two digits rather than four digits to define the applicable
year. As a result, computer systems with time-sensitive software may not
accurately calculate, store or use a date subsequent to December 31, 1999.
This could result in system failures or miscalculations and disruptions of
operations, including among other things, a temporary inability to process
transactions or engage in other normal business activities.

31
<PAGE> 37
to be completed by January 1999. TARC estimates the cost of upgrading its
computer systems to be approximately $2 million. There can be no assurance
that TARC will timely complete the implementation of the new systems.

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 Prospectus. All statements, other than statements
of historical fact, included in this Prospectus regarding TARC'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, 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.

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<PAGE> 38
BUSINESS

GENERAL

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 its gross 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 (the
"1995 Program") designed to reactivate the refinery and increase its
complexity. From February 1, 1995 through May 1997, TARC spent approximately
$251 million on the 1995 Program, procured a majority of the essential
equipment required and completed substantially all of the process design
engineering and a substantial portion of the remaining engineering necessary
for its completion.

In order to capitalize on the progress on the refinery made through
its expenditures on the 1995 Program, in June 1997 TARC commenced a modified
two-phase construction and expansion program (the "Capital Improvement
Program"). TARC spent approximately $215 million on the Capital Improvement
Program during the period between June 1997 and January 31, 1998. The design
and estimated timing and cost of the Capital Improvement Program are based on
substantial input from several engineering and construction firms that have
been engaged to perform design engineering and construction management
services.

Phase I of the Capital Improvement Program includes the completion and
start-up of several units, including the Delayed Coking Unit, one of the
refinery's major conversion units. Phase II of the Capital Improvement Program
includes the completion and start-up of the Fluid Catalytic Cracking Unit
utilizing state-of-the-art MSCC(SM) technology and the installation of
additional equipment expected to further improve operating margins by allowing
for a significant increase in the refinery's capacity to produce gasoline.
After completion of the Capital Improvement Program, TARC will own and operate
one of the largest independent refineries in the Gulf Coast region, with a
replacement cost estimated by management to be approximately $1.4 billion.
TARC currently believes that the costs of construction of the refinery will
exceed the budget established in June 1997, but that sufficient cash will be
available to fund such costs. See "-- Capital Improvement Program -- Capital
Budget Status" and "-- Completion Status." The foregoing estimates, as well as
other estimates and projections herein, are subject to substantial revision
upon the occurrence of future events, such as unavailability of financing,
engineering problems, work stoppages and cost overruns, over which TARC may not
have any control, and there can be no assurance that any such projections or
estimates will prove accurate.

INDUSTRY OVERVIEW

Total growth in United States refining capacity has remained very low
over the past several years. Over the same period, however, demand for refined
products has increased. As a result, capacity utilization has increased to
approximately 95.0% in 1997 from approximately 83.1% in 1987. The refinery
utilization rate is an important factor in achieving and maintaining refining
profitability. Management of TARC believes that over the next several years
domestic demand for refined products will continue to increase while refining
capacity growth will remain slow, causing United States refining utilization
rates to remain high. These factors, if sustained, would likely result in an
increased demand for product imports into the United States. Management
believes that these factors, together with relatively low prices expected by it
for heavy, sour crude oil, should have a positive effect on TARC's refining
margins.

33
<PAGE> 39
DOMESTIC REFINING CAPACITY,
UTILIZATION RATES AND DEMAND FOR REFINED PRODUCTS

<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capacity (MMBpd) ..... 15.6 15.9 15.6 15.6 15.7 15.7 15.1 15.0 15.4 15.3 15.5
Utilization .......... 83.1% 84.7% 86.6% 87.1% 86.0% 87.9% 91.5% 92.6% 91.9% 93.5% 95.0%
Demand for refined
products (MMBpd) ... 16.7 17.3 17.3 17.0 16.7 17.0 17.2 17.7 17.7 18.2 18.6
</TABLE>

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

Source: Energy Information Administration.

EXISTING PROCESSING UNITS

The following is a brief description of TARC's No. 2 Vacuum Unit and
No. 2 Crude Unit, which the Company intends to place into operation by early
June 1998:

NO. 2 VACUUM UNIT. TARC believes that the No. 2 Vacuum Unit has a
capacity in excess of 200,000 Bpd. The No. 2 Vacuum Unit was operated
intermittently between March 1994 and January 1997. The No. 2 Vacuum Unit is
designed to process atmospheric tower bottoms into VGO and, with the addition of
cutterstocks, into No. 6 residual fuel oil. When the No. 2 Crude Unit is placed
into operation, the No. 2 Vacuum Unit will process bottoms from the No. 2 Crude
Unit. When the Delayed Coking Unit is complete, the No. 2 Vacuum Unit tower
bottoms are expected to be processed through the Delayed Coking Unit into
lighter, more valuable products. Upon completion of Phase II, VGO is expected to
be upgraded in the Fluid Catalytic Cracking Unit to gasoline and No. 2 fuel oil.

NO. 2 CRUDE UNIT. The No. 2 Crude Unit was designed to process heavy,
sour crude oil and previously has demonstrated a capacity of 175,000 Bpd. Upon
completion of the Capital Improvement Program, the No. 2 Crude Unit is expected
to process up to 200,000 Bpd of a mix of crude oils into naphtha, kerosene, No.
2 fuel oil, atmospheric gas oil and atmospheric residual oil. Modifications and
tie- ins to the No. 2 Crude Unit have been completed.

CAPITAL IMPROVEMENT PROGRAM

The Capital Improvement Program is designed to increase the capacity
and complexity of the refinery. The most significant projects include: (i)
converting the visbreaker unit into a delayed coking unit to process vacuum
tower bottoms into lighter petroleum products, (ii) modernizing and upgrading 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. In addition, TARC is in the process of
expanding, modifying and adding other processing units, tankage and offsite
facilities as part of the Capital Improvement Program. The Capital Improvement
Program includes expenditures 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. TARC is acting and will
act as general contractor, but has engaged a number of specialty consultants and
engineering and construction firms to assist TARC in completing the individual
projects that comprise the Capital Improvement Program. Each of these firms was
selected because of its specialized expertise in a particular process or unit
integral to the Capital Improvement Program.

The Capital Improvement Program is being executed in two phases,
described as follows:

34
<PAGE> 40
PHASE I

Phase I includes the Delayed Coking Unit, the HDS Unit, the Naphtha
Pretreater, the No. 2 Reformer, the Sulfur Recovery System and the supporting
Offsite Facilities. Completion of Phase I, along with the Crude and Vacuum
Units, will enable the refinery to process heavy crude and other purchased
feedstocks into finished and intermediate products. Products from this phase
are expected to include NGLs, naphtha, conventional gasoline, No. 2 fuel oil,
VGO, sulfur and petroleum coke. The following is a brief description of the
units and offsite facilities that are scheduled to be added or improved during
Phase I and TARC's plans and expectations therefor:

DELAYED COKING UNIT. TARC's Visbreaking Unit has been converted to a
Delayed Coking Unit. The process engineering for this conversion was completed
by ABB Lummus Crest Inc. Fluor Daniel, Inc. has completed the construction,
and the unit is undergoing final checkout prior to commissioning. The Delayed
Coking Unit is expected to be able to process approximately 75,000 Bpd of
vacuum tower bottoms produced from the No. 2 Vacuum Unit. Products from this
unit will include light gas, naphtha, coker distillate, and coker gas oil,
which can all be further upgraded by TARC's refinery or sold to other refiners
for upgrading. Petroleum coke will be produced as a by-product of the coking
process.

NAPHTHA PRETREATER. TARC has purchased a used naphtha pretreater,
which it has disassembled and moved to the refinery site. This unit is being
re-assembled and will be completed in June 1998. This unit will produce
desulfurized heavy naphtha, which can be sold as intermediate product or
processed by the No. 2 Reformer into reformate for blending into gasoline, and
light naphtha for gasoline blending or sales. The Naphtha Pretreater is designed
to process up to 30,000 Bpd of naphtha feedstock produced by the No. 2 Crude
Unit and the Delayed Coking Unit.

NO. 2 REFORMER. The No. 2 Reformer was purchased by TARC's predecessor
and relocated to the refinery during the 1980s expansion. Although re-assembly
is not complete, all major equipment is installed. Field construction will
include reconditioning of equipment plus installation of piping and
instrumentation systems. The No. 2 Reformer will process desulfurized heavy
naphtha to raise its octane level to that suitable for gasoline blending. The
unit is designed to process up to 12,000 Bpd of feedstock to produce high
octane reformate for gasoline blending. This unit will also provide a portion
of the hydrogen required for operation of the Naphtha Pretreater and the HDS
Unit.

HYDRODESULFURIZATION (HDS) UNIT. In the early 1980s, TARC's
predecessor designed and commenced construction of a two-train distillate HDS
Unit with a common fractionation section. TARC has installed two new reactors,
and added another fractionation section to permit independent operation of both
trains. This unit will be completed and operational by the end of June 1998.
When completed, each train will be capable of treating either distillate or VGO
depending on unit or product requirements.

SULFUR RECOVERY SYSTEM. Sulfur is captured in various refining
processes, primarily cracking and hydrodesulfurization, in the form of hydrogen
sulfide which is absorbed into an amine solution or into sour water streams. The
hydrogen sulfide is stripped from these streams and processed in a series of
reactors into elemental sulfur. TARC has completed the reactivation and
expansion of an existing sulfur unit to a capacity of 150 LT/D and will complete
construction of a 220 LT/D unit in July 1998. These plants will have a combined
base capacity of 370 LT/D of sulfur, which can be increased to 510 LT/D of
sulfur with standard oxygen enrichment.

OFFSITE FACILITIES/TANKAGE. TARC has added steam-generating capacity,
air compression equipment and new electrical equipment during Phase I. A marine
vapor recovery system has been installed at the terminal docks. TARC is
adding equipment necessary to load petroleum coke at one of its docks. TARC is
performing the engineering on these facilities with support from specialty
engineering firms such as River Consulting Inc., Lanier and Associates, ABB
Combustion Engineering Systems and RPM Engineering Inc. TARC has purchased an
adjacent storage terminal to provide additional storage.

35
<PAGE> 41
OTHER. Additional equipment will be installed to enhance waste water
treatment and reduce the generation of solid waste. TARC has completed Hazardous
Operation ("HAZOP") analyses of the refinery Phase I process units as required
by Occupational Safety and Health Administration ("OSHA") regulations.

PHASE II

Phase II includes the FCC Unit, FCC Upgrades, Alkylation Unit and some
additional Offsite Facilities. Startup of these facilities will increase the
refinery's output of higher margin finished products, primarily gasoline and
No. 2 fuel oil. TARC anticipates that, following completion of Phase II, it
will have the capacity to process in excess of 200,000 Bpd of combined heavy,
sour crude oil and atmospheric residual oil. The following is a brief
description of the units and offsite facilities that are scheduled to be added
or improved during Phase II and TARC's plans and expectations therefor:

FLUID CATALYTIC CRACKING (FCC) UNIT. TARC's FCC Unit will process gas
oil feedstocks directly from the No. 2 Crude Unit, the No. 2 Vacuum Unit, the
Delayed Coking Unit, or from outside purchases of VGO or atmospheric residual
oil. Before being fed to the FCC Unit, some of the VGO will be desulfurized in
the HDS Unit in order to meet environmental guidelines and improve product
quality from the FCC Unit. Modernization of the FCC Unit includes
reconfiguration of the existing fractionation plant.

The FCC Unit will have an initial capacity of 100,000 Bpd and will
incorporate the state-of-the-art MSCC(SM) technology licensed by UOP, formerly
Universal Oil Products ("UOP"). The MSCC(SM) technology is currently being used
at a major U.S. refinery. TARC believes that this technology will improve
product yields and quality in comparison to conventional catalytic cracking
processes. TARC also plans to add a catalyst cooler, which will make the unit
capable of processing significant quantities of atmospheric residual
feedstocks.

The FCC Unit will produce refinery fuel, propane, butane, light
olefins, gasoline blendstock, No. 2 fuel oil, and a residual product
(decant/slurry oil). Light olefins will be processed in the Alkylation Unit for
further upgrade. Other materials will be blended to finished products or
consumed in the refinery.

Process engineering for the MSCC(SM) technology has been completed by
UOP. Raytheon Engineers and Constructors Inc. ("Raytheon") is providing
detailed design engineering and is managing construction of the FCC Unit. All
major equipment has been procured, delivered and erected.

FCC FLUE GAS SCRUBBER. TARC is installing a scrubber for the FCC
flue gases to reduce particulate and sulfur dioxide emissions. The flue gas
scrubber has been designed and fabricated by Belco Technologies Inc., and is
being erected under a fixed price contract.

ALKYLATION UNIT. Light olefins from the FCC Unit are converted to high
octane gasoline blendstock (alkylate) in the Alkylation Unit. Alkylate is a
relatively clean burning fuel component important in the production of
environmentally sensitive gasolines. The Alkylation Unit will be reactivated
and expanded to an ultimate capacity of approximately 26,000 Bpd of alkylate
product by installing four new contactors and two new settlers designed by
Stratco Inc. and a new refrigeration system. Remaining work includes
inspection and testing of the equipment in the existing unit and installation
of a new electronic instrumentation system. Fluor Daniel is providing
engineering and construction management services for this work.

OFFSITE FACILITIES/TANKAGE. Additional capacity will be installed for
cooling water, steam, plant air, instrument air and electrical distribution.
Construction of nine tanks, with aggregate capacity of one million barrels,
will be completed. Other piping, electrical and instrumentation equipment will
be installed to connect the Phase II process units with the refinery and new
storage tanks. Pressurized tanks with a storage capacity of 127,500 barrels
will be constructed for LPG and butane.

36
<PAGE> 42
OTHER. TARC has commenced HAZOP analysis of the refinery process units
added during Phase II as required by OSHA regulations.

CAPITAL BUDGET AND EXPENDITURES

The following table sets forth certain information with respect to the
Capital Improvement Program, including the budget as of June 13, 1997 and
expenditures as of January 31, 1998:

<TABLE>
<CAPTION>
BUDGET EXPENDITURES TO DAILY
TO COMPLETE(1) JANUARY 31, 1998(2) CAPACITY
---------------- --------------------- ----------
(DOLLARS IN (DOLLARS IN (BPD)
MILLIONS) MILLIONS)
<S> <C> <C> <C>
PHASE I:
Crude Unit .......................................... $ 3 $ 3.7 200,000

Delayed Coking Unit ................................. 27 45.2 75,000
Naphtha Pretreater .................................. 12 7.1 30,000
No. 2 Reformer ...................................... 9 0.7 12,000
HDS Unit ............................................ 24 11.8 60,000
Sulfur Recovery System .............................. 53 23.8
370(4)

Offsite Facilities/Tankage .......................... 46 33.3 N/A
Other ............................................... 3 0.4 N/A
Engineering and Administrative ...................... 7 8.0 N/A
Contingencies(3) .................................... 39 -- N/A
--------------- ---------------
Total Phase I ................................ 223 134.0
--------------- ---------------

PHASE II:
FCC Unit ............................................ 115 67.9 100,000
FCC Flue Gas Scrubber ............................... 14 5.5 N/A
Alkylation Unit ..................................... 24 6.6 26,000
Offsite Facilities/Tankage .......................... 26 1.0 N/A
Other ............................................... 2 -- N/A

Engineering and Administrative ...................... 3 -- N/A
Contingencies(3) .................................... 20 -- N/A
--------------- ---------------
Total Phase II ............................... 204 81.0
--------------- ---------------
Total Phase I and Phase II ................... $ 427 $ 215.0
=============== ===============
</TABLE>

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

(1) Budget as of June 13, 1997 for estimated expenditures from June 13,
1997 to completion. The Company's current estimates indicate that
actual expenditures will exceed the budget by approximately $45
million. See "-- Capital Budget Status."

(2) From June 13, 1997 through January 31, 1998.

(3) To the extent expenditures have exceeded or are expected to exceed the
approved capital budget for a unit or units, the contingencies portion
of the budget is allocated to specific units. As of January 31, 1998,
the entire contingencies portion of the budget has been allocated to
specific units.

(4) Units are LT/D. Capacity can be increased to 510 LT/D with oxygen
enrichment.

CAPITAL BUDGET STATUS

The Company estimates that expenditures necessary to complete the
Capital Improvement Program will exceed the original budget by approximately
$45 million, of which approximately $36 million will be allocated to Phase I.
Cash available in the TARC Disbursement Account is sufficient to fund the
projected remaining costs of Phase I. Although

37
<PAGE> 43
there can be no assurance, TARC believes that cash available in the TARC
Disbursement Account, other cash on hand (exclusive of any proceeds of the
issuance of Port Commission Bonds, discussed below), and anticipated cash flow
from operation of certain Phase I units will be sufficient to fund the
projected remaining costs of Phase II.

COMPLETION STATUS

TARC anticipates Mechanical Completion of the Delayed Coking Unit, the
HDS Unit and the related portion of the Sulfur Recovery System by early June
1998. Upon Mechanical Completion of these units, TARC will be able to purchase
feedstocks using funds in the TARC Disbursement Account reserved for such
purpose. TARC believes that the remainder of Phase I (other than the No. 2
Reformer) will reach Mechanical Completion during the second quarter of fiscal
1999. TARC intends to defer additional expenditures on the No. 2 Reformer
until the fourth quarter of fiscal 1999, ending January 31, 1999. TARC expects
to complete both Phase I and Phase II in advance of the Phase I completion date
required by the TEC Notes Indenture.

PORT COMMISSION BONDS

TARC and the South Louisiana Port Commission ("Port Commission") have
entered into a preliminary agreement for the issuance of revenue bonds which,
if issued, are expected to provide net proceeds to TARC of approximately $50
million. Of such proceeds, TARC anticipates that approximately $35 million
would be available to fund construction of facilities included in the Capital
Improvement Program budget. The Port Commission would own a coke handling
system and certain tank storage and dock facilities. TARC would operate such
facilities pursuant to a long-term (25-year) lease. TARC is currently working
with an underwriter to structure an offering of revenue bonds pursuant to this
preliminary agreement. There can be no assurance, however, that the issuance of
any such tax-exempt bonds will occur.

FEEDSTOCK FINANCING ARRANGEMENTS AND PROCESSING AGREEMENTS

During periods of limited operations, TARC has entered into financing
arrangements in order to maintain an available supply of feedstocks. Typically,
TARC entered into an agreement with a third party to acquire a cargo of
feedstock scheduled for delivery to TARC's refinery. TARC paid 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 purchased the cargo, and TARC committed to
purchase, at a later date, the cargo at an agreed price plus commission and
costs. TARC also placed margin deposits with the third party to permit the
third party to hedge its price risk. TARC purchased these cargos in quantities
sufficient to maintain expected operations and was obligated to purchase all of
the cargos delivered pursuant to these arrangements. In the event the refinery
was not operating, these cargos could be sold on the spot market.

In April 1996, TARC entered into a processing agreement with a third
party to process feedstocks. Under the terms of the agreement, the processing
fee earned by TARC is based on the margin, if any, earned by the third party
from product sales, after deducting all of its related costs such as feedstock
acquisition, hedging, transportation, processing and inspections plus a
commission for each barrel processed. As of January 31, 1998, TARC has
processed 6.4 million barrels of feedstocks under this agreement. TARC also
entered into processing agreements with this third party to process
approximately 1.1 million barrels of the third party's feedstocks for a fixed
price per barrel. For the years ended January 31, 1998 and 1997, TARC recorded
income (loss) from processing agreements of $1.4 million and $(7.1) million,
respectively. As of January 31, 1998 and 1997, TARC was storing approximately
0.7 million and 1.0 million barrels, respectively, of feedstock and
intermediate or refined products pursuant to these processing agreements.
Included in the 0.7 million barrels of product stored at the refinery as of
January 31, 1998, is approximately 0.6 million barrels of feedstock owned by a
third party related to a purchase commitment entered into in April 1997. For
the year ended January 31, 1998, TARC incurred a loss of approximately $7.8
million related to this purchase commitment.

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<PAGE> 44
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 TARC's debt instruments. 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 has no crude oil reserves and is not engaged in the exploration
for crude oil. TARC plans to obtain all its crude oil requirements from
unaffiliated sources. Although TARC currently has no long-term supply
contracts, it has entered into negotiations with a major supplier of heavy,
sour crude oil and is in discussions with two other suppliers. TARC expects to
be able to purchase feedstocks on the spot market as needed and believes that
it will have access to adequate supplies of crude oil it intends to process;
however, there can be no assurance that such supplies will be available on
favorable terms.

Crude oil prices are affected by a variety of factors that are 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.

The refinery has a variety of available options for the receipt of
feedstocks. The Mississippi River permits delivery of feedstocks from both
barge and ocean-going vessels. TARC has four ship docks and a barge dock on
the Mississippi River. TARC's title to and continued use of these facilities is
subject to the rights of the government and public use. TARC's ship dock can
accommodate 100,000 deadweight ton ("dwt") tankers that draw less than 45 feet
of water, or up to 200,000 dwt tankers 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 VGOs or atmospheric residuals.
Additionally, TARC is connected to a Shell Oil Company ("Shell") 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 Louisiana and other domestic crudes.

PRODUCT DISTRIBUTION

TARC 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, rail tanker,
ocean-going vessel and tank 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. Products can be discharged into these pipelines
at rates of up to 15,000 Bbls per hour. TARC is also connected to several
pipelines designed to transfer refined products to a nearby refinery operated
by Shell. Railroad lines serve the refinery and adjacent industries. TARC's
barge and ship docks provide access to the Mississippi River and the
intracoastal waterway.

TANK STORAGE ACQUISITION

On September 9, 1997, TARC acquired tank storage facilities and
property located adjacent to TARC's refinery for $40 million. The acquired
assets included approximately 5.5 million barrels of tank storage capacity for
crude oil, feedstocks and finished products, and three docks on the Mississippi
River, as well as almost 500 acres of undeveloped wetlands. TARC is
integrating the tank storage and terminal facilities with its refinery offsites
systems and is leasing to other persons storage that is not needed for its own
operations.

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<PAGE> 45
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.

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 Capital Improvement 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 Capital Improvement 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 January 31, 1998, TARC had approximately 450 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.

Since July 1994, Southeast Louisiana Contractors of Norco, Inc.
("Southeast Contractors"), a subsidiary of TransAmerican, has provided
construction personnel to TARC in connection with construction at the refinery.
Southeast Contractors will continue to provide construction personnel to TARC
as required to implement the Capital Improvement Program. These construction
workers are temporary employees, and the number and composition of the
workforce will vary throughout the reactivation of the refinery during the
Capital Improvement 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 may be up to $2 million per year.

40
<PAGE> 46
As of January 31, 1998, Southeast Contractors was providing approximately 2,500
construction workers to TARC. The Equal Employment Opportunity Commission (the
"EEOC") has initiated an investigation into the employment practices of TARC
and Southeast Contractors alleging discriminatory hiring and promotion
practices. See "-- Legal Proceedings."

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
now, and has included in the Capital Improvement Program sufficient capital
additions to remain, in substantial compliance with applicable Pollution
Control Laws. However, Pollution Control Laws that may be enacted in the
future, as well as increasingly strict enforcement of existing Pollution
Control Laws, may require TARC to make additional 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. However, there is no assurance that TARC will
remain in compliance with environmental regulations.

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. Until the refinery is in full operation, however, there can be no
assurance that the regulations will not have such an effect.

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<PAGE> 47
In addition, the EPA promulgated National Emission Standards for
Hazardous Air Pollutants for Hazardous Organics (the "Hazardous Organic
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 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. Until the refinery is in full operation,
however, there can be no assurance that the regulations will not have such an
effect.

The EPA has 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 these 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 EPA
recently promulgated final National Ambient Air Quality Standards ("NAAQS")
that revise the standards for particulate matter and ozone. The number and
extent of the areas subject to reformulated gasoline standards may increase in
the future after the NAAQS 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
refiners 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.

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 Title V Operating Permit is necessary for TARC to
produce at projected levels upon completion of the Capital Improvement Program.
TARC has submitted its Title V Operating Permit Application covering both the
refinery and the adjacent tank storage facility. TARC believes that its
application will be approved. However, there can be no assurance that it will be
approved as submitted or 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 related 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).

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<PAGE> 48
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 the 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, submitted a work plan to the LDEQ to
determine which areas may require further investigation and remediation. TARC
submitted further information in January 1998 which was requested by the LDEQ.
Based on the workplan submitted and additional requests by the LDEQ, TARC
believes that any further action will not have a material adverse effect on its
financial position, results of operations or cash flow.

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.

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. TARC has budgeted funds in the Capital
Improvement Program to comply with all of these requirements.

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<PAGE> 49
PROPERTIES

TARC owns the approximately 457-acre site on which the refinery and
tank storage facility are located. TARC also owns approximately 500 acres of
wetlands adjacent to the refinery site. TARC leases office space in Houston,
Texas from TransTexas.

TITLE INSURANCE

TARC has obtained a lender's title insurance policy in the amount of
$859 million for the benefit of the TEC Indenture Trustee to insure against
certain claims made against title to the refinery parcel site. The title
insurance policy is reinsured through various title insurance companies in the
United States. The ability to successfully recover under the policy 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. The title insurance policy does not insure TARC or the TEC
Indenture Trustee for defects, liens, encumbrances, adverse claims or other
matters known to TARC that affect the validity of the mortgage or title to the
refinery. There can be no assurance that the amount of title insurance will be
sufficient to cover any losses incurred by TARC or the TEC Indenture Trustee 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 insurance 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 Capital Improvement Program
and (v) any rights of creditors pursuant to federal or state bankruptcy and
insolvency laws, which rights may affect the enforceability of the mortgage
securing the TARC Intercompany Loan.

LEGAL PROCEEDINGS

EEOC. On September 30, 1997, the U.S. Equal Employment Opportunity
Commission ("EEOC") issued a Determination (the "Determination") as a result of
the Commissioner's Charge that had been filed in August 1995 against TARC and
Southeast Louisiana Contractors of Norco, Inc. ("Southeast Contractors")
pursuant to Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C.
Section 2000e et seq. ("Title VII"). In the Determination, the EEOC stated
that it found reasonable cause to believe that each of TARC and Southeast
Contractors had discriminated based on race and gender in its hiring and
promotion practices. Each violation of Title VII (for each individual
allegedly aggrieved), if proven, potentially could subject TARC and Southeast
Contractors to liability for (i) monetary damages for backpay and front pay in
an undetermined amount, and for compensatory damages and punitive damages in an
amount not to exceed $300,000 per plaintiff, (ii) injunctive relief, (iii)
attorney's fees and (iv) interest. During the period covered by the
Commissioner's Charge and the Determination, TARC and Southeast Contractors
estimate that they received a combined total of approximately 23,000 to 30,000
employment applications and hired (or rehired) a combined total of
approximately 3,400 to 4,100 workers, although the total number of individuals
who ultimately are covered in any conciliation proposal or any subsequent
lawsuit may be higher. TARC and Southeast Contractors deny engaging in any
unlawful employment practices. TARC and Southeast Contractors intend
vigorously to defend against the allegations contained in the Commissioner's
Charge and the findings set forth in the Determination in any proceedings in
state or federal court, regardless of whether any such lawsuit is brought by
the EEOC or any individual or groups of individuals. If TARC or Southeast
Contractors is found liable for violations of Title VII based on the matters
asserted in the Determination, TARC can make no assurance that such liability
would not have a material adverse effect on its financial position, results of
operations or cash flow.

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<PAGE> 50
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 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 environmental contamination
of Bayou Trapagnier and surrounding lands near Norco, Louisiana. In March
1997, TARC obtained a voluntary dismissal from Shell. Shell proceeded to trial
on the main case and settled with the plaintiffs during trial by purchasing
their land for $5 million. On June 27, 1997, Shell amended its third party
action to bring TARC back into the case. However, TARC has not yet been served
in the case. If TARC is served, it will defend the case vigorously.

GENERAL. The litigation matters discussed above amount to significant
potential liability which, if adjudicated in a manner adverse to TARC in one
reporting period, could have a material adverse effect on TARC's financial
position, results of operations or cash flow for that period. TARC is also a
named defendant in other ordinary course, routine litigation incidental to its
business. Although the outcome of these lawsuits cannot be predicted with
certainty, TARC does not expect these matters to have a material adverse effect
on its financial position, results of operations or cash flow.

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<PAGE> 51
MANAGEMENT OF THE COMPANY

DIRECTORS AND EXECUTIVE OFFICERS

TARC's directors and executive officers are as follows:

<TABLE>
<CAPTION>
NAME OFFICE AGE
---- ------ ---
<S> <C> <C>
John R. Stanley Chairman of the Board and Director 59
Thomas B. McDade Director 74
Donald B. Henderson Director 48
R. Glenn McGinnis President and Chief Executive Officer 49
Ronald W. Lewis Vice President and Chief Operating Officer 60
Gary L. Karr Vice President of Refining 49
John R. Stanley, Jr. Vice President of Administration 36
Ed Donahue Vice President and Secretary 47
</TABLE>

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

John R. Stanley has been Chairman of the Board of TARC since September
1987 and served as President and Chief Executive Officer of TARC from September
1987 until May 1998. He is also a director and Chief Executive Officer of TEC,
TransTexas and TransAmerican. 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.

Thomas B. McDade has been a director of TARC since July 1994. He is
also a director of TransTexas and TEC. 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. From 1985 to 1995, Mr.
McDade served as a director and trustee of eleven registered investment
companies for which John Hancock Funds now 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. Mr. McDade serves as a director of Group
Maintenance America Corp.

Donald B. Henderson has been a director of TARC since July 1994. He
is also a director of TEC. Mr. Henderson served as a director of TransAmerican
from 1985 until his resignation in February 1995. Mr. Henderson is a partner
in the law firm of Blackburn & Henderson. 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 to 1996. In April 1998, Mr. Henderson was charged
with intoxication assault in connection with a traffic accident. Mr. Henderson
has pleaded innocent and intends to vigorously defend these charges.

R. Glenn McGinnis has been President and Chief Executive Officer of
TARC since May 1998 and served as Vice President of Manufacturing of TARC from
July 1995 to May 1998. 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.

Ronald W. Lewis has been Vice President and Chief Operating Officer of
TARC since May 1998. Mr. Lewis was previously with Phibro Energy USA, Inc.,
where he served as Senior Vice President of Refining Operations. Prior to 1985,
Mr. Lewis served as president of Ventech Energy Inc. and as Executive Vice
President of Independent Refining Corporation.

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<PAGE> 52
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.

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 TEC and as Vice President and
Secretary of TransAmerican. Mr. Donahue has been employed in various positions
with TransAmerican for over 21 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 purpose of the
Audit Committee is to review the scope of the independent accountants' audit of
TARC's financial statements and review their reports.

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

DIRECTOR COMPENSATION

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

EXECUTIVE COMPENSATION

The following table sets forth the compensation paid during the fiscal
years ended January 31, 1998 and 1997, the six months ended January 31, 1996,
and the fiscal year ended July 31, 1995 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, 1998 (the "Named
Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Annual Compensation
------------------------------
Name and Principal Position Fiscal Other Annual
in TARC Year Salary Compensation(a)
- --------------------- ------ ------ ---------------
<S> <C> <C> <C>
John R. Stanley (b) 1998 $ 400,483 $ 4,346
Chairman of the Board 1997 397,117 5,170
1996* 175,001 807
1995 369,521 4,500

R. Glenn McGinnis 1998 $ 235,038 $ 950
President and Chief 1997 233,654 727
Executive Officer 1996* 116,937 --
1995 9,904 --
</TABLE>

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<PAGE> 53
<TABLE>
<S> <C> <C> <C>
Gary L. Karr 1998 $ 145,904 $ 4,377
Vice President of Refining 1997 140,192 3,348
1996* 67,500 311
1995 140,192 2,310

John R. Stanley, Jr. 1998 $ 114,461 $ 3,376
Vice President of Administration 1997 117,308 3,519
1996* 63,750 1,913
1995 93,693 2,259
</TABLE>

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

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

(a) Reflects the amount contributed under the Savings Plan (as defined below).
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) All amounts shown were paid by TransTexas. Mr. Stanley served as Chief
Executive Officer of TARC from September 1987 until May 1998.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

TARC's compensation committee is composed of Messrs. McDade and
Henderson. During the year ended January 31, 1998, none of the members of the
compensation committee was an officer or employee of TARC. Blackburn &
Henderson, a law firm of which Mr. Henderson is a partner, provides legal and
other services to TransAmerican and its affiliates for an annual fee of $96,000
plus expenses. The TEC Notes Indenture prohibits TEC and its subsidiaries from
paying compensation to Mr. Stanley in excess of $1.0 million per year, in the
aggregate, from TEC and TransTexas and, following completion of Phase II, $1.0
million per year from TARC.

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 1998, this limit is $10,000. 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

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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
TransAmerican. As of January 31, 1998, approximately 178 employees of TARC
were eligible to participate in the Savings Plan, including the Named Executive
Officers.

SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The Company's common stock is owned 100% by TEC. TEC's common stock
is owned 100% by TransAmerican. TransAmerican is owned 100% by TNGC, and TNGC
is owned 100% by John R. Stanley. No other officer or director of the Company
owns any common stock of the Company. As of January 31, 1998, there were
30,000,000 shares of common stock outstanding. These shares are currently
pledged to the TEC Indenture Trustee as security for payment of the TEC Notes.
A foreclosure by the holders of the TEC Notes on the shares of TARC's common
stock, under certain circumstances, constitutes a "change of control" of TEC
under the TEC Notes Indenture, which allows the holders thereof to require TEC
to repurchase the TEC Notes at a price equal to 101% of the principal amount
thereof plus accrued and unpaid interest.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Pursuant to the stock transfer agreement dated February 23, 1995 (the
"Stock Transfer Agreement") among TransAmerican, TEC and TARC, TransAmerican
contributed to the capital of TEC (the "Stock Transfer") (i) all of the
outstanding capital stock of TARC, and (ii) 55 million shares of common stock
of TransTexas. TEC subsequently contributed 15 million of its shares of
TransTexas common stock to TARC.

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 of the net proceeds 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 it repaid in June 1997.

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 in December 1995.

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. TransTexas charges TARC approximately $61,000 in rent
annually, of which approximately $117,000, was payable to TransTexas at January
31, 1998.

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executed an additional $25 million promissory note to TransAmerican which bore
interest at 15% per annum, payable quarterly beginning December 31, 1996
(together with the first promissory note, the "TransAmerican Notes"). As of
January 31, 1997, TARC had approximately $44.4 million outstanding under the
TransAmerican 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. All amounts outstanding under the
TransAmerican Notes were repaid on June 13, 1997.

From August 1993 to June 1997, TransTexas provided general commercial
legal services and certain accounting services (including payroll, tax, and
treasury services) to TARC and TEC for a fee of $26,000 per month pursuant to a
services agreement. In June 1997, the services agreement was terminated.

On June 13, 1997, a new services agreement was entered into among
TransAmerican, TEC, TARC and TransTexas. Under the new services agreement,
TransTexas provides accounting, legal, administrative and other services to
TARC, TEC and TransAmerican and its affiliates. TransAmerican provides
advisory services to TransTexas, TARC and TEC. TARC will pay to TransTexas
approximately $300,000 per month for services rendered to, and for allocated
expenses paid by TransTexas on behalf of, TARC and TEC. TEC and its
subsidiaries will pay $2.5 million in the aggregate per year to TransAmerican
for advisory services and benefits provided by TransAmerican. Pursuant to
these agreements, TARC has recognized $4.0 million in service agreement
expenses during the year ended January 31, 1998. As of January 31, 1998, $1.2
million and $1.6 million was payable to TransTexas and TransAmerican,
respectively, pursuant to the services agreement.

Southeast Contractors, a subsidiary of TransAmerican, provides
construction personnel to TARC in connection with the Capital Improvement
Program. These construction workers are temporary employees, and the number
and composition of the workforce will vary throughout the Capital Improvement
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 up to $2.0 million per year. Total labor costs charged by
Southeast Contractors for the years ended January 31, 1998 and 1997, the six
months ended January 31, 1996 and the year ended July 31, 1995 were $50.7
million, $14.1 million, $20.2 million and $15.5 million, respectively, of which
$5.3 million and $1.8 million was payable at January 31, 1998 and 1997,
respectively.

TARC purchases natural gas from TransTexas on an interruptible basis.
The total cost of natural gas purchased for the years ended January 31, 1998
and 1997, the six months ended January 31, 1996 and the year ended July 31,
1995 was approximately $0.4 million, $2.7 million, $1.4 million and $2.5
million, respectively. The payable to TransTexas for natural gas purchases at
January 31, 1997 was $2.7 million.

In July and September 1997, TEC advanced an aggregate of $46 million
to TARC. All of the advances are governed by the terms of a promissory note
that is due June 14, 2002 bearing interest at a rate that, when added to the
interest paid by TransTexas on the TransTexas Intercompany Loan, will equal the
amount of interest payable on the TEC Notes through December 15, 1997.
Thereafter, the amount of fixed interest payable to TEC of $5.7 million per
year will be proportioned semi-annually between TARC and TransTexas based on
the average outstanding balance of TARC's note to TEC and the average
outstanding balance of all notes between TransTexas and TEC. As of January 31,
1998, the principal amount payable by TARC to TEC pursuant to the advances was
$15 million. During the year ended January 31, 1998, TARC recognized $3.1
million in interest expense pursuant to the advances of which approximately
$0.2 million was payable to TEC at January 31, 1998. Included in the $3.1
million of interest expense is approximately $0.3 million paid to TEC for
advances made to TransTexas during fiscal 1998.

During the year ended January 31, 1998, TEC contributed $13.5 million
to TARC for general corporate purposes pursuant to the Disbursement Agreement.

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reimburse TEC for other expenses in an amount not to exceed $200,000 per year.
Since December 30, 1997, no such expenses were reimbursed to TEC.

Blackburn & Henderson, a law firm of which Mr. Henderson, a director
of TARC and TEC, is a partner, provides legal and other services to
TransAmerican and its affiliates for which he is paid an annual fee of $96,000
plus expenses.

TNGC, TransAmerican, and its existing subsidiaries, including TARC,
TEC and TransTexas, are parties to a tax allocation agreement (the "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.

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 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 parties to the Tax Allocation
Agreement amended such agreement in May 1997 to include additional affiliates
as parties, and further amended the Tax Allocation Agreement in June 1997 to
allocate to TransAmerican, as among the parties, any tax liability associated
with the Lobo Sale.

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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following discussion sets forth the anticipated material United
States federal income tax consequences of the exchange of Outstanding Notes for
Exchange Notes issued pursuant to the Exchange Offer and to the ownership and
disposition of the Exchange Notes. This discussion is based upon the Code, its
legislative history, existing and proposed regulations thereunder, published
rulings and court decisions, all as in effect and existing on the date hereof
and all of which are subject to change at any time, which change may be
retroactive. The following discussion does not address any tax consequences
relating to the Private Exchange. This discussion applies only to those
persons who purchased their Outstanding Notes from the Initial Purchaser and
hold the Notes as capital assets and does not address the tax consequences to
taxpayers who are subject to special rules (such as financial institutions,
tax-exempt organizations and insurance companies) or aspects of federal income
taxation that may be relevant to a prospective investor based upon such
investor's particular tax situation. Accordingly, holders of the Outstanding
Notes should consult their tax advisors with respect to the particular
consequences to them of the acquisition, ownership and disposition of the
Exchange Notes including the applicability of any state, local or foreign tax
laws to which they may be subject as well as with respect to the possible
effects of changes in federal and other tax laws.

ISSUANCE OF EXCHANGE NOTES

The issuance of the Exchange Notes to holders of the Outstanding Notes
pursuant to the terms set forth in this Prospectus should not constitute a
recognition event for federal income tax purposes. Consequently, no gain or
loss should be recognized by holders of the Outstanding Notes upon receipt of
the Exchange Notes. For purposes of determining gain or loss upon the
subsequent sale or exchange of the Exchange Notes, a holder's basis in the
Exchange Notes should be the same as such holder's basis in the Outstanding
Notes exchanged therefor. Holders should be considered to have held the
Exchange Notes from the time of their original acquisition of the Series A
Notes or the Series C Notes exchanged therefor.

Treasury regulations relating to the tax treatment of debt instruments
with original discount contain provisions for determining the yield and
maturity of debt instruments having one or more contingencies that could result
in the acceleration or deferral of amounts due under the debt (including
optional redemption). The Company will follow the general rule of these
provisions, which is to ignore contingencies, as it is more likely than not
that payments will be made under the Exchange Notes under the stated payment
schedule, and thus plans to accrue and report interest on the Exchange Notes
under the stated payment schedule.

A holder who does not tender his Outstanding Notes will not recognize
any gain or loss for United States federal income tax purposes from the
Exchange Offer.

TAXATION OF THE NOTES

ORIGINAL ISSUE DISCOUNT. During the period that a holder owns an
Exchange Note, the holder will be required to include OID in income as if such
holder instead continued to own the Outstanding Note that was exchanged
therefor. Because the Outstanding Notes were issued at a discount from their
"stated redemption price at maturity," the Outstanding Notes had, and the
Exchange Notes will have, OID for federal income tax purposes. The amount of
OID attributable to each Exchange Note equals the excess of the "stated
redemption price at maturity" over its "issue price," less the amount of OID
that will have accrued on the Outstanding Note exchanged therefor to the
Exchange Date. The issue price of an Exchange Note exchanged for a Series A
Note or a Series C Note is the portion of the initial purchase price of the
Unit (that included the Outstanding Note and Warrant) that was allocated to the
Outstanding Note based on the initial relative fair market values of the
Outstanding Note and Warrant comprising the Unit. The Company intends to treat
the initial issue prices of the Series A Notes and the Series C Notes as
$166,826,642.50 and $23,860,922.50, respectively. The stated redemption price
at maturity of an Exchange Note is the sum of all payments to be made on the
Outstanding Note exchanged therefor determined when the Outstanding Note was
issued, excluding the amount of all stated interest payments. A holder of an
Exchange Note will be required to include OID in gross income in advance of the
receipt of cash attributable to such income during the period that the holder
owns the Exchange Note. Exchange Notes issued in certificated form contain a
legend that sets forth various information concerning OID.

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More specifically, a holder of an Exchange Note with OID must include
in gross income for federal income tax purposes the sum of the daily portions
of OID with respect to the Exchange Note for each day during the taxable year
or portion of a taxable year on which such holder holds the Exchange Note (such
sum, "Accrued OID"). The daily portion is determined by allocating to each day
of any accrual period within a taxable year a pro rata portion of an amount
equal to the adjusted issue price of the Exchange Note at the beginning of the
accrual period multiplied by the yield to maturity of the Exchange Note, taking
into consideration the Accrued OID attributable to the Outstanding Note
exchanged therefor. For purposes of computing OID, the Company will use
six-month accrual periods that end on the days in the calendar year
corresponding to the maturity date of the Exchange Notes and the date six
months prior to such maturity date. The adjusted issue price of an Exchange
Note at the beginning of any accrual period is the issue price of the
Outstanding Note exchanged therefor, increased by the Accrued OID for all prior
accrual periods including the period the corresponding Outstanding Note was
outstanding (less all payments of stated principal made on the Exchange
Notes). The Company intends to take the position that the adjusted issue
price of each Exchange Note as of the end of the Exchange Date will be $ ____.

DISPOSITION OF EXCHANGE NOTES. Generally, any sale, redemption or
other disposition of Exchange Notes will result in taxable gain or loss equal
to the difference between (i) the amount of cash and the fair market value of
other property received and (ii) the holder's adjusted tax basis in the
Exchange Note. In the case of a holder who purchased an Outstanding Note from
the Initial Purchaser, the adjusted tax basis of an Exchange Note will
initially equal the portion of the purchase price of the Unit (that included
the Outstanding Note and Warrant) that was allocated to the Note and will be
increased by any Accrued OID includable in such holder's gross income
(including Accrued OID on the Outstanding Note exchanged therefor) and
decreased by all payments (including stated principal) received by such holder
on the Exchange Note. The Company intends to take the position that the
adjusted issue price of each Exchange Note as of the end of the Exchange Date
will be $ _______. Any gain or loss upon a sale or other disposition of an
Exchange Note will generally be capital gain or loss, which will be long-term
if the Exchange Note has been held by the holder for more than 18 months.

SUBSEQUENT PURCHASERS. The foregoing does not discuss special rules
which may affect the treatment of purchasers that have acquired (i) Outstanding
Notes other than from the Initial Purchaser or (ii) Exchange Notes other than
in the Exchange Offer, including those provisions of the Code relating to the
treatment of "market discount," "acquisition premium" and "amortizable bond
premium." For example, the market discount provisions of the Code may require a
subsequent purchaser of an Exchange Note at a market discount to treat all or a
portion of any gain recognized upon sale or other disposition of the Exchange
Notes as ordinary income and to defer a portion of any interest expense that
would otherwise be deductible on any indebtedness incurred or maintained to
purchase or carry such Exchange Notes until the holder disposes of the Exchange
Notes in a taxable transaction.

FOREIGN HOLDERS. The following discussion is a summary of certain
United States federal income tax consequences to a Foreign Person that holds an
Exchange Note. The term "Foreign Person" means a beneficial owner of a Note
that is not (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is subject to United States federal income taxation without regard to
the source of its income or (iv) a trust whose administration is subject to the
primary supervision of a United States court and which has one or more
fiduciaries who have authority to control substantial decisions of the trust.
If the income or gain on the Exchange Note is "effectively connected with the
conduct of a trade or business within the United States," then the Foreign
Person will be subject to tax on such income or gain in essentially the same
manner as a United States citizen or resident or a domestic corporation, as
discussed above, and in the case of a foreign corporation, may also be subject
to the branch profits tax.

Under the "portfolio interest" exception to the general rules for the
withholding of tax on interest and OID paid to a Foreign Person, a Foreign
Person will not be subject to United States tax (or to withholding) on interest
of OID on an Exchange Note, provided that (i) the Foreign Person does not
actually or constructively own 10% or more of the total combined voting power
of all classes of stock of the Company entitled to vote and is not a controlled
foreign corporation with respect to the United States that is related to the
Company through stock ownership, and (ii) the Company, its paying agent or the
person who would otherwise be required to withhold tax receives either (A) a

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statement (an "Owner's Statement") signed under penalties of perjury by the
beneficial owner of the Exchange Note in which the owner certifies that the
owner is not a United States person and which provides the owner's name and
address, or (B) a statement signed under penalties of perjury by the Financial
Institution holding the Exchange Note on behalf of the beneficial owner,
together with a copy of the Owner's Statement. The term "Financial Institution"
means a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or
business and that holds an Exchange Note on behalf of the owner of the Exchange
Note. A Foreign Person who does not qualify for the "portfolio interest"
exception would, under current law, generally be subject to United States
withholding tax at a flat rate of 30% (or a lower applicable treaty rate) on
interest payments and payments (including redemption proceeds) attributable to
original issue discount on the Exchange Notes.

In general, gain recognized by a Foreign Person upon the redemption,
sale or exchange of an Exchange Note will not be subject to United States tax.
However, a Foreign Person may be subject to United States tax at a flat rate of
30% (unless exempt by applicable treaty) on any such gain if the Foreign Person
is an individual present in the United States for 183 days or more during the
taxable year in which the Exchange Note is redeemed, sold or exchanged, and
certain other requirements are met.

BACKUP WITHHOLDING

A holder may be subject, under certain circumstances, to backup
withholding at a 31% rate with respect to payments received with respect to the
Exchange Notes. This withholding generally applies only if the holder (i) fails
to furnish his or her social security or other taxpayer identification number
("TIN"), (ii) furnishes an incorrect TIN, (iii) is notified by the IRS that he
or she has failed to report properly payments of interest and dividends and the
IRS has notified the Company that he or she is subject to backup withholding or
(iv) fails, under certain circumstances, to provide a certified statement,
signed under penalty of perjury, that the TIN provided is his or her correct
number and that he or she is not subject to backup withholding. Any amount
withheld from a payment to a holder under the backup withholding rules is
allowable as a credit against such holder's federal income tax liability,
provided that the required information is furnished to the IRS. Certain holders
(including, among others, corporations and foreign individuals who comply with
certain certification requirements described above under "Foreign Holders") are
not subject to backup withholding. Holders should consult their tax advisors as
to their qualification for exemption from backup withholding and the procedure
for obtaining such an exemption.

CERTAIN LEGAL CONSIDERATIONS

CANCELLATION OF DEBT ISSUES

Part of the refinancing of TransAmerican's debt in 1993 involved the
cancellation of approximately $65.9 million of accrued interest and of a
contingent liability for interest of $102 million owed by TransAmerican.
TransAmerican has taken the federal tax position that the entire amount of this
debt cancellation is excluded from its income under the COD Exclusion.
TransAmerican has reduced its tax attributes (including its net operating loss
and credit carryforwards) as a consequence of the COD Exclusion. Although the
Company has been advised that TransTexas believes that there is substantial
legal authority to support the position that the COD Exclusion applies to the
cancellation of TransAmerican's indebtedness due to factual and legal
uncertainties, there can be no assurance that the IRS will not challenge this
position, or that any such challenge would not be upheld. Under the Tax
Allocation Agreement, TransTexas has agreed to pay an amount equal to any
federal tax liability (which would be approximately $25.4 million) attributable
to the inapplicability of the COD Exclusion. Any such tax would be offset in
future years by alternative minimum tax credits and retained loss and credit
carryforwards to the extent recoverable from TransAmerican. As a member of the
TNGC Consolidated Group, TARC will be severally liable for any tax liability
resulting from the above-described transactions. The IRS has commenced an
audit of the consolidated federal income tax returns of the TNGC Consolidated
Group for its taxable years ended July 31, 1994, and July 31, 1995. Because the
audit is in its initial stages, it is not possible to predict the scope of the
IRS' review and whether any tax deficiencies will be proposed by the IRS as a
result of its review.

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DECONSOLIDATION

If a transfer or other disposition occurs of an amount of TransTexas
common stock that results in the members of the TNGC Consolidated Group
(excluding TransTexas) in the aggregate owning less than 80% of the voting
power and 80% of the stock value of TransTexas, then a Deconsolidation of
TransTexas would occur. Upon a Deconsolidation of TransTexas, members of the
TNGC Consolidated Group that own TransTexas common stock could incur a
substantial amount of federal income tax liability. If such Deconsolidation
occurred during the fiscal year ending January 31, 1999, the aggregate amount
of this tax liability is estimated to be approximately $100 million, assuming
no reduction for tax attributes of the TNGC Consolidated Group. However, such
tax liability generally would be substantially reduced or eliminated in the
event that the IRS successfully challenged TransTexas' position on the Lobo
Sale.

POTENTIAL TAX LIABILITY RELATED TO LOBO SALE

The Company has been advised that TransTexas has determined, based upon
independent legal advice, including an opinion from a nationally recognized law
firm, that it will not report any significant federal income tax liability as a
result of the Lobo Sale. There are, however, significant uncertainties
regarding TransTexas' tax position and no assurance can be given that
TransTexas' position will be sustained if challenged by the IRS. No letter
ruling has been or will be obtained from the IRS regarding the Lobo Sale by any
member of the TNGC Consolidated Group. If the IRS were to successfully
challenge TransTexas' position, each member of the TNGC Consolidated Group,
including the Company, would be severally liable under the consolidated tax
return regulations for the resulting taxes, in the estimated amount of up to
$250 million (assuming the use of existing tax attributes of the TNGC
Consolidated Group), possible penalties equal to 20% of the amount of the tax,
and interest at the statutory rate (currently 8%) on the tax and penalties (if
any). The Tax Allocation Agreement has been amended so that TransAmerican will
become obligated to fund the entire tax deficiency (if any) resulting from the
Lobo Sale. There can be no assurance that TransAmerican would be able to fund
any such payment at the time due; therefore, the other members of the TNGC
Consolidated Group, including TARC, may be required to pay the tax. If TARC was
required to pay the tax deficiency, or a significant portion thereof, it is
likely that it would be required to raise additional debt or equity capital or
sell significant assets to fund the payment.

POTENTIAL EFFECTS OF A CHANGE OF CONTROL

Pursuant to the terms of the Intercompany Loans, upon the occurrence
of a Change of Control, TEC would have the right to require TransTexas and TARC
to repay the principal of the Intercompany Loans in an amount equal to a pro
rata share of the amount TEC is required to pay under the TEC Notes Indenture.
Such pro rata share would be calculated using the ratio of the outstanding
principal amount of the TransTexas Intercompany Loan (or in the case of the
TARC Intercompany Loan, the accreted value of the outstanding principal amount
thereof) to the sum of (i) the outstanding principal amount of the TransTexas
Intercompany Loan plus (ii) the accreted value of the outstanding principal
amount of the TARC Intercompany Loan. A Change of Control would be deemed to
occur under the Intercompany Loans in the case of certain changes or other
events in respect of the ownership or control of TEC, TransTexas, or TARC
including any circumstance pursuant to which (i) any person or group, other
than John R. Stanley (or his heirs, his estate or any trust in which he or his
immediate family members have, directly or indirectly, a beneficial interest in
excess of 50%) and his subsidiaries or the TEC Indenture Trustee is or becomes
the beneficial owner of more than 50% of the total voting power of TEC's then
outstanding voting stock, or (ii) TEC or any of its subsidiaries own some of
TransTexas' or TARC's capital stock, respectively, but less than 50% of the
total voting stock or economic value of TransTexas or TARC, respectively,
unless the TEC Notes have an investment grade rating for the period of 120 days
thereafter. The term "person," as used in the definition of Change of Control,
means a natural person, company, government or political subdivision, agency or
instrumentality of a government and also includes a "group," which is defined
as two or more persons acting as a partnership, limited partnership or other
group. In the event of a Change of Control under the TEC Notes Indenture,
there can be no assurance that TransTexas or TARC will have sufficient funds to
satisfy any such payment obligations.

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A change of control or other event that results in Deconsolidation of
TransTexas and TransAmerican for federal income tax purposes could result in
acceleration of a substantial amount of federal income taxes.

DESCRIPTION OF EXISTING INDEBTEDNESS

TARC NOTES

As of January 31, 1998, TARC had outstanding approximately $14.4
million in aggregate carrying value of its 18 1/2% Guaranteed First Mortgage
Discount Notes due 2002 ("Discount Mortgage Notes") and 16 1/2% Guaranteed
First Mortgage Notes due 2002 ("Mortgage Notes" and, together with the Discount
Notes, the "TARC Notes"). Interest on the Mortgage Notes is payable, and
commencing August 15, 1998, interest on the TARC Discount Notes will be
payable, semi-annually on February 15 and August 15. On January 14, 1998, TARC
called for redemption on February 17, 1998 approximately $7 million in
aggregate principal amount of TARC Notes. On January 16, 1998, TARC deposited,
pursuant to an irrevocable trust agreement, approximately $9.8 million in order
to defease the remaining TARC Notes. On April 17, 1998, the TARC Notes were
defeased and the collateral securing the TARC Notes was released.

TARC INTERCOMPANY LOAN

The TARC Intercompany Loan (i) is in the original amount of
approximately $676 million, (ii) accretes principal at 16% per annum,
compounded semi-annually, until June 15, 1999, to a final accreted value of
$920 million, and thereafter pays interest semi-annually on June 15 and
December 15 in cash in arrears on the accreted value thereof, at a rate of 16%
per annum and (iii) is currently secured by a security interest in
substantially all of TARC's assets other than Inventory, Receivables and
Equipment (each as defined in the TEC Notes Indenture). The TARC Intercompany
Loan will mature on June 1, 2002. The TARC Intercompany Loan Agreement
contains certain restrictive covenants, including, among others, limitations on
incurring additional debt, asset sales, dividends and transactions with
affiliates. The accreted balance of the TARC Intercompany Loan as of January
31, 1998 was $745.3 million.

TARC WORKING CAPITAL NOTE

In July and September 1997, TEC advanced an aggregate of $46 million
to TARC. All of the advances are governed by the terms of a promissory note
(the "TARC Working Capital Note") that is due June 14, 2002 bearing interest at
a rate that, when added to the interest paid by TransTexas on the TransTexas
Intercompany Loan, will equal the amount of interest payable on the TEC Notes
through December 15, 1997. Thereafter, the amount of fixed interest payable to
TEC of $5.7 million per year will be proportioned semi-annually between TARC
and TransTexas based on the average outstanding balance of the TARC Working
Capital Note and the average outstanding balance of all notes between
TransTexas and TEC. As of January 31, 1998, the principal amount payable by
TARC to TEC pursuant to the TARC Working Capital Note was $15 million.

ACQUISITION NOTE

On December 10, 1997, TARC issued to an unaffiliated third party a 13%
Senior Secured Note due 2002 (the "Acquisition Note") in the principal amount
of $36 million to finance a portion of the purchase price of a tank storage
facility purchased in September 1997. The Acquisition Note is secured by a
mortgage on the tank storage facility, and is governed by a Note Purchase
Agreement containing restrictive covenants substantially similar to those
contained in the TARC Intercompany Loan and the TEC Notes Indenture. The
Acquisition Note bears interest at a rate of 13% per annum, payable
semiannually on June 15 and December 15, and matures on December 15, 2002.

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DESCRIPTION OF THE EXCHANGE NOTES

The Exchange Notes will be issued as a separate series of notes
pursuant to the Indenture dated December 30, 1997 by and between the Company
and First Union National Bank, as trustee (the "Trustee"). The Exchange Notes
are substantially identical (including principal amount, interest rate,
maturity and redemption rights) to the Outstanding Notes for which they may be
exchanged pursuant to this offer, except for certain transfer restrictions and
registration rights relating the Outstanding Notes and except for certain
interest provisions relating to such rights. Under the terms of the Indenture,
the covenants and events of default will apply equally to the Exchange Notes
and the Series A Notes, and the Exchange Notes and the Series A Notes will be
treated as one class for all actions to be taken by the holders thereof and for
determining their respective rights under the Indenture. References to the
Notes in this section include the Exchange Notes and the Series A Notes unless
the context otherwise requires. The terms of the Indenture are also governed
by certain provisions contained in the Trust Indenture Act of 1939, as amended.
The following summaries of certain provisions of the Indenture are summaries
only, do not purport to be complete, and are qualified in their entirety by
reference to all of the provisions of the Indenture. The Series C Notes were
issued under an indenture dated March 16, 1998 (the "Series C Indenture") by
and between the Company and the Trustee, the provisions of which are
substantially the same as the provisions of the Indenture. Copies of the
Indenture and the Series C Indenture have been filed as exhibits to the
registration statement of which this Prospectus is a part, and are available
from the Company upon request. Capitalized terms used herein and not otherwise
defined shall have the meanings assigned to them in the Indenture.

GENERAL

The Outstanding Notes are and the Exchange Notes will be senior
subordinated obligations of the Company, subordinated in right of payment to
all existing and future Senior Debt (as defined) of the Company. The Notes
will be guaranteed on a senior subordinated basis by each of the Company's
future Material Subsidiaries and each other Subsidiary of the Company that
guarantees any pari passu or Subordinated Debt of the Company or any other
Subsidiary of the Company (the "Guarantors"). The term "Subsidiaries" as used
herein, however, does not include Unrestricted Subsidiaries. The Exchange
Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and integral multiples thereof.

The Notes will mature on June 30, 2003. The Exchange Notes
will bear interest at a rate of 16% per annum from the most recent date on which
interest has been paid or, if no interest has been paid, from June 30, 1998.
Interest on the Exchange Notes will be payable semi-annually in cash in arrears
on June 30 and December 30 of each year, commencing December 30, 1998 to the
persons in whose names such Exchange Notes are registered at the close of
business on the June 15 or December 15 preceding such interest payment date.

Principal of, premium, if any, and interest on the Notes will be
payable, and the Notes may be presented for registration of transfer or
exchange, at the office or agency of the Company maintained for such purpose in
New York, New York, and such other office or agency of the Company as may be
maintained for such purpose. At the option of the Company, payment of interest
may be made by check mailed to the Holders of the Notes at the addresses set
forth upon the registry books of the Company. No service charge will be made
for any registration of transfer or exchange of the Notes, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. Until otherwise designated by the
Company, the Company's office or agency will be the principal corporate trust
office of the Trustee presently located in New York, New York.

OPTIONAL REDEMPTION

Prior to June 30, 2000, the Company may redeem the Notes, at its
option, at a redemption price equal to 116% of the principal amount of the Notes
so redeemed, together with accrued and unpaid interest, if any, to the date of
redemption. On or after June 30, 2000, the Company will have the right to
redeem all or any part of the

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Notes in cash at the redemption prices (expressed as a percentage of the
outstanding principal amount) set forth below for the year 2000 and thereafter,
together with accrued and unpaid interest, if any, to the redemption date:

<TABLE>
<CAPTION>
IF REDEEMED DURING THE 12-MONTH REDEMPTION
PERIOD BEGINNING JUNE 30, PRICE
------------------------------------- -----------------
<S> <C>
2000 . . . . . . . . . . . . . . . . . . . . . . . . 110.67%
2001 . . . . . . . . . . . . . . . . . . . . . . . . 105.33%
2002 and thereafter . . . . . . . . . . . . . . . . . 100.00%
</TABLE>

In the case of a partial redemption, the Trustee shall select the Notes
to be redeemed pro rata or by lot or in such other manner as in its sole
direction it deems appropriate and fair. The Notes may be redeemed in part in
multiples of $1,000 principal amount only.

Notice of any redemption will be sent, by first class mail at least 15
days and not more than 60 days prior to the date fixed for redemption, to the
Holder of each Note to be redeemed to such Holder's last address as then shown
upon the registry books of the Registrar. Any notice that relates to an Note to
be redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion thereof and must state that on or after the date fixed
for redemption, upon surrender of such Note, a new Note, or Notes in a principal
amount equal to the unredeemed portion thereof will be issued. The date fixed
for redemption contained in any notice of redemption and the obligation of the
Company to redeem any Notes upon such date may be subject to the satisfaction or
waiver of conditions determined by the Company in its sole discretion. On and
after the date fixed for redemption, unless the Company defaults on its payment
obligations or any conditions contained in the notice of redemption are not
satisfied or waived, interest will cease to accrue on the Notes or portions
thereof called for redemption.

INTEREST RESERVE ACCOUNT

Approximately $49 million has been placed in an account (the "Interest
Reserve Account") to be held and invested by the Trustee for use by the Company
solely to make interest payments due on the Notes through June 30, 1999. Any
funds remaining in the Interest Reserve Account after payment of all interest
due through June 30, 1999 may be used by the Company for general corporate
purposes. The Trustee has invested and will invest the assets of the Interest
Reserve Account in cash or Cash Equivalents (as defined) as specifically
directed in writing by the Company. Interest income, if any, earned on the
invested proceeds, will be added to the balance of the Interest Reserve Account
but may be disbursed to the Company at any time and used by the Company for
general corporate purposes. In the event that the Company optionally redeems
Notes with the net proceeds of a Public Equity Offering, the Company may direct
the Trustee to release from the Interest Reserve Account funds in an amount
that bears the same proportion to the aggregate amount of funds of the Interest
Reserve Account immediately prior to the release of such proceeds as the
aggregate principal amount of the Notes so redeemed by the Company bears to the
aggregate principal amount of Notes outstanding immediately prior to such
redemption. The amount of funds that may be released by the Trustee to the
Company in connection with any such optional redemption shall be net of any
costs, fees and expenses (such as breakage fees) incurred to permit such
release.

SUBORDINATION

The Outstanding Notes are and the Exchange Notes and the Guarantees,
if any, will be general, unsecured obligations of the Company and the
Guarantors, respectively, subordinated in right of payment to all Senior Debt
of the Company and the Guarantors, as applicable. Such subordination will not
prevent the occurrence of an Event of Default.

No payment may be made by the Company or on behalf of the Company on
account of principal of or interest on the Notes or to acquire or repurchase
any of the Notes or on account of the redemption provisions of the Notes

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(i) upon the maturity of any Senior Debt by lapse of time, acceleration or
otherwise, unless and until all such Senior Debt is first paid in full or (ii)
upon the happening of any default in payment of any principal of or interest on
any Senior Debt when the same becomes due and payable (a "Payment Default"),
unless and until such Payment Default shall have been cured or waived or shall
have ceased to exist.

Upon (i) the happening of an event of default (other than a Payment
Default) that permits the holders of Senior Debt to declare such Senior Debt to
be due and payable (or, in the case of letters of credit, require cash
collateralization thereof) and (ii) written notice of such event of default
given to the Company and the Trustee by the lenders' agent under the Company's
working capital facility, if any, secured by Receivables and Inventory
(provided that such working capital facility constitutes Senior Debt) or
holders of an aggregate of at least $30 million principal amount outstanding of
any Senior Debt or their representative (a "Payment Notice"), then, unless and
until such event of default has been cured or waived or otherwise has ceased to
exist, no payment (by set-off or otherwise) may be made by or on behalf of the
Company or any Guarantor which is an obligor under such Senior Debt on account
of any Obligation in respect of the Notes, including the principal of, premium,
if any, or interest on the Notes, or to repurchase any of the Notes, or on
account of the redemption provisions of the Notes (or liquidated damages
pursuant to the registration rights agreements relating to the Notes), in any
such case, other than payments made with Junior Securities. Notwithstanding
the foregoing, unless the Senior Debt in respect of which such event of default
exists has been declared due and payable in its entirety within 179 days after
the Payment Notice is delivered as set forth above (the "Payment Blockage
Period") (and such declaration has not been rescinded or waived), at the end of
the Payment Blockage Period, the Company and the Guarantors shall be required
to pay all sums not paid to the Holders of the Notes during the Payment
Blockage Period due to the foregoing prohibitions and to resume all other
payments as and when due on the Notes. Any number of Payment Notices may be
given; provided, however, that (i) not more than one Payment Notice shall be
given within a period of any 360 consecutive days, and (ii) no default that
existed upon the date of such Payment Notice or the commencement of such
Payment Blockage Period (whether or not such event of default is on the same
issue of Senior Debt) shall be made the basis for the commencement of any other
Payment Blockage Period unless such other Payment Blockage Period is commenced
by a Payment Notice from the Representative and such event of default shall
have been cured or waived for a period of at least 90 consecutive days.

In the event that, withstanding the foregoing, any payment or
distribution of assets of the Company or any Guarantor (other than Junior
Securities) shall be received by the Trustee or the Holders at a time when such
payment or distribution is prohibited by the foregoing provisions, such payment
or distribution shall be held in trust for the benefit of the holders of such
Senior Debt, and shall be paid or delivered by the Trustee or such Holders, as
the case may be, to the holders of such Senior Debt remaining unpaid or
unprovided for or to their representative or representatives, or to the trustee
or trustees under any indenture pursuant to which any instruments evidencing
any of such Senior Debt may have issued, ratably according to the aggregate
principal amounts remaining unpaid on account of such Senior Debt held or
represented by each, for application to the payment of all such Senior Debt
remaining unpaid, to the extent necessary to pay or to provide for the payment
of all such Senior Debt in full in cash or Cash Equivalents or otherwise to the
extent holders accept satisfaction of amounts due by settlement in other than
cash or Cash Equivalents after giving effect to any concurrent payment or
distribution to the holders of such Senior Debt.

Upon any distribution of assets of the Company or any Guarantor upon
any dissolution, winding up, total or partial liquidation or reorganization of
the Company or a Guarantor, whether voluntary or involuntary, in bankruptcy,
insolvency, receivership or a similar proceeding or upon assignment for the
benefit of creditors or any marshaling of assets or liabilities, (i) the
holders of all Senior Debt of the Company or such Guarantor, as applicable,
will first be entitled to receive payment in full in cash or Cash Equivalents
or otherwise to the extent holders accept satisfaction of amounts due by
settlement in other than cash or Cash Equivalents (or have such payment duly
provided for) before the Holders are entitled to receive any payment on account
of any Obligation in respect of the Notes, including the principal of, premium,
if any, and interest on the Notes (or liquidated damages pursuant to the
registration rights agreement relating to the Notes) (other than Junior
Securities) and (ii) any payment or distribution of assets of the Company or
such Guarantor of any kind or character from any source, whether in cash,
property or securities (other than Junior Securities) to which the Holders or
the Trustee on behalf of the Holders would be entitled (by set-off or
otherwise) but for the subordination provisions contained in the Indenture,
will be paid by the liquidating trustee or agent or other person

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making such a payment or distribution directly to the holders of such Senior
Debt or their representative to the extent necessary to make payment in full in
cash or Cash Equivalents (or have such payment duly provided for) on all such
Senior Debt remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Senior Debt.

Because of these subordination provisions, creditors of the Company
who are holders of Senior Debt may recover more, ratably, than the Holders of
the Notes. The subordination provisions described above will cease to be
applicable to the Notes upon any legal defeasance or covenant defeasance of the
Notes as described under "--Covenant Defeasance; Satisfaction and Discharge of
the Indenture."

As of January 31, 1998, the Company had outstanding Senior Debt of
approximately $810.7 million. The foregoing amount includes only liabilities
included on the Company's balance sheet under GAAP; the Company has other
liabilities, including contingent liabilities, which may be significant.
Although the Indenture will contain limitations on the amount of additional
Debt that the Company and its Subsidiaries may incur, the amounts of such Debt
could be substantial and, in any case, such Debt may be Senior Debt. See "--
Covenants -- Limitation on Incurrences of Additional Debt and Issuances of
Disqualified Capital Stock."

SUBSIDIARY GUARANTEES

The Indenture provides that all future Material Subsidiaries and
Subsidiaries that guarantee any pari passu Debt or Subordinated Debt of the
Company or of any other Subsidiary of the Company shall jointly and severally
guarantee irrevocably and unconditionally all principal, premium, if any, and
interest on the Notes on a senior subordinated unsecured basis. The Company
will covenant pursuant to the Indenture to cause each of such Subsidiaries
promptly to execute and deliver to the Trustee a Guarantee pursuant to which
such Subsidiary will guarantee payment of the Notes and the performance of the
Company's other obligations under the Indenture to the extent set forth in the
provisions of the Indenture relating to Guarantors. The obligations of each
Guarantor under its Guarantee will be designed so as not to constitute a
fraudulent conveyance under applicable law; however, there can be no assurance
that a court of competent jurisdiction would reach the same conclusion.
Separate financial statements of the Guarantors are not presented because the
Company has no Subsidiaries.

The Indenture provides that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person), another
Person whether or not affiliated with such Guarantor unless (i) subject to the
provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor pursuant to the supplemental indenture in form
and substance reasonably satisfactory to the Trustee, under the Notes and the
Indenture and (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists.

The Indenture provides that, subject to the covenant described below
under "-- Limitation on Merger, Sale or Consolidation" to the extent that the
sale of such Guarantor would constitute the sale of all or substantially all
the assets of the Company, in the event of a sale or other disposition of all
of the assets of any Guarantor, including by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor or the Person acquiring the property (in the
event of a sale or other disposition of all of the assets of such Guarantor)
will be released and relieved of its obligations under its Guarantee.

CERTAIN DEFINITIONS

Set forth below is a summary of certain defined terms contained in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.

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

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

"Adjusted 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) (i)
all extraordinary gains, (ii) 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, (iii) 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 (iv) 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 agreement,
instrument, judgment, decree, order, statute, rule, or governmental regulation
applicable to such Subsidiary.

"Asset Sale" means any direct or indirect conveyance, sale, transfer
or other disposition (including through damage or destruction for which
Insurance Proceeds are paid or by condemnation), in one transaction or a series
of related transactions, of any of the properties, businesses or assets of the
Company or any Subsidiary of the Company, whether owned on the Issue Date or
thereafter acquired; provided, however, that "Asset Sale" shall not include (i)
any disposition of Receivables, Inventory or Equipment or, (ii) any pledge or
disposition of assets (if such pledge or disposition would otherwise constitute
an Asset Sale) to the extent and only to the extent that it results in the
creation of a Permitted Lien.

"Attributable Debt" in respect of a Sale and 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 and Leaseback Transaction (including any period for which such
lease has been extended or may, at the option of the lessor, be extended).

"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 expansion and improvement
program at TARC as described in this Prospectus under the heading "Business --
Capital Improvement Program" and including both Phase I and Phase II.

"Capital Stock" means, with respect to any Person, any capital stock
of such Person and shares, interests, participations, 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 or limited partnership interest or other equity 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, and the amount of Debt represented by such obligations shall be the
capitalized amount of such obligations, as determined in accordance with GAAP.

"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 one year from the date of acquisition, (c) certificates of deposit
with maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year, 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

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securities of the types described in clauses (b) and (c) entered into with any
Eligible Institution, (e) commercial paper rated "P-1," "A-1" or the equivalent
thereof by Moody's Investors Service, Inc. or Standard & Poor's Corporation,
Inc., respectively, and in each case maturing within one year after the date of
acquisition, (f) shares of money market funds, including those of the Trustee,
that invest solely in United States dollars and securities of the types
described in clauses (a) through (e), (g) demand and time deposits and
certificates of deposit with any commercial bank organized in the United States
not meeting the qualifications specified in clause (c) above or an Eligible
Institution; provided that such deposits and certificates support bonds,
letters of credit and other similar types of obligations incurred in the
ordinary course of business, (h) deposits, including deposits denominated in
foreign currency, with any Eligible Institution; provided that all such
deposits do not exceed $10 million in the aggregate at any one time, and (i)
demand or fully insured time deposits used in the ordinary course of business
with commercial banks insured by the Federal Deposit Insurance Corporation.

"CATOFIN(R) Unit" means certain real property currently owned by TARC
as more specifically defined in the security documents relating to the TEC
Notes, together with all personal property of TARC now or hereinafter located
on such real property but only to the extent that such property is part of a
refining unit designed to produce propane and butane mono-olefins using the
CATOFIN(R) process.

"Change of Control" means (i) the liquidation or dissolution of, or
the adoption of a plan of liquidation by, the Company, (ii) 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 (or his heirs, his estate or
any trust in which he or his immediate family members have, directly or
indirectly, a beneficial interest in excess of 50%) and his Subsidiaries or the
TEC Indenture Trustee, 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), 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 (i) or (ii), the Notes have a
current rating issued by a Rating Agency; provided, however, that if at any
time within the period commencing on the date that is immediately prior to the
date of the first public announcement of such event and ending on, but not
including, the date that is 90 days after occurrence of such event (which
period shall be deemed to be extended so long as prior to the end of such
90-days period and continuing thereafter the rating of the Notes is under
publicly announced consideration for possible downgrade by either Rating
Agency) either (a) the Notes are downgraded by either Rating Agency to a rating
at least one gradation (including a change within rating categories, e.g., a
decline in rating from BB+ to B-) below that which existed on the date
immediately prior to the date of the first public announcement of such an
event, or (b) either Rating Agency withdraws its rating of the Notes, then, in
either case, such event shall be a "Change of Control."

"Common Stock" means the Company's common stock, $0.01 par value.

"Company" means TransAmerican Refining Corporation, a Texas
corporation, and any successor corporation pursuant to the terms of the
provision described herein under "--Limitation on Merger, Sale or
Consolidation."

"Consolidated EBITDA" of any Person for any period, unless otherwise
defined herein, 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, depletion, and
amortization of such Person and its consolidated Subsidiaries for 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.

"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 (i) 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 as if such operations and businesses were discontinued or
disposed of on the first day of the Reference Period) for the Reference Period
to (ii) the aggregate Consolidated Fixed Charges

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of such Person (exclusive of amounts attributable to discontinued operations
and businesses on a pro forma basis as if such operations and businesses were
discontinued or disposed of on the first day of the Reference Period, 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, (a) 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, (b) the incurrence of any Debt or issuance of Disqualified
Capital Stock or the retirement of any Debt or Capital Stock during the
Reference Period or subsequent thereto and on or prior to the Transaction Date
shall be assumed to have occurred on the first day of such Reference Period and
(c) 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 a
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 (i) Consolidated Interest Expense of such
Person for such period, (ii) dividend requirements of such Person and its
consolidated Subsidiaries (whether in cash or otherwise (except dividends
payable solely in shares of Qualified Capital Stock)) with respect to Preferred
Stock paid, accrued, or scheduled to be paid or accrued during such period, in
each case to the extent attributable to such period and excluding items
eliminated in consolidation and (iii) fees paid, accrued, or scheduled to be
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 (ii) above, dividend requirements shall be increased to an amount
representing the pre-tax 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 effective 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, accrued, or scheduled to be paid or accrued during such period in respect
of all Debt of such Person and its consolidated Subsidiaries (including (i)
amortization of deferred financing costs and original issue discount and
non-cash interest payments or accruals, (ii) the interest portion of all
deferred payment obligations, calculated in accordance with the effective
interest method and (iii) all commissions, discounts, other fees, and charges
owed with respect to letters of credit and banker's acceptance financing and
costs associated with Swap Obligations, in each case to the extent attributable
to such period but excluding any interest accrued on intercompany payables for
taxes to the extent the liability for such taxes has been assumed by
TransAmerican pursuant to the Tax Allocation Agreement) determined on a
consolidated basis in accordance with GAAP. For purposes of this definition,
(x) interest on a Capitalized Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined 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 (y) 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) (i) all
extraordinary, unusual and nonrecurring gains, (ii) 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 or earned during the
immediately preceding period and not distributed during such period, (iii) the
net income, if positive, of any Person acquired in a pooling of interests
transaction for any period prior to the

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date of such acquisition and (iv) 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 agreement, instrument, judgment, decree, order,
statute, rule, or governmental regulation applicable to such Subsidiary.

"Consolidated Net Tangible Assets" means, as of any date, the total
assets of the Company and its Subsidiaries on a consolidated basis as of such
date (less applicable reserves and other items properly deductible from total
assets) and after deducting therefrom: (i) total liabilities and total capital
items as of such date except the following: items constituting Debt, paid-in
capital and retained earnings, provisions for deferred income taxes and
deferred gains, and reserves which are not reserves for any contingencies not
allocated to any particular purpose; (ii) goodwill, trade names, trademarks,
patents, unamortized debt discount and expense, and other intangible assets;
and (iii) all Investments other than Permitted Investments.

"Construction Supervisor" means Baker & O'Brien, Inc., as construction
supervisor of the Capital Improvement Program or any successor construction
supervisor appointed pursuant to the Disbursement Agreement.

"Debt" means, with respect to any Person, without duplication (i) all
liabilities, contingent or otherwise, of such Person (a) 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), (b) evidenced by bonds, notes,
debentures, or similar instruments or letters of credit, (c) representing the
deferred and unpaid balance of the purchase price of any property acquired by
such Person or services received by such Person, other than long-term service
contracts or supply contracts which require minimum periodic payments, and
other than any such balance that represents an account payable or other
monetary obligation to a trade creditor created, incurred, assumed or
guaranteed by such Person in the ordinary course of business of such Person in
connection with obtaining goods, materials or services due within twelve months
(or such longer period for payment as is customarily extended by such trade
creditor) of the Incurrence thereof, which account is not overdue by more than
150 days, unless such account payable is being contested in good faith or has
been extended, (d) evidenced by bankers' acceptances or similar instruments
issued or accepted by banks or Swap Obligations, (e) for the payment of money
relating to a Capitalized Lease Obligation or (f) the Attributable Debt
associated with any Sale and Leaseback Transaction; (ii) reimbursement
obligations of such Person with respect to letters of credit; (iii) all
liabilities of others of the kind described in the preceding clause (i) or (ii)
that such Person has guaranteed or that is otherwise its legal liability (to
the extent of such guaranty or other legal liability) other than for
endorsements, with recourse, of negotiable instruments in the ordinary course
of business; (iv) all obligations secured by a Lien (other than Permitted
Liens, except to the extent the obligations secured by such Permitted Liens are
otherwise included in clause (i), (ii) or (iii) of this definition and are
obligations of such Person) to which the property or assets (including, without
limitation, leasehold interests and any other tangible or intangible property
rights) of such Person are subject, regardless of whether the obligations
secured thereby shall have been assumed by or shall otherwise be such Person's
legal liability (but, if such obligations are not assumed by such Person or are
not otherwise such Person's legal liability, the amount of such Debt shall be
deemed to be limited to the fair market value of such property or assets
determined as of the end of the preceding fiscal quarter); and (v) 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 (i) through (iv)
regardless of whether between or among the same parties.

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

"Delayed Coking Unit" means the delayed coking unit being constructed
as part of the Capital Improvement Program.

"Disbursement Agreement" means the Disbursement Agreement among TEC,
the Company, the disbursement agent named therein and the Construction
Supervisor, as amended pursuant to the terms thereof.

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"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 by such Person or its subsidiaries, including at the
option of the holder, in whole or in part, or has, or upon the happening of an
event or passage of time would have, a redemption or similar payment due, on or
prior to June 30, 2003.

"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million and that is rated
"A" (or higher) according to Moody's Investors Service, Inc. or Standard &
Poor's Corporation, Inc. at the time as of which any investment or rollover
therein is made.

"Equipment" means and includes all of the Company's or any of its
Subsidiaries' now owned or hereafter acquired Vehicles, rolling stock and
related equipment and other assets accounted for as equipment by such Person in
its financial statements, all proceeds thereof, and all documents of title,
books, records, ledger cards, files, correspondence and computer files, tapes,
disks and related data processing software that at any time evidence or contain
information relating to the foregoing.

"Equity Offering" of any Person means any Public Equity Offering or
any private placement of any Capital Stock of such Person.

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

"Expense Reimbursement Agreement" means an expense reimbursement
agreement pursuant to which the Company will reimburse certain expenses of TEC
including, without limitation, registration expenses under state and federal
securities laws, franchise taxes, directors' fees and litigation support
expenses.

"GAAP" means generally accepted accounting principles as in effect in
the United States on the Issue Date applied on a basis consistent with that
used in the preparation of the audited financial statements of the Company
included in this Prospectus.

"Gas Purchase Agreement" means the Interruptible Gas Sales Terms and
Conditions between TARC 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 in any material respect.

"Guarantor Senior Debt" means all Debt of a Guarantor created,
incurred, assumed or guaranteed by any Guarantor (and all renewals, extensions,
increases or refundings thereof) (including the principal of, interest on and
fees, premiums, expenses (including costs of collection), indemnities and other
amounts payable in connection with such Debt, and including any
Post-Commencement Amounts), unless the instrument governing such Debt expressly
provides that such Debt is not senior or superior in right of payment to the
Guarantee. Notwithstanding the foregoing, Guarantor Senior Debt does not
include any Debt of the Guarantor to the Company or any Subsidiary or any
Unrestricted Subsidiary.

"Intercompany Loan Redemption" means the redemption by TARC of all or
a portion of the principal amount then outstanding under the TARC Intercompany
Loan together with accrued and unpaid interest, if any, to and including the
redemption date.

"Interest Rate or Currency Agreement" of any Person means any forward
contract, futures contract, swap, option or other financial agreement or
arrangement (including, without limitation, caps, floors, collars, puts and
similar agreements) relating to, or the value of which is dependent upon,
interest rates or currency exchange rates.

"Inventory" means and includes feedstocks, refined products, chemicals
and catalysts, other supplies and storeroom items and similar items accounted
for as inventory by TARC on its financial statements, all proceeds thereof,

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and all documents of title, books, records, ledger cards, files,
correspondence, and computer files, tapes, disks and related data processing
software that at any time evidence or contain information relating to the
foregoing.

"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 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 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 other liability of such other
Person; (d) the entering into of any Swap Obligation with such other Person; or
(e) the making of any capital contribution by such Person to such other Person.

"Investment Grade Rating" means, with respect to any Person or issue
of debt securities or preferred stock, a rating in one of the four highest
letter rating categories (without regard to "+" or "-" or other modifiers) by
any rating agency 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, then the comparable
"investment grade" ratings (as designated by any such rating agency).

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

"Junior Security" means any Qualified Capital Stock and any Debt of
the Company or a Guarantor, as applicable, that is subordinated in right of
payment to the Notes or the Guarantees, as applicable, and has no scheduled
installment of principal due, by redemption, sinking fund payment or otherwise,
on or prior to the Stated Maturity of the Notes.

"Lien" means any mortgage, lien, pledge, charge, security interest, or
other encumbrance of any kind, regardless of whether 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).

"Material Subsidiary" means any Subsidiary of the Company which, as of
the relevant date of determination, would be a "significant subsidiary" as
defined in Reg. Section 230.405 promulgated pursuant to the Securities Act as
in effect on the Issue Date, assuming the Company is the "registrant" referred
to in such definition, except that the 10% amounts referred to in such
definition shall be deemed to be 5%.

"Mechanical Completion" means with respect to the Capital Improvement
Program, Phase I, Phase II or any specified unit or component thereof,
sufficient completion of the construction of the Capital Improvement Program,
Phase I, Phase II or any specified unit or component, as the case may be, in
accordance with the Plans, so that the Capital Improvement Program, Phase I,
Phase II or such unit or component, as the case may be, can be operated for its
intended purpose.

"Net Cash Proceeds" means, with respect to any Asset Sale of any
Person, an amount equal to the cash proceeds received (including any cash
proceeds received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received, and
excluding any other consideration until such time as such consideration is
converted into cash) therefrom, in each case net of all legal, title and
recording tax expenses, commissions and other fees and expenses incurred, and
all federal, state or local taxes required to be accrued as a liability as a
consequence of such Asset Sale, and in each case net of all Debt secured by
such assets, in accordance with the terms of any Lien upon or with respect to
such assets, or which must, by its terms or in order to obtain a necessary
consent to such Asset Sale to prevent a default or event of default under
Senior Debt or by applicable law, be repaid out of the proceeds from such Asset
Sale and that is actually so repaid.

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"Net Proceeds" means (a) in the case of any sale by a Person of
Qualified Capital Stock, an amount equal to the aggregate net cash proceeds
received by such Person from the sale of Qualified Capital Stock (other than to
a Subsidiary) after payment of reasonable out-of-pocket expenses, commissions
and discounts incurred in connection therewith, and (b) in the case of any
exchange, exercise, conversion or surrender of any outstanding securities or
Debt of such Person for or into shares of Qualified Capital Stock of such
Person, an amount equal to the net book value of such outstanding securities as
adjusted on the books of such Person or Debt of such Person to the extent
recorded in accordance with GAAP, in each case, on the date of such exchange,
exercise, conversion or surrender (plus any additional amount required to be
paid by the holder of such Debt or securities to such Person upon such
exchange, exercise, conversion or surrender and less (i) any and all payments
made to the holders of such Debt or securities and (ii) all other expenses
incurred by such Person in connection therewith, in each case, in so far as
such payments or expenses are incident to such exchange, exercise, conversion,
or surrender).

"Net Debt" of a Person means such Person's outstanding Debt to the
extent recorded in accordance with GAAP, less cash and Cash Equivalents of such
Person, in each case as measured on a consolidated basis and as of the last day
of the measuring period.

"Net Working Capital" of any Person means (i) all current assets of
such Person and its consolidated Subsidiaries, minus (ii) all current
liabilities of such Person and its consolidated Subsidiaries other than the
current portion of long term debt, each item to be determined in conformity
with GAAP.

"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 105 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 (not otherwise deducted from stockholder's equity),
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.

"NNM" means the Nasdaq National Market.

"Note Redemption" means a redemption of Notes by the Company pursuant
to the redemption provisions of the Indenture.

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

"Notes" means the 16% Series A Senior Subordinated Notes due 2003 and
the 16% Series B Senior Subordinated Notes due 2003, in each case as
supplemented from time to time in accordance with the terms thereof, issued
under this Indenture.

"NYSE" means the New York Stock Exchange.

"Obligation" means any principal, premium, interest, penalties, fees,
reimbursements, damages, indemnification and other liabilities relating to
obligations of the Company or any Guarantor under the Notes or the Indenture,
including any liquidated damages pursuant to the registration rights agreements
relating to the Notes.

"Offer Amount" shall have the meaning specified in the covenant
described herein under "-- Covenants -- Limitation on Asset Sales."

"Offer Price" shall have the meaning specified in the covenant
described herein under "-- Covenants -- Limitation on Asset Sales."

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"Offer to Purchase" means any offer made by the Company to Holders of
the Securities required by the provisions of the covenant described herein
under "-- Covenants -- Limitation on Asset Sales."

"Office Leases" means the existing leases of office space at 1300
North Sam Houston Parkway East, Houston, Texas 77032-2949.

"Old TARC Warrants" means the Common Stock Purchase Warrants of TARC
issued on February 23, 1995.

"Pari Passu Debt" means any other Debt of the Company that
specifically provides that such Indebtedness is to rank pari passu with the
Notes in right of payment.

"Permitted Hedging Transactions" means non-speculative transactions in
futures, forwards, swaps or option contracts (including both physical and
financial settlement transactions) engaged in by the TARC Entities as part of
their normal business operations as a risk-management strategy or hedge against
adverse changes in the prices of natural gas, feedstock or refined products;
provided, that at the time of such transaction (i) the counter party to any
such transaction is an Eligible Institution or a Person that has an Investment
Grade Rating or has an issue of debt securities or preferred stock outstanding
with an Investment Grade Rating or (ii) such counter party's obligation
pursuant to such transaction is unconditionally guaranteed in full by, or
secured by a letter of credit issued by, an Eligible Institution or a Person
that has an Investment Grade Rating or that has an issue of debt securities or
preferred stock outstanding with an Investment Grade Rating.

"Permitted Investment" means, when used with reference to the Company
or its Subsidiaries, (i) trade credit extended to persons in the ordinary
course of business; (ii) purchases of Cash Equivalents; (iii) Investments by
TARC or its wholly owned Subsidiaries in wholly owned Subsidiaries of TARC that
are engaged in a Related Business; (iv) Swap Obligations; (v) the receipt of
Capital Stock in lieu of cash in connection with the settlement of litigation;
(vi) advances to officers and employees in connection with the performance of
their duties in the ordinary course of business in an amount not to exceed $3
million in the aggregate outstanding at any time; (vii) margin deposits in
connection with Permitted Hedging Transactions; (viii) an Investment in one or
more Unrestricted Subsidiaries of TARC in an aggregate amount not in excess of
$10 million (net of returns on investment) plus the assets comprising the
CATOFIN(R) Unit owned by TARC as of the date hereof, less the amount of any
Unrestricted Non-Recourse Debt outstanding of the Company or any of its
Subsidiaries; (ix) deposits permitted by the definition of Permitted Liens or
any extension, renewal, or replacement of any of them, (x) Investments in
Accounts Receivables Notes by TARC in an Accounts Receivable Subsidiary in
amounts not to exceed the greater of $20 million or 20% of the TARC Borrowing
Base at any one time; (xi) Investments by the Company in a reincorporation
subsidiary in connection with the initial capitalization thereof and not to
exceed $1,000, (xii) Investments by the Company or any of its wholly owned
Subsidiaries in an aggregate amount not to exceed $250,000, for the purpose of
facilitating a redemption, repurchase or other retirement for value of the Old
TARC Warrants or the conversion of the Old TARC Warrants into the right to
receive cash; (xiii) a guaranty by a Subsidiary of the Company permitted under
clause (h) of the covenant described herein under "-- Covenants -- Limitation
on Incurrences of Additional Debt and Issuances of Disqualified Capital Stock;"
(xiv) deposits permitted by of the definition of "Permitted Liens" or any
extension, renewal or replacements of any of them; (xv) other Investments not
in excess of $5 million at any time outstanding, (xvi) loans made (X) to
officers, directors and employees of the Company or any of its Subsidiaries
approved by the applicable Board of Directors (or by an authorized officer),
the proceeds of which are used solely to purchase stock or to exercise stock
options received pursuant to an employee stock option plan or other incentive
plan, in a principal amount not to exceed the purchase price of such stock or
the exercise price of such stock options, as applicable and (Y) to refinance
loans, together with accrued interest thereon made pursuant to this clause, in
each case not in excess of $3 million in the aggregate outstanding at any one
time, and (xvii) money market mutual or similar funds having assets in excess
of $100,000,000.

"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 or any of its
Subsidiaries in accordance with GAAP;

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(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 or any of its Subsidiaries in accordance with GAAP; (c)
deposits of cash or Cash Equivalents to secure (i) the performance of bids,
trade contracts (other than borrowed money), leases, statutory obligations,
surety bonds, performance bonds, and other obligations of a like nature
incurred in the ordinary course of business (or to secure reimbursement
obligations or letters of credit issued to secure such performance or other
obligations) in an aggregate amount outstanding at any one time not in excess
of $5 million or (ii) appeal or supersedeas bonds (or to secure reimbursement
obligations or letters of credit in support of such bonds); (d) easements,
servitudes, 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 any of the TARC Entities) or materially interfere with
the ordinary conduct of the business of any of the TARC Entities including,
without limitation, any easement or servitude granted in connection with the
financing of the Storage Assets; (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 securing
Debt or other obligations not in excess of $3 million; (g) pledges or deposits
made in the ordinary course of business in connection with worker's
compensation, unemployment insurance, other types of social security
legislation, property insurance and liability insurance; (h) Liens on
Equipment, Receivables and Inventory; (i) Liens on the assets of any entity
existing at the time such assets are acquired by any of the TARC Entities,
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 any of the TARC Entities and (ii) do not extend to any
other assets of any of the TARC Entities; (j) Liens (including extensions and
renewals thereof) on real or personal property, acquired after the Issue Date
("New Property"); 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 New Property subject thereto and
such Lien is created 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 New Property, (ii) the principal amount of the Debt secured
by such Lien does not exceed 100% of such cost plus reasonable financing fees
and other associated reasonable out-of- pocket expenses; and (iii) any such
Lien shall not extend to or cover any property or assets other than such item
of New Property and any improvements on such New Property; (k) leases or
subleases granted to others that do not materially interfere with the ordinary
course of business of any of the TARC Entities, taken as a whole; (l) Liens on
the assets of one of the TARC Entities in favor of another TARC Entity; (m)
Liens securing reimbursement obligations with respect to letters of credit that
encumber documents relating to such letters of credit and the products and
proceeds thereof; provided, that, such reimbursement obligations are not
matured for a period of over 60 days; (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 Swap Obligations or Permitted
Hedging Transactions; (p) Liens on cash deposits to secure reimbursement
obligations with respect to letters of credit after the Delayed Coking Unit is
completed; (q) Liens that secure Unrestricted Non-Recourse Debt; provided,
however, that at the time of incurrence the aggregate fair market value of the
assets securing such Lien (exclusive of the stock of the applicable
Unrestricted Subsidiary) shall not exceed the amount of allowed Unrestricted
Non-Recourse Debt of TARC; (r) Liens on the proceeds of any property subject to
a Permitted Lien and Liens on the proceeds of any Debt Incurred in accordance
with the provisions hereof, or on deposit accounts containing any such
proceeds; (s) Liens imposed in connection with Debt Incurred pursuant to clause
(f) of the covenant described herein under "-- Covenants -- Limitation on
Incurrences of Additional Debt and Issuances of Disqualified Capital Stock;"
provided, that such liens, if not Permitted Liens, do not extend to property
other than the Storage Assets, the proceeds of financing related to the Storage
Assets or deposit accounts containing such proceeds; and (t) any extension,
renewal or replacement of the Liens created pursuant to any of clauses (a)
through (g), (i) through (s) or (u) provided that such Liens would have
otherwise been permitted under such clauses, and provided further that the
Liens permitted by this clause (t) do not secure any additional Debt or
encumber any additional property; (u) Liens that secured Senior Debt; and (v)
Liens on any property of the Company (or any agreement to grant such Liens)
securing the Notes.

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"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" has the meaning given to it in this Prospectus under the
heading "Business -- Capital Improvement Program."

"Phase I Completion Date" means the date on which the Construction
Supervisor issues a written notice (the "Phase I Completion Notice") to the
Company and the Disbursement Agent certifying that (a) the process units and
supporting facilities set forth under the heading "Business -- Capital
Improvement Program -- Phase I" have reached Mechanical Completion in
accordance with the Plans, and (b) for a period of at least 15 consecutive
days, TARC's refinery has sustained (i) the successful performance of the
Delayed Coking Unit, the Hydrodesulfurization Unit and the Sulfur Recovery
Unit, (ii) an average feedstock throughput level of at least 150,000 barrels
per day, and (iii) no net production of vacuum tower bottoms when using as
input a combined feedstock slate with an average API Gravity of 22 degrees or
less.

"Phase II" has the meaning given to it in this Prospectus under the
heading "Business -- Capital Improvement Program."

"Phase II Completion Date" means the date on which the Construction
Supervisor issues a written notice (the "Phase II Completion Notice") to the
Company and the Disbursement Agent certifying that (a) the process units and
supporting facilities set forth under the heading "Business -- Capital
Improvement Program -- Phase II" have reached Mechanical Completion in
accordance with the Plans and (b) for a period of at least 72 uninterrupted
hours, TARC's refinery has sustained (i) the successful performance of all of
the Phase I facilities plus the Fluid Catalytic Cracking (FCC) Unit, the FCC
Flue Gas Scrubber and the Alkylation Unit, (ii) an average feedstock throughput
level of at least 180,000 barrels per day, and (iii) average production yields
(measured as the liquid volume percent of feedstock throughput) of refined
products with a specific gravity of gasoline or lighter of at least 40% and of
middle distillates or lighter of at least 70%, when using a combined Crude Unit
feedstock slate with an average API Gravity of 22 degrees or less.

"Plans" means (a) the plans and specifications prepared by or on
behalf of TARC as used in the Disbursement Agreement, which describe and show
the proposed expansion and modification of TARC's refinery and (b) a budget
prepared by or on behalf of TARC as used in the Disbursement Agreement.

"Post-Commencement Amounts" means all interest and fees accrued or
accruing after the commencement of any proceeding initiated under any
Bankruptcy Law in accordance with and at the contract rate (including, without
limitation, any non-usurious rate applicable upon default) and all premiums,
expenses (including costs of collection), indemnities and other amounts that
would have accrued or been incurred after the commencement of any such
proceeding in any case as specified in any agreement or instrument creating,
evidencing, or governing any Senior Debt, whether or not, pursuant to
applicable law or otherwise, the claim for such interest, fees, premiums,
expenses, indemnities or other amounts is allowed and non-avoidable as a claim
in such proceeding.

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

"principal amount" when used with respect to Note means the principal
amount of such Note as indicated on the face of such Note.

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

"Publicly Traded Stock" means, with respect to any Person, Capital
Stock of such Person that is registered under Section 12 of the Exchange Act
and actively traded on the New York Stock Exchange or American Stock Exchange
or quoted in the National Association of Securities Dealers Automated Quotation
System (National Market System).

"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.

"Rating Agency" means Standard & Poor's Ratings Group (or any
successor thereto) and Moody's Investors Service, Inc. (or any successor
thereto) or, if either of them shall have ceased to be a "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Act) or
shall have ceased to make publicly available a rating on any outstanding
securities of any company engaged primarily in the oil and gas business, such
other organization or organizations, as the case may be, then making publicly
available a rating on the Notes as is selected by the Company.

"Receivables" means and includes, as to any Person, any and all of
such Person's now owned or hereafter acquired "accounts" as such term is
defined in Article 9 of the Uniform Commercial Code in the State of New York,
all products and proceeds thereof, and all books, records, ledger cards, files,
correspondence, and computer files, tapes, disks or software that at any time
evidence or contain information relating to the foregoing.

"Reference Period" with regard to any Person means the four full
fiscal quarters of such Person 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.

"Registration Rights Agreement" means the registration rights
agreement in connection with the registration under federal securities laws of
the capital stock of TARC pledged to the TEC Indenture Trustee under the TEC
Indenture, as in effect on the Issue Date and as amended from time to time,
provided that any such amendment is not materially adverse to the holders of
the Notes.

"Related Person" means (i) any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
the Company or any Subsidiary of the Company or any officer, director, or
employee of the Company or any Subsidiary of the Company or of such Person,
(ii) the spouse, any immediate family member, or any other relative who has the
same principal residence of any Person described in clause (i) 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 (iii) any trust in which any Person described in clause (i) or (ii), above,
is a fiduciary or has a beneficial interest. For purposes of this definition
the term "control" means (a) 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 (b) 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 Business" means the business of (i) processing, blending,
terminalling, storing, marketing (other than through operating retail gasoline
stations), refining, or distilling crude oil, condensate, natural gas liquids,
petroleum blendstocks or refined products thereof and (ii) after the Phase II
Completion Date, the exploration for, acquisition of, development of,
production, transportation and gathering of crude oil, natural gas, condensate
and natural gas liquids from outside of the United States and retail marketing
of refined petroleum products.

"Restricted Investment" means any direct or indirect Investment by the
Company or any Subsidiary of the Company other than a Permitted Investment.

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"Restricted Payment" means, with respect to any Person, (i) any
Restricted Investment, (ii) any dividend or other distribution on shares of
Capital Stock of such Person or any Subsidiary of such Person, (iii) any
payment on account of the purchase, redemption, or other acquisition or
retirement for value of any shares of Capital Stock of such Person, and (iv)
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 Pari Passu Debt or Subordinated 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 Pari Passu
Debt or Subordinated Debt; provided, however, that 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 from any of its
Subsidiaries, (iii) any defeasance, redemption, repurchase, or other
acquisition or retirement for value, in whole or in part, of any Pari Passu
Debt or Subordinated Debt of such Person payable solely in shares of Qualified
Capital Stock of such Person, (iv) any payments or distributions made pursuant
to and in accordance with the Transfer Agreement, the Expense Reimbursement
Agreement, the Services Agreement, the Office Leases or the Tax Allocation
Agreement, (v) any redemption, repurchase or other retirement for value of the
Old TARC Warrants by the Company, including any premium paid thereon, (vi) the
redemption, purchase, retirement or other acquisition of any Debt including any
premium paid thereon, with the proceeds of any refinancing Debt permitted to be
incurred pursuant to clause (o) of the covenant described herein under the
heading "Limitation on the Incurrences of Additional Debt and Issuances of
Disqualified Capital Stock," (vii) the purchase by TARC of shares of Capital
Stock of TARC, TransTexas or TTXD in connection with each of its employee
benefit plans, including without limitation any employee stock ownership plans
or any employee stock option plans, in an aggregate amount not to exceed 7% of
the aggregate market value of the voting stock held by non-affiliates of the
issuer measured from the date of the first such purchase, (viii) distributions
of common stock of TransTexas to TEC, and (ix) any dividend or other
distribution on the Capital Stock of any Subsidiary of the Company.

"Sale and 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.

"SEC" means the Securities and Exchange Commission.

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

"Senior Debt" means all Debt of the Company, including, without
limitation, the TARC Discount Notes, the TARC Mortgage Notes, the TARC Working
Capital Note and the TARC Intercompany Loan, now or hereafter created,
incurred, assumed or guaranteed by the Company (and all renewals, extensions or
refundings thereof or of any part thereof) (including the principal of,
interest on and fees, premiums, expenses (including costs of collection),
indemnities and other amounts payable in connection with such Indebtedness, and
including Post-Commencement Amounts), unless the instrument governing such Debt
expressly provides that such Debt is not senior or superior in right of payment
to the Notes. Notwithstanding the foregoing, Senior Debt of the Company shall
not include (i) Debt evidenced by the Notes, (ii) Debt of the Company to any
Subsidiary of the Company or to any Unrestricted Subsidiary of the Company or
(iii) any amounts payable or other Debt to trade creditors created, incurred,
assumed or guaranteed by the Company or any Subsidiary of the Company in the
ordinary course of business in connection with obtaining goods or services.

"Services Agreement" means the Services Agreement among TNGC Holdings
Corporation and its Subsidiaries, as in effect on the Issue Date and as amended
from time to time, provided that any such amendment is not materially adverse
to the holders of the Notes.

"Stated Maturity," when used with respect to any Note, means June 30,
2003.

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"Storage Assets" means the following assets existing or under
construction in or near the Company's refinery: (i) the Prospect Road tank farm
and other tanks; (ii) certain dock improvements; (iii) the dock vapor recovery
system; (iv) the coke handling system; (v) the refinery waste water treatment
facility, (vi) tankage for liquefied petroleum gas and (vii) the assets
adjacent to the refinery purchased on September 19, 1997.

"Subordinated Debt" means Debt of any Person that (i) 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 (ii) is subordinate and junior in
right of payment to the Notes in the event of liquidation.

"Subsidiary" with respect to any Person, means (i) a corporation with
respect to which such Person or its Subsidiaries owns, directly or indirectly,
at least fifty percent of such corporation's Capital Stock with voting power,
under ordinary circumstances, to elect directors, or (ii) a partnership in
which such Person or a subsidiary of such Person is, at the time, a general
partner of such partnership and has more than 50% of the total voting power of
partnership interests entitled (without regard to the occurrence of any
contingency) to vote in the election of managers thereof, or (iii) any other
Person (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, at the date of determination thereof
has (x) at least a fifty percent ownership interest or (y) the power to elect
or direct the election of the directors or other governing body of such other
Person; provided, however, that "Subsidiary" shall not include (i) for the
purposes of the covenant "Subsidiary Guarantee" and "Limitation on Transactions
with Related Persons" a joint venture an investment in which would constitute a
Permitted Investment, provided that, for purposes of the covenant described
herein under the heading "Limitation on Transactions with Related Persons,"
such investment is not with a Related Person other than solely because the
party engaging in such transaction has the ability to control the Related
Person under the definition of "Control" contained within the definition of
Related Person or (ii) any Unrestricted Subsidiary of such Person.

"Swap Obligation" of any Person means any Interest Rate or Currency
Agreement entered into with one or more financial institutions or one or more
futures exchanges in the ordinary course of business and not for purposes of
speculation that is designed to protect such Person against fluctuations in (x)
interest rates with respect to Debt Incurred and which shall have a notional
amount no greater than 105% of the principal amount of the Debt being hedged
thereby, or (y) currency exchange rate fluctuations.

"TARC" means TransAmerican Refining Corporation, a Texas corporation,
and any successor corporation pursuant to the terms of the provision described
herein under "-- Limitation on Merger, Sale or Consolidation."

"TARC Borrowing Base" means, as of any date, an amount equal to the
sum of (a) 90% of the book value of all accounts receivable owned by TARC and
its Subsidiaries (excluding any accounts receivable 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) 85% of the current market value of
all inventory owned by TARC 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, TARC may utilize, to the extent reasonable, the most recent
available information for purposes of calculating the TARC Borrowing Base.

"TARC Discount Notes" means the Guaranteed First Mortgage Discount
Notes due 2002 issued by TARC and guaranteed by TEC.

"TARC Entities" means TARC and each of its Subsidiaries.

"TARC Intercompany Loan" means the senior secured promissory note from
TARC to the Company in the fully accreted principal amount of $920 million upon
substantially the terms described under "Description of Existing Indebtedness."

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"TARC Mortgage Notes" means the Guaranteed First Mortgage Notes due
2002 issued by TARC and guaranteed by TEC.

"TARC Working Capital Note" means the promissory note from the Company
to TEC dated as of July 31, 1997.

"Tax Allocation Agreement" means the Tax Allocation Agreement, dated
as of August 24, 1993, among TNGC Holdings Corporation, the Company, TEC and
other subsidiaries of TNGC Holdings Corporation, as in effect on the Issue Date
and as amended from time to time, provided that any such amendment is not
materially adverse to the holders of the Notes.

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

"TEC Indenture" means the indenture, dated as of June 13, 1997, by and
between TEC and Firstar Bank of Minnesota, N.A., as trustee, relating to the
TEC Notes.

"TEC Indenture Trustee" means the trustee under the TEC Indenture.

"TEC Notes" means TEC's 11 1/2% Senior Secured Notes due 2002 and 13%
Senior Secured Discount Notes due 2002, issued pursuant to the TEC Indenture.

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

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

"Transfer Agreement" means the Transfer Agreement, dated as of August
24, 1993, among TransAmerican, TransTexas, TransTexas Transmission Corporation,
and Mr. Stanley, as in effect on the Issue Date and as amended from time to
time, provided that any such amendment is not materially adverse to the holders
of the Notes.

"TTXD" means TransTexas Drilling Services, Inc., a Delaware
corporation or a newly formed corporation which is initially a wholly-owned
Subsidiary of TransTexas formed for the purpose of receiving certain drilling
assets of TransTexas.

"Unrestricted Non-Recourse Debt" of the Company or any of its
Subsidiaries means (i) Debt of such Person that is secured solely (other than
with respect to clause (ii) below) by a Lien upon the stock of an Unrestricted
Subsidiary of such Person and as to which there is no recourse (other than with
respect to clause (ii) below) against such Person or any of its assets other
than against such stock (and the dollar amount of any Debt of such Person as
described in this clause (i) shall be deemed to be zero for purposes of all
other provisions of the Indenture) and (ii) guarantees of the Debt of
Unrestricted Subsidiaries of such Person; provided, that the aggregate of all
Debt of such Person Incurred and outstanding pursuant to clause (ii) of this
definition, together with all Permitted Investments (net of any return on such
Investment) in Unrestricted Subsidiaries of such Person, does not exceed 20% of
TARC's Consolidated EBITDA since the Phase II Completion Date in the case of
TARC plus in the case of clause (ii) of this definition of Unrestricted Non-
Recourse Debt, Restricted Payments permitted to be made pursuant to the
covenant contained herein under the heading "Limitation on Restricted
Payments."

"Unrestricted Subsidiary" of any Person means any other Person
("Other Person") that would, but for this definition of "Unrestricted
Subsidiary" be a Subsidiary of such Person organized or acquired after the
Issue Date as to which all of the following conditions apply: (i) neither such
Person nor any of its other Subsidiaries provides credit support of any Debt of
such Other Person (including any undertaking, agreement or instrument
evidencing such Debt),

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other than Unrestricted Non-Recourse Debt; (ii) such Other Person is not
liable, directly or indirectly, with respect to any Debt other than
Unrestricted Subsidiary Debt; (iii) neither such Person nor any of its
Subsidiaries has made an Investment in such Other Person unless such Investment
was permitted by the provisions described under "-- Covenants -- Limitation on
Restricted Payments;" and (iv) the Board of Directors of such Person, as
provided below, shall have designated such Other Person to be an Unrestricted
Subsidiary on or prior to the date of organization or acquisition of such Other
Person. Any such designation by the Board of Directors of such Person shall be
evidenced to the Trustee by delivering to the Trustee a resolution thereof
giving effect to such designation and an Officers' Certificate certifying that
such designation complies with the foregoing conditions. The Board of Directors
of any Person may designate any Unrestricted Subsidiary of such Person as a
Subsidiary of such Person; provided, that, (a) if the Unrestricted Subsidiary
has any Debt outstanding or is otherwise liable for any Debt or has a negative
Net Worth, then immediately after giving pro forma effect to such designation,
such Person could incur at least $1.00 of additional Debt pursuant to the
provisions described under the heading " -- Covenants -- Limitation on
Incurrences of Additional Debt and Issuances of Disqualified Capital Stock"
(assuming, for purposes of this calculation, that each dollar of negative Net
Worth is equal to one dollar of Debt), (b) all Debt of such Unrestricted
Subsidiary shall be deemed to be incurred by a Subsidiary of the Person on the
date such Unrestricted Subsidiary becomes a Subsidiary, and (c) no Default or
Event of Default would occur or be continuing after giving effect to such
designation. Any subsidiary of an Unrestricted Subsidiary shall be an
Unrestricted Subsidiary for purposes of the Indenture.

"Unrestricted Subsidiary Debt" means, as to any Unrestricted
Subsidiary of any Person, Debt of such Unrestricted Subsidiary (i) as to which
neither such Person nor any Subsidiary of such Person is directly or indirectly
liable (by virtue of such Person or any such Subsidiary being the primary
obligor on, guarantor of, or otherwise liable in any respect to, such Debt),
unless such liability constitutes Unrestricted Non-Recourse Debt and (ii)
which, upon the occurrence of a default with respect thereto, does not result
in, or permit any holder (other than the Company or any Subsidiary of the
Company) of any Debt of such Person or any Subsidiary of such Person to
declare, a default on such Debt of such Person or any Subsidiary of such Person
or cause the payment thereof to be accelerated or payable prior to its stated
maturity, unless, in the case of this clause (ii), such Debt constitutes
Unrestricted Non-Recourse Debt.

"Vehicles" means all trucks, automobiles, trailers and other vehicles
covered by a certificate of title.

"Voting Stock" means Capital Stock of a Person having generally the
right to vote in the election of directors of such Person.

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

COVENANTS

The Indenture contains, among others, the following covenants:

Repurchase of Notes at the Option of the Holder Upon a Change of
Control. In the event that a Change of Control occurs, each Holder of Notes
will have the right, at such Holder's option, subject to the terms and
conditions of the Indenture, to require the Company to repurchase all or any
part of such Holder's Notes (provided that the principal amount of such Notes
must be $1,000 or an integral multiple thereof) on a date that is no later than
60 Business Days after the occurrence of such Change of Control (the date on
which the repurchase is effected being referred to herein as the "Change of
Control Payment Date"), at a cash purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid interest to the date of purchase (the
"Change of Control Purchase Price"), on and including the Change of Control
Payment Date.

The Company shall notify the Trustee within five Business Days after
each date upon which the Company knows, or reasonably should know, of the
occurrence of a Change of Control. Within 20 Business Days after the

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Company knows, or reasonably should know, of the occurrence of each Change of
Control, the Company will make an irrevocable, unconditional offer (a "Change
of Control Offer") to the Holders of Notes to purchase all of the Notes at the
Change of Control Purchase Price by sending written notice of a Change of
Control Offer, by first class mail, to each Holder at its registered address,
with a copy to the Trustee. The notice to Holders will contain all instructions
and materials required by applicable law and will contain or make available to
Holders other information material to such Holders' decision to tender Notes
pursuant to the Change of Control Offer.

On or before the Change of Control Payment Date, the Company will (i)
accept for payment Notes or portions thereof properly tendered pursuant to the
Change of Control Offer prior to the close of the third Business Day prior to
the Change of Control Payment Date, (ii) deposit with the Paying Agent U.S.
Legal Tender sufficient to pay the Change of Control Purchase Price of all
Notes so tendered, and (iii) deliver or cause to be delivered 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 will
promptly mail to the Holders of Notes so accepted payment in an amount equal to
the Change of Control Purchase Price, and the Trustee will promptly
authenticate and mail or deliver to such Holders a new Note equal in principal
amount to any unpurchased portion of the Note surrendered. Any Notes not so
accepted will be promptly mailed or delivered by the Company to the Holder
thereof. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Purchase
Date.

To the extent applicable and if required by law, the Company will
comply with Section 14 of the Exchange Act and the provisions of Regulation 14E
and any other tender offer rules under the Exchange Act and other securities
laws, rules, and regulations which may then be applicable to any offer by the
Company to purchase the Notes at the option of Holders upon a Change of Control
and, if such laws, rules, and regulations require or prohibit any action
inconsistent with the foregoing, compliance by the Company with such laws,
rules, and regulations will not constitute a breach of the Company's
obligations with respect to the foregoing.

Limitation on Incurrences of Additional Debt and Issuances of
Disqualified Capital Stock. The Indenture provides that the Company may not,
and may 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, except: (a) Debt evidenced by the Notes and the
Guarantees; (b) Debt evidenced by the TARC Intercompany Loan and any other Debt
at any time owing by any of the TARC Entities to TEC in an aggregate
outstanding principal amount, when added to the then outstanding principal
amount for the TARC Intercompany Loan and any other Debt incurred pursuant to
this clause (b) or pursuant to clause (o) below to replace, extend, renew or
refund Debt incurred pursuant to this clause (b), at any one time outstanding
not in excess of $920 million less any amount repaid pursuant to paragraph
(c)(i) of the covenant described herein under the heading "Limitation on Asset
Sales;" (c) Subordinated Debt of TARC solely to any wholly owned Subsidiary of
TARC, or Debt of any wholly owned Subsidiary of TARC solely to TARC or to any
wholly owned Subsidiary of TARC; (d) Debt of TARC outstanding at any time in an
aggregate principal amount not to exceed the greater of (x) $100 million or (y)
the TARC Borrowing Base, less, in each case, the amount of any Debt of an
Accounts Receivable Subsidiary (other than Debt owed to TARC); (e) Debt in an
aggregate principal amount not to exceed at any one time $50 million; (f) Debt
secured by the Storage Assets in an aggregate amount outstanding at any one
time not to exceed $115 million; (g) Debt secured by a Permitted Lien that
meets the requirements of clause (c), (g), (m), (o) and (r) of the definition
of "Permitted Liens," to the extent that such Liens would give rise to Debt
under clauses (i), (ii), or (iii) of the definition of "Debt;" (h) Any guaranty
of Debt permitted by clauses (d), (e), (g) or (n) hereof which guaranty shall
not be included in the determination of the amount of Debt which may be
Incurred pursuant to (d), (e), (g) or (n) hereof; (i) Swap Obligations of TARC;
(j) Unrestricted Non-Recourse Debt of TARC; (k) Debt evidenced by the TARC
Mortgage Notes; (l) letters of credit and reimbursement obligations relating
thereto to the extent collateralized by cash or Cash Equivalents; (m) Debt
evidenced by the TARC Discount Notes; (n) Debt of TARC or any of its
Subsidiaries owed to TEC which is loaned pursuant to terms of the fourth
paragraph of either of the covenants contained herein under the headings "--
Excess Cash" and "-- Additional Interest Excess Cash Offer" under the TEC
Indenture in the aggregate not in excess of $50 million; (o) TARC may Incur
Debt as an extension, renewal, replacement, or refunding of any of the Debt
permitted to be Incurred by clauses (b), (p) or (r) hereof, or this clause (o)
(such Debt is collectively referred to as "Refinancing Debt"), provided, that
(1) the maximum principal amount of Refinancing Debt (or, if such

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Refinancing Debt is issued with original issue discount, the original issue
price of such Refinancing Debt) permitted under this clause (o) may not exceed
the lesser of (x) the principal amount of the Debt being extended, renewed,
replaced, or refunded plus 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 as of
the time of the Incurrence of the Refinancing Debt plus Refinancing Fees, (2)
the Refinancing Debt shall rank with respect to the Notes to an extent no less
favorable in respect thereof to the Holders than the Debt being refinanced; (p)
Pari Passu Debt or Subordinated Debt of the Company with initial net proceeds
to the Company not in excess of $25 million in the aggregate; (q) Debt secured
by Liens permitted pursuant to clauses (h) and (j) of Permitted Liens, in an
aggregate principal amount not to exceed $35 million; (r) Debt of the Company
Incurred in connection with the acquisition, construction or improvement of a
CATOFIN(R) Unit not in excess of 20% of the Company's Consolidated EBITDA
accrued for the period (taken as one accounting period) commencing with the
first full fiscal quarter that commenced after the Phase I Completion Date, to
and including the fiscal quarter ended immediately prior to the date of such
calculation, provided, that, no such Debt may be Incurred unless (i) the Phase
II Completion Date has occurred or (ii) the Construction Supervisor shall have
provided the Trustee with written certification that, based upon its bi-monthly
evaluation of the Capital Improvement Program, the amounts remaining in the
disbursement accounts to complete Phase II are sufficient to complete Phase II
in accordance with the Plans approved by the Construction Supervisor; and (s)
Debt of the Company owed to TEC that does not in the aggregate exceed $50
million principal outstanding at any one time.

For the purpose of determining the amount of outstanding Debt that has
been Incurred pursuant to this covenant, there shall be included in each such
case 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 (o) above so as to refinance
or refund such Debt Incurred pursuant to such clause and any subsequent
refinancings or refundings thereof.

Notwithstanding the foregoing provisions of this covenant, (a) TARC
may Incur Senior Debt and TARC 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 Fixed
Charges in respect of such Debt being Incurred or such 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, the
Consolidated Fixed Charge Coverage Ratio of TARC for the Reference Period is
greater than 2.5 to 1, and (b) TARC 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 Fixed Charges 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, the Consolidated Fixed Charge Coverage
Ratio of TARC for the Reference Period is greater than 2.0 to 1.

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

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 or the Subsidiary in question 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 may elect to apportion such item
of Debt between or among any two or more of such categories otherwise
applicable, and (B) the amount of any Debt which does not pay interest in cash
or which was issued at a discount to face value shall be deemed to be equal to
the amount of the liability in respect thereof determined in accordance with
GAAP.

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Limitation on Restricted Payments. The Indenture provides that the
Company will not directly or indirectly, make any dividend or other
distribution on shares of Capital Stock of the Company or any Subsidiary of the
Company or make any payment on account of the purchase, redemption, or other
acquisition or retirement for value of any such shares of Capital Stock unless
such dividends, distributions, or payments are made in cash or Capital Stock or
a combination thereof. In addition, the Indenture provides that the Company
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, make any Restricted Payment; provided, however, that TARC may make
a Restricted Payment if, at the time or after giving effect thereto on a pro
forma basis no Default or Event of Default would occur or be continuing and (a)
TARC's Consolidated Fixed Charge Coverage Ratio exceeds 2.25 to 1; and (b) the
aggregate amount of all Restricted Payments made by all of the TARC Entities,
including such proposed Restricted Payment and all payments that may be 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, would not exceed
an amount equal to (x) 50% of Adjusted Consolidated Net Income of TARC 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 TARC's Adjusted Consolidated Net Income for
such period is a deficit, then minus 100% of such deficit), plus (y) the
aggregate Net Proceeds received by TARC from the issuance or sale (other than
to one of its Subsidiaries) of its Qualified Capital Stock from and after the
Issue Date and on or prior to the date of such Restricted Payment, minus (z)
100% of the amount of any write-downs, write-offs, other negative revaluations,
and other negative extraordinary charges not otherwise reflected in TARC's
Adjusted Consolidated Net Income during such period; and provided, that the
foregoing clauses will 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.

Accounts Receivable Subsidiary. The Indenture provides that:

(a) Notwithstanding the provisions of the covenant entitled
"Limitation on Restricted Payments," TARC 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 TARC 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 the greater of $20 million or 20% of the TARC
Borrowing Base at any time;

(b) TARC may not, nor may it 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 the greater
of $20 million or 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 may not, nor may it 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 TARC or any of its Subsidiaries with respect to the
accounts receivable sold by TARC or any of its Subsidiaries to an
Accounts Receivable Subsidiary or with respect to the servicing
thereof;

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provided that neither TARC nor any of its Subsidiaries shall at any
time guarantee or be otherwise liable for the collectability of
accounts receivable sold by them; and

(d) TARC may not, nor may it permit any of its Subsidiaries
to, sell accounts receivable to, or enter into any such 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.

Limitation on Restricting Subsidiary Dividends. The Indenture provides
that the Company may not, and may 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 Subsidiary of the Company to
pay dividends or make other distributions on the Capital Stock of any
Subsidiary of the Company, except encumbrances and restrictions existing under
this Indenture and any agreement of a Person acquired by the Company or a
Subsidiary of the Company, which 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.

Limitation on Transactions with Related Persons. The Indenture
provides that the Company may not, and may 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 (including without
limitation: (i) the sale, lease, transfer, or other disposition of properties,
assets, or securities to such Related Person; (ii) the purchase or lease of any
properties, assets, or securities from such Related Person; (iii) an Investment
in such Related Person (excluding Investments permitted to be made pursuant to
clauses (iii), (vi), (viii), (x), (xii), (xiii), (xv), (xvi), (xvii) and (xvi)
of the definition of "Permitted Investment" contained herein); and (iv)
entering into or amending any contract or agreement with or for the benefit of
a Related Person (each a "Related Person Transaction")), except for (a)
permitted Restricted Payments, including for this purpose the transactions
excluded from the definition of Restricted Payments by the proviso contained in
the definition of "Restricted Payments," (b) transactions made in good faith,
the terms of which are: (x) fair and reasonable to the Company or such
Subsidiary, as the case may be, and (y) are at least as favorable as the terms
which could be obtained by the Company or such Subsidiary, as the case may be,
in a comparable transaction made on an arm's length basis with Persons who are
not Related Persons, (c) transactions between the Company and any of its wholly
owned Subsidiaries or transactions between wholly owned Subsidiaries of the
Company, (d) transactions pursuant to the Services Agreement, the Transfer
Agreement, the Tax Allocation Agreement, the Gas Purchase Agreement, the
Expense Reimbursement Agreement, the TARC Intercompany Loan and the related
security documents, and the Registration Rights Agreement (e) the lease of
office space to the Company by TransAmerican or an Affiliate of TransAmerican,
provided that payments thereunder do not exceed in the aggregate $200,000 per
year, (f) any employee compensation arrangement in an amount which together
with the amount of all other cash compensation paid to such employee by the
Company and its Subsidiaries does not provide for cash compensation in excess
of $5 million in any fiscal year of the Company or any Subsidiary and which has
been approved 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 such
Subsidiary, as the case may be; (g) loans to TARC which are permitted to be
Incurred pursuant to the terms of clauses (s) and (n) of the covenant described
herein under the heading "-- Limitation on Incurrences of Additional Debt and
Issuances of Disqualified Capital Stock;" (h) the amounts payable by TEC and
its Subsidiaries to Southeast Contractors for employee services provided to
TARC not exceeding the actual costs to Southeast Contractors of the employees,
which costs consist solely of payroll and employee benefits, plus related
administrative costs and an administrative fee, not exceeding $2 million per
year in the aggregate; and (i) the Company and its Subsidiaries may pay a
management fee to TransAmerican in an amount not to exceed $2.5 million per
year.

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Without limiting the foregoing, except for sales of accounts
receivable to an Accounts Receivable Subsidiary in accordance with the
provisions described under "-- Accounts Receivable Subsidiary," (a) with
respect to any Related Person Transaction or series of Related Person
Transactions (other than any Related Person Transaction described in clause (a)
(with respect to permitted Restricted Payments by virtue of clauses (i), (ii),
(iv), (vii), (ix), (x) or (xi) of the proviso contained in the definition of
"Restricted Payments"), (c), (d), (e) or (g) of the first paragraph of this
covenant) with an aggregate value in excess of $5 million, such transaction
must first be approved by a majority of the Board of Directors of the Company
or its Subsidiary which is the transacting party and a majority of the
directors of such entity who are disinterested in the transaction pursuant to a
Board Resolution, as (i) fair and reasonable to the Company or such 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 such 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 (other than any Related Person Transaction described in clause (a)
(with respect to permitted Restricted Payments by virtue of clauses (i), (ii),
(iv), (vii), (ix), (x) or (xi) of the proviso contained in the definition of
"Restricted Payments"), (c), (d), (e) or (g) of the first paragraph of this
covenant) with an aggregate value in excess of $10 million, the Company must
first obtain a favorable written opinion as to the fairness of such transaction
to the Company or such 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; provided that such opinion shall not be necessary if approval of
the Board of Directors to such Related Person Transaction has been obtained
after receipt of bona fide bids of at least two other independent parties and
such Related Person Transaction is in the ordinary course of business.

Limitation on Asset Sales. (a) The Indenture provides that the Company
may not, and may not permit any of its Subsidiaries to, consummate any Asset
Sales unless: (i) the Company (or its Subsidiaries, as the case may be) receives
consideration at the time of such sale or other disposition at least equal to
the fair market value thereof (as determined in good faith by the Company's
Board of Directors and evidenced by a board resolution in the case of any Asset
Sales or series of related Asset Sales having a fair market value of $15 million
or more); (ii) at least 85% of the proceeds received by the Company (or its
Subsidiaries, as the case may be) from each such Asset Sale consists of (A)
Cash, (B) Cash Equivalents, (C) Publicly Traded Stock or (D) any combination of
the foregoing; provided, however, that (1) the amount of (x) any liabilities (as
shown on the Company's or such Subsidiary's most recent balance sheet or in the
notes thereto) of the Company or such Subsidiary (other than liabilities that
are by their terms expressly subordinated to the Notes or any guarantee thereof)
that are assumed by the transferee of any such assets and (y) any notes or other
obligations received by the Company or any such Subsidiary from such transferee
that, within 90 days following the closing of such sale or disposition, are
converted by the Company or such Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision and (2) the
aggregate fair market value (as determined in good faith by the Board of
Directors of the Company, evidenced by a board resolution) of all consideration
of the type specified in clause (C) above received by the Company and its
Subsidiaries from all Asset Sales after the Issue Date shall not exceed 15% of
Consolidated Net Tangible Assets at the time for such Asset Sale; and (iii) the
Net Cash Proceeds received by the Company (or its Subsidiaries, as the case may
be) from such Asset Sales are applied in accordance with subsection (c) below.

(b) Notwithstanding the foregoing limitations on Asset Sales and
restrictions on the use of Net Cash Proceeds therefrom:

(A) TARC or any Guarantor may convey, sell, lease, transfer,
or otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to TARC or any wholly owned Subsidiary of
TARC;

(B) the Company and its Subsidiaries may engage in Asset Sales
in the ordinary course of business;

(C) the Company and its Subsidiaries may engage in Asset Sales
not otherwise permitted in clauses (A), (B) or (D) through (K) of this
sentence provided that the aggregate proceeds from all such Asset
Sales do not exceed $10 million in any twelve-month period;

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(D) the Company and its Subsidiaries may engage in Asset Sales
pursuant to and in accordance with the provisions described under "--
Limitation on Merger, Sale or Consolidation;"

(E) the Company and its Subsidiaries may sell, assign, lease,
license, transfer, abandon or otherwise dispose of (a) damaged, worn
out, unserviceable or other obsolete property in the ordinary course
of business or (b) other property no longer necessary for the proper
conduct of their business;

(F) TARC and its Subsidiaries may sell accounts receivable to
an Accounts Receivable Subsidiary in accordance with the provisions
described under "-- Accounts Receivable Subsidiary;"

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

(H) the Company and its Subsidiaries may engage in Asset Sales
(a) the Net Cash Proceeds of which are used for (i) payment of cash
interest on the Notes or (ii) a one-time payment of cash interest on
the TARC Intercompany Loan, (b) in connection with the settlement of
litigation or the payment of judgments or (c) the Net Cash Proceeds of
which are used in connection with the settlement of litigation or for
the payment of judgments; provided, that the aggregate value of assets
transferred pursuant to clauses (b) and (c) above from and after the
Issue Date does not exceed $25,000,000;

(I) TARC may transfer the Storage Assets in connection with
the financing thereof pursuant to clause (f) of the covenant described
herein under the heading "-- Limitation on Incurrences of Additional
Debt and Issuances of Disqualified Capital Stock;"

(J) The Company and its Subsidiaries may dispose of assets of
the Company or its Subsidiaries in exchange for capital assets that
(i) are for use in a Related Business and (ii) have an aggregate fair
market value which, when added to the fair market value of any cash,
Cash Equivalents or Publicly Traded Stock received by the Company or
any of its Subsidiaries in exchange for such capital assets, is equal
to or greater than the aggregate fair market value of the property and
assets being disposed of; provided, however, that in no event may the
Company and its Subsidiaries, in any 12-month period, dispose of
assets pursuant to this paragraph having an aggregate fair market
value of in excess of $10 million;

(K) The Company may sell shares of TransTexas common stock to
TransTexas; and

(L) Unless otherwise required by the foregoing clauses (A)
through (K), the proceeds of any Asset Sale permitted thereby shall be
used by the Company or its Subsidiaries for purposes not otherwise
prohibited by the Indenture.

(c) The Company may, within 360 days following the receipt of Net Cash
Proceeds from any Asset Sale, apply an amount equal to such Net Cash Proceeds
to: (i) the repayment of Senior Debt of the Company or any Guarantor that
results in a permanent reduction in the principal amount of such Senior Debt in
an amount equal to the principal amount so repaid or (ii) make Capital
Expenditures for use in a Related Business or (iii) make cash payments in the
ordinary course of business that are not otherwise prohibited by the Indenture,
provided that the aggregate amount so used from and after the Issue Date does
not exceed $20,000,000 (without duplication of amounts used for Capital
Expenditures in clause (ii) above).

If, upon completion of the 360-day period (the "Trigger Date"), an
amount equal to any portion of the Net Cash Proceeds of any Asset Sale shall
not have been applied by the Company as described in clauses (i), (ii) or (iii)
of the preceding paragraph and such amount together with an amount equal to any
remaining net cash proceeds from any prior Asset Sale (such aggregate
constituting "Excess Proceeds"), exceeds $10 million, then the Company shall
make an offer (the "Offer to Purchase") to purchase from all Holders of the
Notes and holders of any then outstanding Pari Passu Debt

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required to be repurchased or repaid on a permanent basis in connection with an
Asset Sale, an aggregate principal amount of Notes and any then outstanding
Pari Passu Debt equal to such Excess Proceeds as follows:

(1) the Company shall make an offer to purchase from all
Holders of the Notes in accordance with the procedures set forth in
the Indenture the maximum principal amount (expressed as a multiple of
$1,000) of Notes that may be purchased out of an amount (the "Offer
Amount") equal to the product of such Excess Proceeds multiplied by a
fraction, the numerator of which is the outstanding principal amount
of the Notes and the denominator of which is the sum of the
outstanding principal amount of the Notes and such Pari Passu Debt, if
any and (ii) to the extent required by such Pari Passu Debt and
provided there is a permanent reduction in the principal amount of
such Pari Passu Debt and a corresponding permanent reduction in the
Company's ability to incur Pari Passu Debt or Subordinated Debt, the
Company shall make an offer to purchase such Pari Passu Debt (the
"Pari Passu Offer") in an amount (the "Pari Passu Debt Amount") equal
to the excess of the Excess Proceeds over the Offer Amount.

(2) The offer price for the Notes shall be payable in cash in
an amount equal to 100% of the principal amount of the Notes tendered
pursuant to an Offer to Purchase, plus accrued and unpaid interest, if
any, to the date such Offer to Purchase is consummated (the "Offer
Price"), in accordance with the procedures set forth in the Indenture.
To the extent that the aggregate Offer Price of the Notes tendered
pursuant to an Offer to Purchase is less than the Offer Amount
relating thereto or the aggregate amount of the Pari Passu Debt that
is purchased or repaid pursuant to the Pari Passu Offer is less than
the Pari Passu Debt Amount (such shortfall constituting a "Net
Proceeds Deficiency"), the Company may use such Net Proceeds
Deficiency, or any portion thereof, for general corporate purposes,
subject to the "Limitation on Restricted Payments" covenant.

(3) If the aggregate Offer Price of Notes validly tendered and
not withdrawn by Holders thereof exceeds the Offer Amount, Notes to be
purchased will be selected on a pro rata basis. Upon completion of an
Offer to Purchase and a Pari Passu Offer, the amount of Excess
Proceeds shall be reset to zero.

The Company, to the extent applicable and if required by law, will
comply with Section 14 of the Exchange Act and the provisions of Regulation 14E
and any other tender offer rules under the Exchange Act and any other federal
and state securities laws, rules and regulations which may then be applicable
to any offer by the Company to purchase the Notes at the option of the holders
pursuant to an Offer to Purchase.

It is expected that agreements with respect to Senior Debt the Company
may enter into would prohibit, and the TARC Intercompany Loan currently
prohibits, the repurchase of Debt subordinated to such Senior Debt, which would
include the Notes. Failure of the Company to repurchase the Notes validly
tendered to the Company pursuant to an Offer to Purchase would create an Event
of Default with respect to the Notes. In addition, the subordination
provisions of the Indenture prohibit, subject to certain conditions, the
repurchase or repayment of the Notes if there is a default under Senior Debt.
As a result, the Company may be prohibited from making payment pursuant to an
Offer to Purchase in connection with an Asset Sale.

Limitation on Liens. The Indenture provides that the Company may not
and may not permit any Subsidiary to, directly or indirectly, Incur, or suffer
to exist any Lien upon any of its respective property or assets, whether now
owned or hereafter acquired, other than Liens. For the purpose of determining
compliance with this covenant, if a Lien meets the criteria of more than one of
the types of permitted Liens, the Company or the Subsidiary in question shall
have the right to determine in its sole discretion the category of permitted
Lien to which such Lien applies, shall not be required to include such Lien in
more than one of such categories and may elect to apportion such Lien between
or among any two or more categories otherwise applicable. The Indenture
further provides that the Company will grant to the Trustee on behalf of the
Holders a Lien on the assets of the Company currently subject to a Lien in
favor of TEC; provided, that the Company shall not be required to grant such
Lien until the TARC Intercompany Loan has been paid in full and has not been
refinanced, refunded or replaced with the proceeds of other Debt ("Other
Debt"), which Other Debt has a lower cost of capital to TARC than the TARC
Intercompany Loan and the principal amount of such Other Debt (or, if such
Other Debt is issued with original issue discount, the original issue price of
such Other Debt) is equal to or less than the

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original issue price of, plus amortization of the original issue discount on,
the TARC Intercompany Loan at the time of the incurrence of such Other Debt.

Limitation 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 and such
other business activities as are reasonably related thereto.

Limitation on Status as Investment Company or Public Utility Company.
The Indenture prohibits the Company and its Subsidiaries from becoming
"investment companies" (as that term is defined in the Investment Company Act
of 1940, as amended), or a "holding company," or "public utility company" (as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended), or from otherwise becoming subject to regulation under the Investment
Company Act or the Public Utility Holding Company Act.

Maintenance of Properties and Insurance. Each of the Company and its
Subsidiaries will cause the properties used or useful to the conduct of its
business and the business of itself and 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 will
cause to be made all necessary repairs, renewals, replacements, betterments,
and improvements thereof, all as in its reasonable judgment may be necessary,
so that the business carried on in connection therewith may be properly and
advantageously conducted at all times.

Each of the Company and its Subsidiaries will 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 its
reasonable, good faith opinion, are adequate and appropriate for the conduct of
its business and the business of 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 is customary, in its reasonable, good faith opinion, and
adequate and appropriate for the conduct of its business and the business of
its Subsidiaries in a prudent manner for companies engaged in a similar
business.

Limitation on Ranking of Future Debt. The Company shall not, directly
or indirectly, incur, create, or suffer to exist any Debt which is
contractually subordinate or junior in right of payment (to any extent) to any
Debt of the Company and which is not expressly by the terms of the instrument
creating such Debt made pari passu with, or subordinated and junior in right of
payment to, the Notes. The Guarantors will not, directly or indirectly, issue,
assume, guarantee, incur or other otherwise become liable for any Debt which is
both subordinate or junior in right of payment to any Guarantor Senior Debt and
senior or superior in right of payment to the Guarantees.

Restriction on Sale and Issuance of Subsidiary Stock. The Company
shall not sell, and 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 unless an
amount equal to the net proceeds of such sale is used by the Company within 180
days after the date of such sale for one or more of the purposes specified in
Section (a) of the covenant described herein under "--Limitation on Asset
Sales."

Separate Existence and Formalities. The Company will also covenant
and agree that: (a) it will maintain procedures designed to prevent
commingling of the Company's funds and its Subsidiaries' funds with those of
TransAmerican, 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 and its Subsidiaries, to the
extent required by law or the Company's and its Subsidiaries' Articles of
Incorporation or By-laws; (c) the Company and its Subsidiaries will maintain
records and books of accounts separate from those of TransAmerican in
accordance with generally accepted accounting principles; (d) the Company and
its Subsidiaries will maintain correct minutes of the meetings and other
corporate proceedings of the owners of its capital stock and the Board of
Directors and otherwise comply with requisite corporate formalities required by
law; (e) the Company and its Subsidiaries will

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not knowingly mislead any other Person as to the identity or authority of the
Company and its Subsidiaries; and (f) the Company and its Subsidiaries will
provide for all of their operating expenses and liabilities from their own
separate funds.

LIMITATION ON MERGER, SALE OR CONSOLIDATION

The Indenture provides that the Company will not 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 Persons acting in concert,
whether in a single transaction or through a series of related transactions,
unless (i) either (a) the Company is the continuing Person or (b) the
resulting, surviving, or transferee entity is a corporation or partnership
organized under the laws of the United States, any state thereof, or the
District of Columbia, and shall expressly assume all of the obligations of the
Company under the Notes and the Indenture by a supplemental indenture or other
appropriate document supplemental thereto; (ii) no Default or Event of Default
shall exist or shall occur immediately after giving effect to such transaction
on a pro forma basis; (iii) immediately after giving effect to such transaction
on a pro forma basis, the Net Worth of the surviving or transferee entity is at
least equal to the Net Worth of such predecessor or transferring entity
immediately prior to such transaction; (iv) except for a merger of TARC into a
wholly owned Subsidiary of TEC or its wholly owned Subsidiary incorporated in
the State of Delaware solely for the purpose of facilitating a reincorporation
in Delaware or a conversion of the Old TARC Warrants into a right to receive
cash, which conversion or reincorporation would not require cash payments by
the Company in excess of $250,000 in the aggregate, the surviving or transferee
entity would immediately thereafter be permitted to Incur at least $1.00 of
additional Senior Debt pursuant to the third or fourth paragraph of the
covenant described herein under the caption "Limitation on Incurrences of
Additional Debt and Issuances of Disqualified Capital Stock" (in all cases for
this purpose only, as if the Phase I Completion Date has occurred), and (v)
except for a merger of TARC into a wholly owned Subsidiary of TEC or its wholly
owned Subsidiary incorporated in the State of Delaware solely for the purpose
of facilitating a reincorporation in Delaware or a conversion of the Old TARC
Warrants into a right to receive cash, which conversion or reincorporation
would not require cash payments by the Company in excess of $250,000 in the
aggregate, at the time of or within 45 days after the occurrence of the event
specified above, the Notes, if then rated, have not been or are not downgraded
by any Rating Agency to a rating below that which existed immediately prior to
the time the event specified above is first publicly announced. For purposes of
this covenant, the Consolidated Fixed Charge Coverage Ratio shall be determined
on a pro forma consolidated basis (giving effect to the transaction) for the
four fiscal quarters immediately preceding such transaction.

Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company in accordance with the
foregoing, the successor 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
the Indenture with the same effect as if such successor corporation had been
named as the Company therein.

Notwithstanding the foregoing, any Subsidiary of TARC with a Net Worth
greater than zero, may merge into TARC (or a wholly owned Subsidiary of TARC)
at any time, provided, that TARC shall have delivered to the Trustee an
Officers' Certificate stating that such Subsidiary has a Net Worth greater than
zero and such merger does not result in a Default or an Event of Default
hereunder. Notwithstanding anything contained in the foregoing to the contrary,
an Accounts Receivable Subsidiary may merge into TARC, provided, that such
merger does not result in a Default or Event of Default hereunder.

EVENTS OF DEFAULT AND REMEDIES

The Indenture defines an Event of Default as (i) the failure by the
Company to pay installments of interest on the Notes as and when the same
become due and payable and the continuance of any such failure for 30 days,
(ii) the failure by the Company to pay all or any part of the principal or
premium, if any, on the Notes when and as the same become due and payable at
maturity, redemption, by acceleration, or otherwise, including payment of the
Offer Price or Change of Control Purchase Price, (iii) the failure by the
Company or any of its Subsidiaries to observe or perform

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any other covenant, agreement, or warranty contained in the Notes or the
Indenture and, subject to certain exceptions, the continuance of such failure
for a period of 30 days after written notice is given to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Notes outstanding, (iv) certain events of
bankruptcy, insolvency, or reorganization in respect of the Company or any of
its Guarantors, (v) 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 aggregating in excess of $20 million, if
either (a) such default results from the failure to pay principal of, premium,
if any, or interest on any such Debt when due and such default continues beyond
any applicable cure, forbearance or notice period, provided that a waiver of
such default pursuant to the agreement governing such Debt shall constitute a
waiver hereunder for the same period, or (b) as a result of such default, the
maturity of such Debt has been accelerated prior to its scheduled maturity, and
such default and acceleration continues for a period of 10 days; provided that
a recission or annulment of such default or acceleration (prior to any action
taken by the Trustee with respect to the acceleration of the Obligations under
the Notes) pursuant to the agreement governing such Debt shall constitute a
waiver hereunder for the same period; (vi) final judgments not covered by
insurance aggregating at least $25 million at any one time rendered against the
Company or any of its Subsidiaries and not stayed or discharged within 60 days,
and (vii) a Guarantee shall cease to be in full force and effect (other than a
release of a Guarantee by designation of a Guarantor as an Unrestricted
Subsidiary or otherwise in accordance with the Indenture) or any Guarantor
shall deny or disaffirm its obligations with respect thereto. The Indenture
provides that if a default occurs and is continuing and if it is known to the
Trustee, the Trustee must, within 90 days after the occurrence of such default,
give to the Holders notice of such default; provided, that, except in the case
of default in payment of principal of, premium, if any, or interest on the
Notes, including a default in the payment of the Offer Price or Change of
Control Purchase Price as required by the Indenture, the Trustee will be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interest of the holders of the Notes.

If an Event of Default occurs and is continuing (other than an Event
of Default specified in clause (iv), above, relating to the Company or its
Subsidiaries), then 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 25% in aggregate principal amount of Notes then outstanding, by
notice in writing to the Company (and to the Trustee if given by Holders) (an
"Acceleration Notice"), may declare all principal of the Notes, determined as
set forth below, and accrued interest thereon or, as appropriate, the Change of
Control Purchase Price, to be due and payable immediately. If an Event of
Default specified in clause (iv), above, relating to the Company or its
Subsidiaries occurs, all principal and accrued interest thereon will be
immediately due and payable on all outstanding Notes without any declaration or
other act on the part of the Trustee or the Holders. The Holders of no less
than a majority in aggregate principal amount of Notes generally are authorized
to rescind such acceleration if all existing Events of Default, other than the
non-payment of the principal of, premium, if any, and interest on the Notes
which have become due solely by such acceleration, have been cured or waived.

Prior to the declaration of acceleration of the Notes, the Holders of
a majority in aggregate principal amount of the Notes at the time outstanding
may waive on behalf of all the Holders any default or potential default, except
a default or potential default in the payment of principal of, premium, if any,
or interest on any Note not yet cured, or a default or potential default with
respect to any covenant or provision which cannot be modified or amended
without the consent of the Holder of each outstanding Note affected. Subject to
the provisions of the Indenture relating to the duties of the Trustee, the
Trustee is under no obligation to exercise any of its rights or powers under
the Indenture at the request, order, or direction of any of the Holders, unless
such Holders have offered to the Trustee security or indemnity reasonably
satisfactory to the Trustee. Subject to all provisions of the Indenture and
applicable law, the Holders of a majority in aggregate principal amount of the
Notes at the time outstanding 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 on the Trustee.

COVENANT DEFEASANCE; SATISFACTION AND DISCHARGE OF THE INDENTURE

The Indenture ceases to be of further effect as to all outstanding
Notes and Guarantees (except as to (i) rights of registration of transfer,
substitution, and exchange of Notes and the Company's right of optional
redemption, (ii)

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rights of Holders to receive payments of principal of, premium, if any, and
interest on the Notes (but not the Change of Control Purchase Price or Offer
Price) and any other rights of the Holders with respect to such amounts, (iii)
the rights, obligations, and immunities of the Trustee under the Indenture, and
(iv) certain other specified provisions in the Indenture (the foregoing
exceptions (i) through (iv) are collectively referred to as the "Reserved
Rights")) on the 91st day (or one day after such other greater period of time
in which any such deposit of trust funds may remain subject to set aside or
avoidance under bankruptcy or insolvency laws) after the irrevocable deposit by
the Company with the Trustee, in trust for the benefit of the Holders, of (i)
money in an amount, (ii) U.S. Government Obligations which through the payment
of interest and principal will provide, not later than one day before the due
date of payment in respect of the Notes, money in an amount, or (iii) a
combination thereof, sufficient to pay and discharge the principal of, premium,
if any, and interest on the Notes then outstanding on the stated maturity or on
the applicable redemption date, as the case may be, and the Company must
specify whether the Notes are being defeased to maturity or to a particular
redemption date. Such a trust may be established only if certain conditions are
satisfied, including delivery by the Company to the Trustee of an opinion of
outside counsel acceptable to the Trustee (who may be outside counsel to the
Company) to the effect that (i) the defeasance and discharge will not be
deemed, or result in, a taxable event for Federal income tax purposes, with
respect to the Holders, (ii) the Company's deposit will not result in the
Company, the trust, or the Trustee being subject to regulation under the
Investment Company Act of 1940 and (iii) 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 or insolvency laws insofar as those laws apply to the
Company) following the deposit of the trust funds, such funds will not be
subject to set aside or avoidance under any bankruptcy, insolvency, or other
similar laws affecting creditors' rights generally. The Indenture will not be
discharged if, among other things, an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of the Company shall have
occurred and be continuing on the date of such deposit. The Company and the
Guarantors will be deemed to have paid and discharged the entire indebtedness
on all of the outstanding Notes when (i) all outstanding Notes have been
delivered to the Trustee for cancellation, or (ii) the Company or any Guarantor
has paid or caused to be paid the principal of and interest on the Notes. The
Company or any Guarantor may make an irrevocable deposit pursuant to this
provision only if at such time it is not prohibited from doing so under the
subordination provisions of the Indenture and the Company has delivered to the
Trustee and any relevant paying agent an officer's certificate to that effect.

REPORTS

The Company is required to furnish to the Indenture Trustee, within 60
days after the end of each fiscal quarter or 105 days after the end of a fiscal
quarter that is also the end of a fiscal year, an officers' certificate to the
effect that such officers have conducted or supervised a review of the
activities of the Company and its Subsidiaries and of performance under the
Indenture and that, to the best of such officers' knowledge, based on their
review, the Company has fulfilled all of its obligations under the Indenture
or, if there has been a default, specifying each default known to them, its
nature and its status. The Company is also required to notify the Trustee of
any changes in the composition of the Board of Directors of the Company or any
of its Subsidiaries or of any amendment to the charter or bylaws of the Company
or any of its Subsidiaries.

The Company and each of its Subsidiaries, where applicable, shall
deliver to the Trustee and to each Holder, within 15 days after it files them
with the Commission, copies of all reports and information that the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. The Company shall include in all reports required to be filed
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act a
summary of the status of the TARC's Capital Improvement Program, including a
description of sources of funds available for the completion of the Capital
Improvement Program. The Company agrees to continue to be subject to the filing
and reporting requirements of the Commission as long as any of the Notes are
outstanding.

Concurrently with the reports delivered pursuant to the preceding
paragraph, the Company shall deliver to the Trustee and to each Holder annual
and quarterly financial statements with appropriate footnotes of the Company
and its Subsidiaries, all prepared and presented in a manner substantially
consistent with those of the Company required by the preceding paragraph.

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AMENDMENTS AND SUPPLEMENTS

The Indenture contains provisions permitting the Company, the
Guarantors and the Trustee to enter into a supplemental indenture for certain
limited purposes without the consent of the Holders. With the consent of the
Holders of not less than a majority in aggregate principal amount of the Notes
at the time outstanding, the Company, the Guarantors and the Trustee are
permitted to amend or supplement the Indenture or any supplemental indenture or
modify the rights of the Holders; provided, that no such modification may,
without the consent of the Holders of not less than 66 2/3% in aggregate
principal amount of the Notes at the time outstanding, (i) prior to a Change of
Control, reduce the Change of Control Purchase Price or alter the provisions of
the covenant described herein under the heading "Repurchase of Notes at the
Option of the Holder Upon a Change of Control," or (ii) prior to the date upon
which an Offer to Purchase is required to be made, reduce the Offer Price or
alter the provisions of the covenant described herein under the heading
"Limitation on Asset Sales," in a manner adverse to the Holders; provided
further, that no such modification may, without the consent of each Holder
affected thereby; (i) change the Stated Maturity of the principal of, or any
installment of principal of, or any installment of interest on, any Note, or
reduce the principal amount thereof or the rate of interest thereon or any
premium payable upon the redemption thereof, or change the place of payment
where, or the coin or currency in which, any Note or any premium or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof (or, in
the case of redemption, on or after the Redemption Date), or, (x) after the
date upon which a Change of Control Offer is required to be made, reduce the
Change of Control Purchase Price or alter the provisions of the covenant
described herein under the heading "Repurchase of Notes at the Option of the
Holder upon a Change of Control," (y) after the date upon which an Offer to
Purchase is required to be made, reduce the Offer Price or alter the provisions
of the covenant described herein under the heading "Limitation on Asset Sales"
in a manner adverse to the Holders or (ii) reduce the percentage in principal
amount of the Notes, the consent of whose Holders is required for any such
amendment, supplemental indenture, or waiver provided for in the Indenture, or
(iii) modify certain of the waiver provisions, except to increase any required
percentage or to provide that certain other provisions of the Indenture cannot
be modified or waived without the consent of the Holder of each Note affected
thereby.

NO PERSONAL LIABILITY OF STOCKHOLDERS, OFFICERS, DIRECTORS

No stockholder, officer, or director, as such, past, present, or
future of the Company or any of its Subsidiaries or any successor corporation
or any of them shall have any personal liability in respect of the obligations
of the Company or such Subsidiary under the Indenture or the Notes by reason of
his or its status as such stockholder, officer, or director.

REGISTRATION RIGHTS

The Company and the Initial Purchaser entered into the Registration
Rights Agreements pursuant to which the Company agreed to file with the
Commission on or prior to May 29, 1998, a registration statement on the
appropriate form (the "Exchange Offer Registration Statement"), relating to a
registered exchange offer for the Notes under the Securities Act and to use its
best efforts to have such Exchange Offer Registration Statement declared
effective by the Commission no later than July 28, 1998. Upon the
effectiveness of the Exchange Offer Registration Statement, the Company will
offer to the holders of Notes who are not prohibited by any law or policy of
the Commission from participating in the Exchange Offer the opportunity to
exchange their Outstanding Notes for the Exchange Notes. In the event that
applicable law or interpretations of the staff of the Commission do not permit
the Company to effect the Exchange Offer or, in the case of any holder of Notes
that participates in the Exchange Offer, such holder does not receive freely
tradeable Exchange Notes on the date of the exchange for tendered Outstanding
Notes, or if for some reason the Exchange Offer is not consummated by September
26, 1998, or under certain circumstances upon the request of the Initial
Purchaser, the Company will, at its cost, file with the Commission a shelf
registration statement (the "Shelf Registration Statement"), to cover resales
of Outstanding Notes by the holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. The Company will use its best efforts to cause the
applicable registration statement to be declared effective by the Commission as
promptly as practicable after the date of filing.

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Based on an interpretation of the staff of the Commission set forth in
several no-action letters to third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by holders thereof without compliance with the
registration and prospectus delivery provisions of the Securities Act.
However, any purchaser of Notes who is an "affiliate" of the Company or who
intends to participate in the Exchange Offer for the purpose of distributing
the Exchange Notes (i) will not be able to rely on the interpretation of the
staff of the Commission set forth in the above referenced no-action letters,
(ii) will not be able to tender its Notes in the Exchange Offer and (iii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of the Notes unless such
sale or transfer is made pursuant to an exemption from such requirements.

The Registration Rights Agreements provide that unless the Exchange
Offer would not be permitted by a policy of the Commission, the Company will
commence the Exchange Offer and will use its best efforts to issue, on or prior
to 30 business days after the date on which the Exchange Offer Registration
Statement is declared effective by the Commission, Exchange Notes in exchange
for all Outstanding Notes tendered prior thereto in the Exchange Offer. Upon
the occurrence of certain Registration Defaults (as defined in the Registration
Rights Agreements), the Company will be obligated, jointly and severally, to
pay liquidated damages to each holder of Registrable Securities (as defined in
the Registration Rights Agreements), during the first 120-day period
immediately following the occurrence of such Registration Default in an amount
equal to $0.05 per week per $1,000 principal amount of Registrable Securities
held by such Holder. Thereafter, the weekly liquidated damages amount will be
$0.15 per week per $1,000 principal amount of Registrable Securities held by
such Holder, until the Registration Default is cured. All accrued liquidated
damages will be paid in the same manner as interest payments on the Notes on
semi-annual damages payment dates that correspond to interest payment dates for
the Notes. Following the cure of a Registration Default, the accrual of
liquidated damages will cease.

Holders of Notes will be required to make certain representations to
the Company (as described in the Registration Rights Agreements) in order to
participate in the Exchange Offer and will be required to deliver information
to be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreements in order to have their Notes included in
the Shelf Registration Statement. A holder of Notes that sells such Notes
pursuant to the Shelf Registration Statement generally would be required to be
named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreements which are
applicable to such a holder (including certain indemnification obligations).
The Company will provide a copy of the Registration Rights Agreements to
prospective investors upon request.

GLOBAL EXCHANGE NOTE; BOOK-ENTRY FORM

The Exchange Notes initially exchanged by Qualified Institutional
Buyers (as defined in Rule 144A under the Securities Act) are represented by a
Global Exchange Note. The Global Exchange Note will be deposited on the
Exchange Date with DTC and registered in the name of DTC or its nominee (the
"Global Exchange Note Registered Owner"). Except as set forth below, the
Global Exchange Note may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee.

DTC is a limited-purpose trust company created to hold securities for
its participating organizations (collectively, the "Participants") and to
facilitate the clearance and settlement of transactions in those securities
between Participants through electronic book-entry changes in accounts of its
Participants. The Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may
beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interest and transfer
of ownership interest of each actual purchaser of each security held by or on
behalf of DTC are recorded on the records of the Participants and Indirect
Participants.

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Pursuant to procedures established by DTC, (i) upon deposit of the
Global Exchange Note, DTC will credit, on its internal system, the principal
amounts of the Exchange Notes of the individual beneficial interests
represented by such Global Exchange Note to the respective accounts of
exchanging Holders who have accounts with DTC and (ii) ownership of such
interests in the Global Exchange Note will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC
(with respect to the Participants) or by the Participants and the Indirect
Participants (with respect to other owners of beneficial interests in the
Global Exchange Note). The laws of some states require that certain persons
take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer Exchange Notes will be limited to that
extent.

Except as described below, owners of interests in the Global Exchange
Note will not have Exchange Notes registered in their names, will not receive
physical delivery of Exchange Notes in definitive form and will not be
considered the registered owners thereof under the Indenture for any purpose.

None of the Company, the Trustee, nor any agent of the Company or the
Trustee will have any responsibility or liability for (i) any aspect of DTC's
records or any Participant's or Indirect Participant's records relating to or
payments made on account of beneficial ownership interests in the Global
Exchange Note, or for maintaining, supervising or reviewing any of DTC's
records or any Participant's or Indirect Participant's records relating to the
beneficial ownership interests in the Global Exchange Note or (ii) any other
matter relating to the actions and practices of DTC or any of its Participants
or Indirect Participants.

Payments in respect of the principal of, premium, if any, and interest
on any Exchange Notes registered in the name of the Global Exchange Note
Registered Owner on any relevant record date will be payable by the Trustee to
the Global Exchange Note Registered Owner in its capacity as the registered
holder under the Indenture. Under the terms of the Indenture, the Company and
the Trustee will treat the persons in whose names the Exchange Notes, including
the Global Exchange Note, are registered as the owners thereof for the purpose
of receiving such payments and for any and all other purposes whatsoever.
Consequently, neither the Company, the Trustee, nor any agent of the Company or
the Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of the Exchange Notes or for any other matter
relating to actions or practices of DTC or any of its Participants or Indirect
Participants. The Company understands that DTC's current practice, upon
receipt of any payment in respect of securities such as the Exchange Notes
(including principal and interest), is to credit the accounts of the relevant
Participants with the payment on the payment date, in amounts proportionate to
their respective holdings in principal amount of beneficial interests in the
relevant security as shown on the records of DTC (unless DTC has reason to
believe it will not receive payment on such payment date). Payments by the
Participants and the Indirect Participants to the beneficial owners of Exchange
Notes will be governed by standing instructions and customary practices and
will not be the responsibility of DTC, the Trustee or the Company. Neither the
Company nor the Trustee will be liable for any delay by DTC or any of its
Participants or Indirect Participants in identifying the beneficial owners of
the Exchange Notes, and the Company and the Trustee may conclusively rely on
and will be protected in relying on instructions from the Global Exchange Note
Registered Owner for all purposes.

The Global Exchange Note is exchangeable for definitive certificated
Exchange Notes if (i) DTC notifies the Company that it is unwilling or unable
to continue as depositary for the Global Exchange Note or if the Company
determines that DTC is unable to continue as depositary and the Company
thereupon fails to appoint a successor depositary, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
the Exchange Notes in definitive certificated form, (iii) there shall have
occurred and be continuing an Event of Default or an event which after notice
or lapse of time would be an Event of Default with respect to the Exchange
Notes, or (iv) as provided in the last paragraph hereunder. Such definitive
certificated Exchange Notes shall be registered in the names of the owners of
the beneficial interests in the Global Exchange Note as provided by the
Participants. Exchange Notes in definitive certificated form will be fully
registered, without coupons, in minimum denominations of $1,000 and integral
multiples of $1,000 above the amount. Upon issuance of Exchange Notes in
definitive certificated form, the Trustee is required to register the Exchange
Notes in the name of, and cause the Exchange Notes to be delivered to, the
person or persons (or the nominee thereof) identified as the beneficial owner
as DTC shall direct.

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Although DTC has agreed to the foregoing procedures to facilitate
transfers of interest in the Global Exchange Note among Participants of DTC, it
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by DTC or its
Participants or Indirect Participants of their respective obligations under the
rules and procedures governing their operations.

The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Company believes to be reliable,
but the Company takes no responsibility for the accuracy thereof.

Subject to the restrictions on the transferability of the Outstanding
Notes, an Outstanding Note in definitive form will be issued upon the resale,
pledge or other transfer of any Outstanding Note or interest therein to any
person or entity that is not a Qualified Institutional Buyer or that does not
participate in DTC. Outstanding Notes sold to Accredited Investors within the
meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act will be issued in registered, certified form without interest coupons.
Such Outstanding Notes will be subject to certain restrictions on transfer.

PLAN OF DISTRIBUTION

Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
Prospectus in connection with any resale of such Exchange Notes. The
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Outstanding Notes where such Outstanding Notes were acquired as a
result of market-making activities or other trading activities. The Company
has agreed that for a period not to exceed 180 days after consummation of the
Exchange Offer, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.

The Company will not receive any proceeds from any sales of the
Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchase or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells the Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such Exchange Notes may
be deemed to be an "underwriter" within the meaning of the Securities Act, and
any profit on any such resale of Exchange Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal for the
Exchange Offer states that by so acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.

For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay certain expenses
incident to the Exchange Offer, other than commissions or concession of any
brokers or dealers, and will indemnify the holders of the Securities (including
any broker-dealers) against certain liabilities, including liabilities under
the Securities Act.

By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer agrees that,
upon receipt of notice from the Company of the happening of any event which
makes any statement in the Prospectus untrue in any material respect or which
request the making of any changes in the Prospectus in order to make the
statements therein not misleading (which notice the Company agrees to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of the
Prospectus until the Company has amended or supplemented the Prospectus to
correct such misstatement or omission and has furnished copies of the amended
or

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supplemental Prospectus to such broker-dealer. If the Company shall give any
such notice to suspend the use of the Prospectus, it shall extend the 90-day
period referred to above by the number of days during the period from and
including the date of the giving of such notice to and including when
broker-dealers shall have received copies of the supplemented or amended
Prospectus necessary to permit resales of the Exchange Notes.

LEGAL MATTERS

The validity of the issuance of the Exchange Notes offered hereby will
be passed upon for the Company by Gardere & Wynne, L.L.P., Dallas, Texas.

INDEPENDENT ACCOUNTANTS

The consolidated financial statements of the Company as of January 31,
1998 and 1997 and the related statements of operations, stockholder's equity
and cash flows for the years ended January 31, 1998 and 1997, the six months
ended January 31, 1996 and the year ended July 31, 1995 included elsewhere in
this Prospectus have been audited by Coopers & Lybrand L.L.P., independent
accountants, and are included herein in reliance on their report, which
includes an explanatory paragraph concerning the Company's ability to continue
as a going concern, given on the authority of that firm as experts in
accounting and auditing.

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<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . F-2

Financial Statements:

Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . F-3

Statement of Operations . . . . . . . . . . . . . . . . . . F-4

Statement of Stockholder's Equity . . . . . . . . . . . . . F-5

Statement of Cash Flows . . . . . . . . . . . . . . . . . . F-6

Notes to Financial Statements . . . . . . . . . . . . . . . F-7
</TABLE>

F-1
<PAGE> 98
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 (the "Company" or "TARC") as of January 31, 1998 and 1997
and the related statements of operations, stockholder's equity and cash flows
for the years ended January 31, 1998 and 1997, the six months ended January 31,
1996 and the year 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, 1998 and 1997, and the results of its
operations and its cash flows for the years ended January 31, 1998 and 1997,
the six months ended January 31, 1996 and the year 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 has historically incurred losses
and negative cash flow from operating activities as a result of limited
refinery operations that did not cover the fixed costs of maintaining the
refinery, increased working capital requirements, including debt service and
losses on refinery product sales and processing arrangements. There is no
assurance that the Company can complete its refinery construction and expansion
program, fund its future working capital requirements and achieve positive cash
flow from operations. 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 include any adjustments that might
result from the outcome of these uncertainties.

COOPERS & LYBRAND L.L.P.

Houston, Texas
April 30, 1998

F-2
<PAGE> 99
TRANSAMERICAN REFINING CORPORATION

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

<TABLE>
<CAPTION>
JANUARY 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>

ASSETS

Current assets:
Cash and cash equivalents ...................................... $ 10,021 $ 613
Restricted cash held in disbursement accounts .................. 71,563 --
Cash restricted for interest ................................... 32,823 --
Investments held in trust ...................................... 9,114 --
Accounts receivable ............................................ 870 --
Receivable from affiliates ..................................... -- 22
Other .......................................................... 1,346 654
------------ ------------
Total current assets ........................................ 125,737 1,289
------------ ------------
Property and equipment .......................................... 939,780 555,816
Less accumulated depreciation and amortization .................. 25,257 16,930
------------ ------------
Net property and equipment .................................. 914,523 538,886
------------ ------------
Restricted cash held in disbursement accounts ................... 60,166 --
Cash restricted for interest .................................... 16,348 --
Investments held in trust ....................................... 8,591 --
Receivable from affiliates ...................................... 1,655 393
Other assets, net ............................................... 68,429 23,673
------------ ------------
$ 1,195,449 $ 564,241
============ ============

LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities:
Accounts payable ............................................... $ 32,022 $ 20,033
Payable to affiliates .......................................... 6,976 7,094
Accrued liabilities ............................................ 9,528 14,976
Current maturities of long-term debt ........................... 6,710 --
------------ ------------
Total current liabilities ................................... 55,236 42,103
------------ ------------
Payable to affiliates ........................................... 3,825 6,674
Long-term debt, less current maturities ......................... 210,666 365,730
Notes payable to affiliate ...................................... 760,266 46,589
Investment in TransTexas ........................................ -- 20,706
Other ........................................................... 5,048 1,076
Commitments and contingencies (Note 14) ........................ -- --
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 ..................................... 439,566 248,513
Accumulated deficit ............................................ (279,458) (167,450)
------------ ------------
Total stockholder's equity .................................. 160,408 81,363
------------ ------------
$ 1,195,449 $ 564,241
============ ============
</TABLE>

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

F-3
<PAGE> 100
TRANSAMERICAN REFINING CORPORATION

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

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JANUARY 31, JANUARY 31, YEAR ENDED
-------------------------------------- ------------------------ JULY 31,
1998 1997 1996 1996 1995 1995
---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales ........................... $ -- $ 10,857 $ 176,229 $ 107,237 $ 71,035 $ 140,027
Other ................................... 2,828 -- 1 -- 551 552
---------- ---------- ---------- ---------- ---------- ----------
Total revenues ....................... 2,828 10,857 176,230 107,237 71,586 140,579
---------- ---------- ---------- ---------- ---------- ----------

Costs and expenses:
Cost of products sold ................... -- 11,544 185,277 110,052 73,862 149,087
Processing arrangements, net ............ (1,413) 7,090 -- -- -- --
Operations and maintenance .............. 11,834 23,945 12,482 7,910 7,727 12,299
Depreciation and amortization ........... 8,416 7,225 6,308 3,159 2,706 5,855
General and administrative .............. 19,196 11,848 12,610 7,438 8,442 13,614
Taxes other than income taxes ........... 3,369 4,200 2,731 649 2,088 4,170
Loss on purchase commitment ............. 7,824 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total costs and expenses ............. 49,226 65,852 219,408 129,208 94,825 185,025
---------- ---------- ---------- ---------- ---------- ----------
Operating loss ....................... (46,398) (54,995) (43,178) (21,971) (23,239) (44,446)
---------- ---------- ---------- ---------- ---------- ----------

Other income (expense):
Interest income ......................... 5,190 204 6,346 2,263 4 4,087
Interest expense ........................ (113,400) (73,503) (59,994) (32,180) (3,540) (31,354)
Interest capitalized ................... 92,954 68,840 41,543 26,202 3,509 18,850
Equity in income (loss) before
extraordinary item of
TransTexas ........................... 44,552 12,325 (2,584) (156) -- (2,428)
Other income (expense) .................. 5 56,535 2,106 (229) 116 2,451
---------- ---------- ---------- ---------- ---------- ----------
Total other income (expense) ......... 29,301 64,401 (12,583) (4,100) 89 (8,394)
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary items .................. (17,097) 9,406 (55,761) (26,071) (23,150) (52,840)

Extraordinary items:
Equity in extraordinary loss
of TransTexas ..................... (10,158) -- (11,497) -- -- (11,497)
Loss on the early
extinguishment of debt ............ (84,753) -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) .................... $ (112,008) $ 9,406 $ (67,258) $ (26,071) $ (23,150) $ (64,337)
========== ========== ========== ========== ========== ==========

Basic net income (loss) per share:
Income (loss) before
extraordinary items ................. $ (0.57) $ 0.31 $ (1.86) $ (0.87) $ (0.77) $ (1.76)
Extraordinary items .................... (3.16) -- (0.38) -- -- (0.38)
---------- ---------- ---------- ---------- ---------- ----------
$ (3.73) $ 0.31 $ (2.24) $ (0.87) $ (0.77) $ (2.14)
========== ========== ========== ========== ========== ==========

Diluted net income (loss) per share:
Income (loss) before extra-
ordinary items ...................... $ (0.57) $ 0.25 $ (1.86) $ (0.87) $ (0.77) $ (1.76)
Extraordinary items .................... (3.16) -- (0.38) -- -- (0.38)
---------- ---------- ---------- ---------- ---------- ----------
$ (3.73) $ 0.25 $ (2.24) $ (0.87) $ (0.77) $ (2.14)
========== ========== ========== ========== ========== ==========
</TABLE>

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

F-4
<PAGE> 101
TRANSAMERICAN REFINING CORPORATION

STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------------------- ADDITIONAL ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT PAID-IN CAPITAL DEFICIT EQUITY
------------ ------------ --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at 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 at July 31, 1995 ................... 30,000 300 248,513 (150,785) 98,028
Net loss ................................ -- -- -- (26,071) (26,071)
------------ ------------ ------------ ------------ ------------
Balance at January 31, 1996 ................ 30,000 300 248,513 (176,856) 71,957
Net income .............................. -- -- -- 9,406 9,406
------------ ------------ ------------ ------------ ------------
Balance at January 31,1997 ................. 30,000 300 248,513 (167,450) 81,363
Net loss ................................ -- -- -- (112,008) (112,008)
Stock repurchase by TransTexas .......... -- -- 124,485 -- 124,485
Purchase of warrants by parent .......... -- -- 10,398 -- 10,398
Allocation of debt issue
costs by TEC .......................... -- -- 30,768 -- 30,768
Contributions by TEC .................... -- -- 13,726 -- 13,726
Issuance of warrants .................... -- -- 11,676 -- 11,676
------------ ------------ ------------ ------------ ------------
Balance at January 31, 1998 ................ 30,000 $ 300 $ 439,566 $ (279,458) $ 160,408
============ ============ ============ ============ ============
</TABLE>

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

F-5
<PAGE> 102
TRANSAMERICAN REFINING CORPORATION

STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JANUARY 31, JANUARY 31, YEAR ENDED
----------------------------------- ---------------------- JULY 31,
1998 1997 1996 1996 1995 1995
--------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss) ............................. $(112,008) $ 9,406 $ (67,258) $ (26,071) $ (23,150) $ (64,337)
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Loss on the early extinguishment of debt .... 84,753 -- -- -- -- --
Depreciation and amortization ............... 8,416 7,225 6,308 3,159 2,706 5,855
Litigation .................................. -- -- 2,000 2,000 4,500 4,500
Amortization of discount on long-term debt .. 16,345 83 11,062 3,389 -- 7,673
Amortization of debt issue costs ............ 1,108 6 790 238 -- 552
Equity in net (income) loss of TransTexas ... (34,394) (12,325) 14,081 156 -- 13,925
Inventory write-down ........................ -- -- 5,671 4,406 -- 1,265
Gain on the sale of TransTexas stock ........ -- (56,162) -- -- -- --
Loss on disposition of equipment ............ -- 6,513 -- -- -- --
Changes in assets and liabilities:
Accounts receivable ....................... (870) 121 1,340 3,671 6,901 4,570
Inventories................................ -- 25 (4,070) 7,242 3,063 (8,249)
Other current assets ...................... (692) 4,825 (5,258) 1,765 (221) (7,244)
Accounts payable .......................... 2,631 4,000 (4,260) (1,675) (105) (2,690)
Payable to affiliate, net ................. 203 6,077 1,530 1,979 (765) (1,214)
Accrued liabilities ....................... (5,350) 953 (886) (3,132) (4,871) (2,625)
Other assets .............................. (3,533) 63 (2,818) (130) 562 (2,126)
Other liabilities ......................... 3,366 474 (157) -- (102) (259)
--------- --------- --------- --------- --------- ---------
Net cash used by operating activities .. (40,025) (28,716) (41,925) (3,003) (11,482) (50,404)
--------- --------- --------- --------- --------- ---------

Investing activities:
Capital expenditures .......................... (284,458) (86,581) (174,633) (119,565) (52,306) (107,374)
Prepaid capital expenditures .................. (24,216) -- -- -- -- --
Proceeds from the sale of TransTexas stock .... 136,158 42,607 -- -- -- --
Increase in investments held in trust ......... (17,706) -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Net cash used by investing activities .. (190,222) (43,974) (174,633) (119,565) (52,306) (107,374)
--------- --------- --------- --------- --------- ---------

Financing activities:
Issuance of long-term debt .................... 247,000 -- 300,750 -- -- 300,750
Issuance of notes payable to affiliate ........ 725,649 -- -- -- -- --
Retirement of long-term debt .................. (470,583) -- -- -- -- --
Increase in debt proceeds held in
disbursement accounts ....................... (425,404) (26,549) (173,000) -- -- (173,000)
Withdrawals from disbursement accounts ........ 293,675 50,949 148,595 116,452 -- 32,143
Increase in cash restricted for interest ...... (49,171) -- -- -- -- --
Advances from affiliates ...................... 15,026 49,152 17,333 16,698 86,925 87,560
Repayment of advances and notes payable
to affiliates ............................... (100,990) (1,925) (53,450) (13,450) (20,000) (60,000)
Capital contributions from affiliate .......... 13,726 -- -- -- -- --
Debt issue costs .............................. (7,981) -- (20,479) -- (3,126) (23,605)
Principal payments on capital lease and
seller financed obligations ................. (1,292) (1,103) (458) (458) -- --
--------- --------- --------- --------- --------- ---------
Net cash provided by financing
activities ............................ 239,655 70,524 219,291 119,242 63,799 163,848
--------- --------- --------- --------- --------- ---------
Increase (decrease) in cash
and cash equivalents .................. 9,408 (2,166) 2,733 (3,326) 11 6,070
Beginning cash and cash equivalents ............. 613 2,779 46 6,105 35 35
--------- --------- --------- --------- --------- ---------
Ending cash and cash equivalents ................ $ 10,021 $ 613 $ 2,779 $ 2,779 $ 46 $ 6,105
========= ========= ========= ========= ========= =========
</TABLE>

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

F-6
<PAGE> 103
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, a Texas corporation (the "Company"
or "TARC"), owns facilities for 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. 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. The refinery was operated
intermittently between March 1994 and January 1997 based on operating margins
and has continued to incur operating losses. In June 1997, TARC commenced a
two-phase construction and expansion program on its refinery designed to
increase the capacity and complexity of the refinery (the "Capital Improvement
Program"). See Note 2.

TARC is a wholly owned subsidiary of TransAmerican Energy Corporation
("TEC") which is a wholly owned subsidiary of TransAmerican. In 1994,
TransAmerican formed TEC to hold certain shares of common stock of TransTexas
Gas Corporation ("TransTexas") and all of TARC's capital stock.

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 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. Cash
equivalents in restricted accounts are excluded from cash and are classified in
accordance with the terms of the restrictions.

Inventories

TARC's inventories consist primarily of feedstocks and refined
products and 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.

Price Management Activities

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 that are beyond TARC's control.

F-7
<PAGE> 104
TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

From time to time, TARC enters into 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, "Accounting for Futures Contracts" ("SFAS 80"), gains and losses
associated with such transactions that meet the hedge criteria in SFAS 80 will
be deferred and recognized when the related products are sold. Those
transactions which do not meet the hedging criteria in SFAS 80 are recorded at
market value and marked to market each period resulting in a gain or a loss
which is recorded in other income in the period in which a change in market
value occurs.

Investments

Investments in fixed income securities are classified as held to
maturity and are carried at amortized cost. Short-term investments are carried
at cost, which approximates market value. The realized gain or loss on
investment transactions is determined on the basis of specific identification
and is included in earnings on the trade date.

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, including assets acquired under capital leases, is
computed using the straight-line method over the estimated useful lives of the
assets. 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. The cost of renewals and improvements are 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.

Maintenance Turnaround Costs

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 costs is
reasonably estimable.

F-8
<PAGE> 105
TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

Debt Issue Costs

Debt issue costs are deferred and amortized to interest expense over
the scheduled maturity of the debt utilizing the interest method.

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 $83,000, $75,000, $32,000, and $41,000 of expenses related to the
Defined Contribution Plan for the years ended January 31, 1998 and 1997, the
six months ended January 31, 1996 and the year ended July 31, 1995.

Revenue Recognition

TARC recognizes revenue from sales of refined products in the period
of delivery and other revenue in the period in which the service has been
provided.

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 on management's review of the 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. See Note 14.

TARC performs ongoing credit evaluations and, generally, requires no
collateral from its customers. For the year ended January 31, 1998, TARC
processed feedstocks from one customer which accounted for 100% of the net
processing arrangement income, and three customers accounted for 76% of storage
revenues. 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.

F-9
<PAGE> 106
TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

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, TNGC Holdings
Corporation ("TNGC"), TransAmerican, and TransAmerican's other direct and
indirect subsidiaries. Income taxes include federal and state income taxes.

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

As of January 31, 1998, TARC had implemented Statement of Financial
Accounting Standards No. 128, "Earnings per Share." Net income (loss) per
share has been restated for all periods presented to the extent applicable.
Basic net income per share is calculated by dividing net income available to
common shareholders by the weighted average number of shares of common stock.
Diluted net income per share is calculated by dividing net income available to
common shareholders by the weighted average number of shares of common stock
and potential shares of common stock. Warrants, if dilutive, are considered to
be potential shares of common stock for the purpose of diluted net income per
share. The treasury method is used to determine the potential shares of common
stock.

Weighted average shares outstanding used in calculating basic and
diluted net income (loss) per share ("EPS") are as follows in thousands:

<TABLE>
<CAPTION>
Six Months Ended
Year Ended January 31, January 31, Year Ended
---------------------------------------- ------------------------- July 31,
1998 1997 1996 1996 1995 1995
---------- ---------- ---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Common shares outstanding
for basic EPS ......................... 30,000 30,000 30,000 30,000 30,000 30,000
Dilutive effect of warrants ............. -- 7,458 -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Common shares and
potential common shares
outstanding for diluted EPS ........... 30,000 37,458 30,000 30,000 30,000 30,000
========== ========== ========== ========== ========== ==========
</TABLE>

Weighted average shares outstanding exclude potential common shares of
approximately 2,352,000 for the year ended January 31, 1998 and approximately
7,458,000 for the year ended January 31, 1996, the six months ended January 31,
1996 and the year ended July 31, 1995 because they are anti-dilutive.

F-10
<PAGE> 107
TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

Use of Estimates and Reclassifications

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date(s) of the financial
statements and the reported amounts of revenues and expenses during the
reporting period(s). Actual results could differ from those estimates.
Certain previously reported financial information has been reclassified to
conform with the current presentation. The reclassifications did not affect
net income (loss) or stockholder's equity.

Recently Issued Pronouncements

In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which
establishes standards for reporting and display of comprehensive income and its
components in financial statements. This statement will be adopted by TARC
effective February 1, 1998. TARC does not believe that adoption of this
statement will have a material impact on its financial statements.

In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start Up Activities,"
("SOP 98-5"), which provides guidance on the financial reporting of start-up
costs and organization costs. This statement of position will be adopted by
TARC effective February 1, 1998. Implementation of the statement requires
start-up activities, such as those related to the Capital Improvement Program,
to be expensed as incurred.

2. CAPITAL IMPROVEMENT PROGRAM

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 (the
"1995 Program") designed to reactivate the refinery and increase its
complexity. From February 1995 through May 1997, TARC spent approximately $251
million on the 1995 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 for its completion.

In June 1997, in connection with the TEC Notes Offering, the TARC
Intercompany Loan and the TARC Notes Tender Offer, TARC adopted the Capital
Improvement Program. The most significant projects include: (i) converting the
visbreaker unit into a delayed coking unit to process vacuum tower bottoms into
lighter petroleum products, (ii) modernizing and upgrading 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. In addition, TARC plans to expand, modify and add
other processing units, tankage and offsite facilities as part of the Capital
Improvement Program. The Capital Improvement Program includes expenditures
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. TARC will act as general contractor, but has engaged a
number of specialty consultants and engineering and construction firms to
assist TARC in completing the individual projects that comprise the Capital
Improvement Program. Each of these firms was selected because of its
specialized expertise in a particular process or unit integral to the Capital
Improvement Program.

F-11
<PAGE> 108
TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

The Capital Improvement Program will be executed in two phases. In
June 1997, TARC estimated that Phase I would be completed at a cost of $223
million, would be tested and operational by September 30, 1998 and would result
in the refinery having the capacity to process up to 200,000 Bpd of sour crude
oil. Phase II of the Capital Improvement Program includes the completion and
start-up of the Fluid Catalytic Cracking Unit utilizing state-of-the-art
MSCC(SM) technology and the installation of additional equipment expected to
further improve operating margins by allowing for a significant increase in the
refinery's capacity to produce gasoline. In June 1997, TARC estimated that
Phase II would be completed at a cost of $204 million and would be tested and
operational by July 31, 1999. TARC currently believes that actual expenditures
may exceed the budget by as much as $45 million (of which $36 million is
allocated to Phase I). Although there can be no assurance, TARC believes that
it will have cash sufficient to fund the remaining construction, and that both
Phase I and Phase II will be completed in advance of the Phase I completion
date required by the TEC Notes Indenture (as defined in Note 9). TARC
anticipates Mechanical Completion of the Delayed Coking Unit, the HDS Unit and
the related portion of the Sulfur Recovery System in May 1998. Upon Mechanical
Completion of these units, TARC will be able to purchase feedstocks using funds
in the TARC Disbursement Account reserved for such purpose. TARC believes that
the remainder of Phase I (other than the No. 2 Reformer) will reach Mechanical
Completion during the second quarter of fiscal 1999. TARC intends to defer
additional expenditures on the No. 2 Reformer until the fourth quarter of
fiscal 1999, ending January 31, 1999. TARC expects to complete both Phase I
and Phase II in advance of the Phase I completion date required by the TEC
Indenture. TARC spent approximately $215 million on the Capital Improvement
Program during the period between June 1997 and January 31, 1998. As of
January 31, 1998, TARC had commitments to spend another $83.3 million. The
foregoing estimates, as well as other estimates and projections herein, are
subject to substantial revision upon the occurrence of future events, such as
unavailability of financing, engineering problems, work stoppages and cost
overruns, over which TARC may not have any control, and there can be no
assurance that any such projections or estimates will prove accurate.

TARC believes, based on current estimates of refining margins and
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. 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, and in constructing and operating a large scale refinery, 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.

TARC has historically incurred losses and negative cash flow from
operating activities as a result of limited refinery operations that 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. There is no assurance that TARC can complete the
Capital Improvement Program, fund its future working capital requirements or
achieve positive cash flow from operations. As a result, there is substantial
doubt about TARC's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.

3. DISBURSEMENT ACCOUNTS

Pursuant to a disbursement agreement dated June 13, 1997, as amended
December 30, 1997 (the "Disbursement Agreement") among TARC, TEC, Firstar Bank
of Minnesota, N.A., as trustee (the "TEC Indenture Trustee"), Firstar Bank of
Minnesota, N.A., as disbursement agent (the "Disbursement Agent"), and Baker &
O'Brien, Inc., as construction supervisor (the "Construction Supervisor"), $208
million of the net proceeds from the sale of the TEC Notes (as defined in Note
9) was placed into accounts (collectively, the "TARC Disbursement Account") to
be held and invested by the Disbursement Agent until disbursed. TEC
disbursements for TARC expenditures will be treated as capital contributions.
In addition, proceeds to TEC and TARC of approximately $201 million from the
TransTexas share repurchase program have been deposited in the TARC
Disbursement Account. On December 30,

F-12
<PAGE> 109
TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

1997, TARC deposited $119 million of the net proceeds from the issuance of its
Series A Senior Subordinated Notes (defined in Note 8) into the TARC
Disbursement Account for use in the Capital Improvement Program. All funds in
the TARC Disbursement Account are pledged as security for the repayment of the
TEC Notes.

The Disbursement Agent will make disbursements for the Capital
Improvement Program out of the TARC Disbursement Account in accordance with
requests made by TARC and approved by the Construction Supervisor. The
Construction Supervisor is required to review each such disbursement request by
TARC. No disbursements may be made from the TARC Disbursement Account for
purposes other than the Capital Improvement Program other than (i) up to $1.5
million per month (except for December 1997, in which disbursements may be up
to $4.5 million) to fund administrative costs and certain taxes and insurance
payments, not in excess of $25.5 million in the aggregate; provided, that if
less than $1.5 million is spent in any month (or less than $4.5 million is
spent in December 1997) the amounts that may be disbursed in one or more
subsequent months will be increased by the amount of such difference, (ii) up
to $50 million for feedstock upon certification by the Construction Supervisor
of the Mechanical Completion (as defined in the TEC Notes Indenture) of the
Delayed Coking Unit and associated facilities, (iii) up to $19 million to pay
interest on, and to redeem, repurchase, defease, or otherwise retire the
remaining TARC Notes and (iv) up to $7 million for outstanding accounts
payable. In addition, interest income from the TARC Disbursement Account may
be used for the Capital Improvement Program or disbursed to fund administrative
and other costs of TARC and TEC. As of January 31, 1998, $225 million had been
disbursed to TARC out of the TARC Disbursement Account for use in the Capital
Improvement Program, $18 million for accounts payable and general and
administrative expenses and $19 million for payments of interest on, and the
redemption, repurchase and defeasance of the TARC Notes.

4. OTHER CURRENT ASSETS

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

<TABLE>
<CAPTION>
JANUARY 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Insurance prepayments ............................................ $ 949 $ 603
Tax prepayments .................................................. 335 --
Other ............................................................ 62 51
---------- ----------
$ 1,346 $ 654
========== ==========
</TABLE>

5. 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) 1998 1997
----------- -----------
<S> <C> <C> <C>
Land . . . . . . . . . . . . $ 18,435 $ 9,362
Refinery . . . . . . . . . . 20 to 30 898,835 532,428
Other . . . . . . . . . . . 3 to 10 22,510 14,026
----------- -----------
$ 939,780 $ 555,816
=========== ===========
</TABLE>

F-13
<PAGE> 110
TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

Approximately $97 million and $45 million of refinery assets were
being depreciated at January 31, 1998 and 1997, respectively. 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, TARC
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 $7.8 million,
$6.7 million, $2.9 million and $5.9 million in depreciation expense for the
years ended January 31, 1998 and 1997, the six months ended January 31, 1996
and the year ended July 31, 1995, respectively.

TARC believes, based on current estimates of refining margins and
projected 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.

6. OTHER ASSETS

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

<TABLE>
<CAPTION>
JANUARY 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Debt issue costs, net of accumulated amortization of
$2,477 and $6,445 at January 31, 1998 and 1997, respectively ................... $ 32,473 $ 17,482
Prepaid capital expenditures ..................................................... 24,217 --
Contractual rights and licenses, net of accumulated
amortization of $0 and $992 at January 31, 1998 and 1997 ....................... 3,500 5,979
Environmental escrow ............................................................. 5,062 --
Investment in TransTexas ......................................................... 2,015 --
Other ............................................................................ 1,162 212
---------- ----------
$ 68,429 $ 23,673
========== ==========
</TABLE>

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

During fiscal 1998, TARC charged to income $22.8 million in debt issue
costs (see Note 8) and $2.2 million of intangible costs in connection with the
acquisition of a tank storage facility.

7. ACCRUED LIABILITIES

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

F-14
<PAGE> 111
TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

<TABLE>
<CAPTION>
JANUARY 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Interest ................................................. $ 3,665 $ 7,608
Taxes other than income taxes ............................ 584 3,365
Maintenance turnarounds .................................. 2,673 1,909
Payroll .................................................. 1,343 599
Insurance ................................................ 641 748
Other .................................................... 622 747
---------- ----------
$ 9,528 $ 14,976
========== ==========
</TABLE>

8. LONG-TERM DEBT

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

<TABLE>
<CAPTION>
JANUARY 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Guaranteed First Mortgage Discount Notes due 2002 ................ $ 6,890 $ 269,606
Guaranteed First Mortgage Notes due 2002 ......................... 7,531 96,124
Acquisition Note ................................................. 36,000 --
Subordinated Notes due 2003 ...................................... 166,955 --
---------- ----------
Total long-term debt ....................................... 217,376 365,730
Less current maturities .......................................... 6,710 --
---------- ----------
$ 210,666 $ 365,730
========== ==========
</TABLE>

On February 23, 1995, TARC issued 340,000 A Units consisting of $340
million aggregate principal amount of 18 1/2% Guaranteed First Mortgage
Discount Notes due 2002 ("Discount Mortgage Notes") and 5,811,773 Common Stock
Purchase Warrants ("1995 Warrants"), and 100,000 B Units consisting of $100
million aggregate principal amount of 16 1/2% Guaranteed First Mortgage Notes
due 2002 ("Mortgage Notes" and, together with the Discount Mortgage Notes, the
"TARC Notes") and 1,683,540 1995 Warrants. 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. The TARC
Notes are senior obligations of TARC, collateralized as of January 31, 1998 by
a first priority lien on substantially all of TARC's property and assets and
pledges of 1.9 million shares of common stock of TransTexas and all of TARC's
outstanding common stock. The 1995 Warrants are exercisable at a price of
$0.01 per share and expire on February 15, 2002. TARC allocated $23.3 million
of the proceeds from the issuance of the TARC Notes to the 1995 Warrants based
on their estimated fair value.

TARC received approximately $301 million from the sale of A Units and
B Units. Net proceeds to TARC were approximately $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 to fund the 1995 Program.

On June 13, 1997, TEC completed a tender offer for all of the
outstanding 1995 Warrants at a price of $4.50 per warrant. Pursuant to the
tender offer, TEC purchased 7,320,552 1995 Warrants for an aggregate purchase
price of approximately $33 million. TransAmerican subsequently purchased
163,679 1995 Warrants for an aggregate purchase price of approximately $0.7
million. In December 1997, TransAmerican sold 11,100 1995 Warrants to an
unaffiliated third party. The remaining 1995 Warrants owned by TransAmerican,
as well as the 1995 Warrants

F-15
<PAGE> 112
TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

purchased by TEC in the tender offer, were contributed to TARC and cancelled.
As of January 31, 1998, there were 22,119 1995 Warrants outstanding.

On June 13, 1997, TARC completed a tender offer (the "TARC Notes
Tender Offer") for the (i) TARC Mortgage Notes for 112% of their principal
amount (plus accrued and unpaid interest) and (ii) TARC Discount Notes for 112%
of their accreted value. In connection with the TARC Notes Tender Offer, TARC
obtained consents from holders of the TARC Notes to certain waivers under, and
amendments to, the indenture governing the TARC Notes (the "TARC Notes
Indenture"), which eliminated or modified certain of the covenants and other
provisions contained in the TARC Notes Indenture. TARC Mortgage Notes and TARC
Discount Notes with an aggregate carrying value of $423 million were tendered
and accepted by TARC at a cost to TARC of approximately $437 million (including
accrued interest, premiums and other costs). As a result of the TARC Notes
Tender Offer, $22.8 million of debt issuance costs were written off and TARC
recorded a total extraordinary charge of $84.8 million during the year ended
January 31, 1998. On January 14, 1998, TARC called for redemption on February
17, 1998 approximately $7 million in aggregate principal amount of TARC Notes.
On January 16, 1998, TARC deposited, pursuant to an irrevocable trust
agreement, approximately $9.8 million in order to defease the remaining TARC
Notes. The amount deposited was invested in U.S. Treasury strip securities
which will yield on maturity amounts sufficient to pay the principal of the
remaining TARC Notes and interest thereon from the date of deposit to and
including the final redemption date, as well as a call premium of 6%. The
maturity dates of the strip securities coincide with the final redemption date
of February 15, 1999 and all scheduled interest payment dates occurring during
the period ending on such final redemption date. As of January 31, 1998, the
amortized cost of these investments approximated fair value. As of January 31,
1998, TARC Mortgage Notes and TARC Discount Notes with an aggregate carrying
value of approximately $14.4 million remained outstanding. On April 17, 1998,
the TARC Notes were defeased and the collateral securing the TARC Notes was
released.

On December 10, 1997, TARC issued to an unaffiliated third party a 13%
Senior Secured Note due 2002 (the "Acquisition Note") in the principal amount
of $36 million to finance a portion of the purchase price of a tank storage
facility purchased in September 1997. The Acquisition Note is secured by a
mortgage on the tank storage facility, and is governed by a Note Purchase
Agreement containing restrictive covenants substantially similar to those
contained in the TARC Intercompany Loan and the TEC Notes Indenture. The
Acquisition Note bears interest at 13%, payable semiannually on June 15 and
December 15, and matures on December 15, 2002.

On December 30, 1997, TARC issued in a private offering 175,000 Units
consisting of $175 million in aggregate principal amount of 16% Series A Senior
Subordinated Notes due 2003 (the "Series A Senior Subordinated Notes") and
175,000 common stock purchase warrants (the "December 1997 Warrants"). The
Series A Senior Subordinated Notes bear interest at 16%, payable semi-annually
on June 30 and December 30 and mature on June 30, 2003. The December 1997
Warrants will be exercisable on or after December 30, 1998 at a price of $0.01
per share and expire on June 20, 2003. Net proceeds to TARC, after deducting
fees and expenses of approximately $8 million, were approximately $167 million.
Net proceeds of $8.2 million from the sale of the Units was allocated to the
December 1997 Warrants. TARC deposited $119 million of the net proceeds into
the TARC Disbursement Account for use in the Capital Improvement Program and
deposited $42 million into an interest reserve account for interest payments on
the Series A Senior Subordinated Notes through June 30, 1999. The remaining $6
million of net proceeds was used for general corporate purposes including the
redemption and defeasance of the TARC Notes. The indenture governing the
Series A Senior Subordinated Notes contains certain restrictive covenants,
including, among others, limitations on incurring additional debt, asset sales,
dividends and transactions with affiliates.

On March 16, 1998, TARC issued in a private offering 25,000 Units
consisting of $25 million in aggregate principal amount of 16% Series C Senior
Subordinated Notes due 2003 (the "Series C Senior Subordinated Notes" and,
together with the Series A Senior Subordinated Notes, the "Senior Subordinated
Notes") and 25,000 warrants (the "March 1998 Warrants" and, together with the
December 1997 Warrants, the "Warrants") to purchase 333,606 shares of TARC
common stock. The Series C Subordinated Notes bear interest at 16%, payable
semiannually on June 30 and

F-16
<PAGE> 113
TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

December 30, and mature on June 30, 2003. The March 1998 Warrants will be
exercisable on or after December 30, 1998 at a price of $0.01 per share and
expire on June 20, 2003. Net proceeds to TARC, after deducting fees and
expenses of approximately $1.2 million, were approximately $26.2 million. Net
proceeds of approximately $2.8 million from the sale of the Units was allocated
to the March 1998 Warrants. TARC deposited $6 million into an interest reserve
account for interest payments on the Series C Senior Subordinated Notes from
December 30, 1997 through June 30, 1999. The remaining $20.2 million of net
proceeds has been or will be used for general corporate purposes. The
indenture governing the Series C Senior Subordinated Notes contains certain
restrictive covenants, including, among others, limitations on incurring
additional debt, asset sales, dividends and transactions with affiliates.

The fair value of the TARC Notes was approximately $16 million and
$404 million as of January 31, 1998 and 1997, respectively. The fair value of
the Series A Subordinated Notes was approximately $182 million as of January
31, 1998. Fair value is based on quoted market prices. Aggregate maturities
of long-term debt for the next five years are (in millions): fiscal year 1999
- - $7, 2000 - $8, 2001 - $0, 2002 - $0 and 2003 - $36.

9. NOTES PAYABLE TO AFFILIATES

TARC's notes payable to affiliates are as follows (in thousands of
dollars):

<TABLE>
<CAPTION>
JANUARY 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
TARC Intercompany Loan ........................................... $ 745,257 $ --
Note payable to affiliate ........................................ 15,009 46,589
---------- ----------
$ 760,266 $ 46,589
========== ==========
</TABLE>

On June 13, 1997, TEC completed a private offering (the "TEC Notes
Offering") of $475 million aggregate principal amount of its 11 1/2% Senior
Secured Notes due 2002 (the "Senior Secured Notes") and $1.13 billion aggregate
principal amount of its 13% Senior Secured Discount Notes due 2002 (the "Senior
Secured Discount Notes" and, together with the Senior Secured Notes, the "TEC
Notes") for net proceeds of approximately $1.3 billion. The TEC Notes are
senior obligations of TEC, secured by a lien on substantially all of its
existing and future assets, including intercompany loans made to TransTexas and
TARC. The indenture governing the TEC Notes (the "TEC Notes Indenture")
contains certain restrictive covenants, including, among others, limitations on
incurring additional debt, asset sales, dividends and transactions with
affiliates.

On June 13, 1997, with proceeds from the TEC Notes Offering, TEC made
an intercompany loan to TARC (the "TARC Intercompany Loan"). The TARC
Intercompany Loan (i) is in the original amount of $676 million, (ii) accretes
principal at 16% per annum, compounded semi-annually, until June 15, 1999, to a
final accreted value of $920 million, and thereafter pays interest
semi-annually in cash in arrears on the accreted value thereof, at a rate of
16% per annum and (iii) is currently secured by a security interest in
substantially all of TARC's assets other than Inventory, Receivables and
Equipment. The TARC Intercompany Loan will mature on June 1, 2002. The
agreement governing the TARC Intercompany Loan (the "Intercompany Loan
Agreement") contains certain restrictive covenants, including, among others,
limitations on incurring additional debt, asset sales, dividends and
transactions with affiliates. TARC used approximately $103 million of the
proceeds of the TARC Intercompany Loan to repay certain indebtedness, including
$36 million of senior secured notes of TARC that were issued in March 1997 and
$66 million of advances and notes payable owed to an affiliate, and used
approximately $437 million to complete the TARC Notes Tender Offer. Remaining
proceeds will be used for the Capital Improvement Program and for general
corporate purposes. TEC allocated $30.8 million of debt issuance costs to TARC
which are reflected as a contribution of capital. Such costs are being
amortized over the term of the TARC Intercompany Loan using the interest
method. Upon the occurrence of a Change of Control (as defined), TEC will be
required to make an offer to purchase all of the

F-17
<PAGE> 114
TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

outstanding TEC Notes at a price equal to 101% of the principal amount thereof,
together with accrued and unpaid interest, if any, or, in the case of any such
offer to purchase the Senior Secured Discount Notes prior to June 15, 1999, at
a price equal to 101% of the accreted value thereof, in each case, to and
including the date of purchase. Pursuant to the terms of the TARC Intercompany
Loan, TEC may require TARC to pay a pro rata share of the purchase price paid
by TEC in an offer to purchase pursuant to a Change of Control.

10. INCOME TAXES

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

<TABLE>
<CAPTION>
JANUARY 31,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
Deferred tax assets:
Receivable from TransAmerican in lieu of
federal net operating loss carryforwards .................... $ 125,097 $ 72,268
Safe harbor leases ............................................. 78,026 81,976
Other .......................................................... 6,117 355
---------- ----------
Gross deferred tax assets .................................... 209,240 154,599
Deferred tax liabilities:
Depreciation ................................................... 3,954 4,331
---------- ----------
Net deferred tax assets ...................................... 205,286 150,268
Valuation allowance ................................................ (205,286) (150,268)
---------- ----------
$ -- $ --
========== ==========
</TABLE>

A net deferred tax asset valuation allowance was recorded for each
respective period because it is unlikely that TARC will realize such deferred
tax assets. Changes in the net deferred tax asset valuation allowance were
primarily attributable to increases in tax loss carryforwards.

F-18
<PAGE> 115
TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

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 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 parties to the Tax Allocation
Agreement amended such agreement in May 1997 to include additional affiliates
as parties, and further amended the Tax Allocation Agreement in connection with
the transactions consummated in June 1997 to allocate to TransAmerican, as
among the parties, any tax liability associated with the sale by TransTexas of
its Lobo Trend subsidiary.

On a separate return basis, TARC has incurred approximately $357.4
million of regular tax net operating losses from inception through January 31,
1998. TARC's regular tax net operating losses incurred from inception through
January 31, 1998 would generally expire from 2004 through 2014. Under the Tax
Allocation Agreement, 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. At January 31, 1998,
TARC had generated NOL carryforwards of approximately $183.5 million which have
not been used by TransAmerican and which would expire in 2014.

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 $100 million at
January 31, 1998. 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.

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

F-19
<PAGE> 116
TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

Increase (decrease) in tax resulting from:
Net operating losses (utilized) not
utilizable ................................... 39,203 (3,292) 23,540 9,125 8,103 22,518
-------- -------- -------- -------- -------- --------
$ -- $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ======== ========
</TABLE>

11. 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. During 1996, TARC's original interest of 20.3% decreased to 14.1% when
TARC sold 4.55 million shares to unaffiliated third parties and recognized a
gain of $56.2 million on the sale of TransTexas Stock. During 1997, TARC's
interest decreased to 3.4% when TransTexas repurchased approximately 12.6
million shares from TARC and TEC for an aggregate purchase price of
approximately $201 million. TARC received $136.2 million of the purchase
price, of which $124.5 million (representing the excess of cash received over
TARC's carrying value of the stock sold) was recorded as a capital
contribution. In April 1998, TARC distributed its remaining shares of
TransTexas common stock to TEC. The equity in extraordinary loss of TransTexas
for the year ended January 31, 1998 represents TARC's equity in a charge by
TransTexas for the early retirement of its $800 million 11 1/2% Senior Secured
Notes due 2002 and an exchange offer by TransTexas for its Subordinated Notes.
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 TransTexas in June 1995 of $800 million in 11
1/2% Senior Secured Notes due 2002.

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

<TABLE>
<CAPTION>
JANUARY 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Total current assets ...................................... $ 82,714 $ 188,934
Property and equipment, net ............................... 701,598 846,393
Other assets .............................................. 32,323 17,825
------------ ------------
$ 816,635 $ 1,053,152
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Total current liabilities ................................. $ 104,836 $ 117,348
Total noncurrent liabilities .............................. 687,162 1,086,599
Total stockholders' equity (deficit) ...................... 24,637 (150,795)
------------ ------------
$ 816,635 $ 1,053,152
============ ============
</TABLE>

F-20
<PAGE> 117
TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JANUARY 31, JANUARY 31, YEAR ENDED
--------------------------------------- ------------------------ JULY 31,
1998 1997 1996 1996 1995 1995
--------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues ........................... $ 723,271 $ 406,347 $ 291,338 $ 141,156 $ 162,517 $ 312,699
Operating costs and expenses ....... 193,171 219,068 229,284 101,908 133,833 261,209
--------- --------- --------- --------- --------- ---------
Operating income ................. 530,100 187,279 62,054 39,248 28,684 51,490
Other expense ...................... (68,187) (91,463) (77,174) (40,436) (29,059) (65,797)
Income tax (expense) benefit ....... (161,669) (12,491) 2,700 416 131 2,415
--------- --------- --------- --------- --------- ---------
Income (loss) before
extraordinary item ............. 300,244 83,325 (12,420) (772) (244) (11,892)
Extraordinary item ................. (72,043) -- (56,637) -- -- (56,637)
--------- --------- --------- --------- --------- ---------
Net income (loss) ............... $ 228,201 $ 83,325 $ (69,057) $ (772) $ (244) $ (68,529)
========= ========= ========= ========= ========= =========
</TABLE>

12. TRANSACTIONS WITH AFFILIATES

F-21
<PAGE> 118
TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

In July 1996, TARC executed a promissory note to TransAmerican for up
to $25 million. The note bore interest at a rate of 15% per annum, payable
quarterly beginning October 31, 1996. On November 1, 1996, TARC executed an
additional $25 million promissory note to TransAmerican which bore interest at
15% per annum, payable quarterly beginning December 31, 1996 (together with the
first promissory note, the "TransAmerican Notes"). As of January 31, 1997,
TARC had approximately $44.4 million outstanding under the TransAmerican 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. All amounts outstanding under the TransAmerican Notes were
repaid on June 13, 1997.

F-22
<PAGE> 119
TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

During the year ended January 31, 1998, TEC contributed $13.5 million
to TARC for general corporate purposes pursuant to the Disbursement Agreement.

On December 30, 1997, TEC and TARC entered into an expense
reimbursement agreement pursuant to which TARC will reimburse TEC for certain
administrative, legal and accounting expenses and directors fees and will also
reimburse TEC for other expenses in an amount not to exceed $200,000 per year.
Since December 30, 1997, no such expenses were reimbursed to TEC.

Blackburn & Henderson, a law firm of which Mr. Henderson, a director
of TARC and TEC, is a partner, provides legal and other services to
TransAmerican and its affiliates for an annual fee of $96,000 plus expenses.

13. SUPPLEMENTAL CASH FLOW INFORMATION

The following information reflects TARC's cash paid for interest and
noncash investing and financing activities (in thousands of dollars):

<TABLE>
<CAPTION>
Six Months Ended
Year Ended January 31, January 31, Year Ended
----------------------------------- --------------------- July 31,
1998 1997 1996 1996 1995 1995
-------- -------- -------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Interest paid, net of amounts capitalized ........... $ 37,238 $ 2,426 $ 1,365 $ 836 $ -- $ 1,282

Noncash financing and investing activities:
Accretion on long-term debt capitalized
in property and equipment ....................... 74,716 49,109 29,306 18,186 -- 11,120
Accounts payable for property and equipment ....... 24,214 14,856 14,082 10,591 8,293 11,784
Debt issue costs from affiliate ................... 30,768 -- -- -- -- --
Cost in excess of warrants redeemed by affiliates . 10,398 -- -- -- -- --
Capital lease and seller financed obligations
incurred for property and equipment ............. 1,775 -- 2,544 1,643 66 967
Product financing arrangements .................... -- (37,206) 37,206 37,206 -- 27,671
Forgiveness of advances from TransAmerican
(including $25.0 million for property
and equipment transferred from TransAmerican
at net book value in 1994) ..................... -- -- 71,170 -- -- 71,170
Contribution of TransTexas stock .................. -- -- 37,176 -- -- 37,176
Issuance of Warrants for professional fees ........ 3,503 -- -- -- -- --
</TABLE>

14. COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

F-23
<PAGE> 120
TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

period covered by the Commissioner's Charge and the Determination, TARC and
Southeast Contractors estimate that they received a combined total of
approximately 23,000 to 30,000 employment applications and hired (or rehired) a
combined total of approximately 3,400 to 4,100 workers, although the total
number of individuals who ultimately are covered in any conciliation proposal
or any subsequent lawsuit may be higher. TARC and Southeast Contractors deny
engaging in any unlawful employment practices. TARC and Southeast Contractors
intend vigorously to defend against the allegations contained in the
Commissioner's Charge and the findings set forth in the Determination in any
proceedings in state or federal court, regardless of whether any such lawsuit
is brought by the EEOC or any individual or groups of individuals. If TARC or
Southeast Contractors is found liable for violations of Title VII based on the
matters asserted in the Determination, TARC can make no assurance that such
liability would not have a material adverse effect on its financial position,
results of operations or cash flow.

RINEHEART. On October 8, 1996, Carlton Gene Rineheart, et al., and as
representative of a class of persons similarly situated, filed suit against 84
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.

ENVIRONMENTAL MATTERS

F-24
<PAGE> 121
TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

subject of certain environmental enforcement actions, and has 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 financial
position, results of operations or cash flow.

F-25
<PAGE> 122
TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

final National Ambient Air Quality Standards ("NAAQS") that revise the
standards for particulate matter and ozone. The number and extent of the areas
subject to reformulated gasoline standards may increase in the future after the
NAAQS 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 refiners 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.

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 Title V Operating Permit is necessary for TARC
to produce at projected levels upon completion of the Capital Improvement
Program. TARC has submitted its Title V Operating Permit Application and the
LDEQ has designated the application as being administratively complete.
However, 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 it will be approved as submitted or
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.

F-26
<PAGE> 123
TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

was requested by the LDEQ. Based on the workplan submitted and additional
requests by the LDEQ, TARC believes that any further action will not have a
material adverse effect on its financial position, results of operations or
cash flow.

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, 1998, TARC had commitments for refinery
construction and maintenance of approximately $83.3 million. TARC is acting as
general contractor and can generally cancel or postpone capital projects.

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

F-27
<PAGE> 124
TRANSAMERICAN REFINING CORPORATION

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

feedstocks and refined products or fixed price purchase commitments. At
January 31, 1998 and 1997, TARC had no significant positions in open futures
contracts, options on futures, swap agreements or forward sales agreements. A
net trading gain of approximately $2.3 million was reflected in other income
(expense) for the year ended July 31, 1995. These transactions did not qualify
for hedge accounting treatment under the guidelines of SFAS 80; therefore,
gains or losses associated with these futures contracts have not been deferred.

PROCESSING AGREEMENTS

In April 1996, TARC entered into a processing agreement with a third
party to process feedstocks. Under the terms of the agreement, the processing
fee earned from the third party 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. As of January 31, 1998, TARC has
processed 6.4 million barrels of feedstocks under this agreement. TARC also
entered into processing agreements with this third party to process
approximately 1.1 million barrels of the third party's feedstocks for a fixed
price per barrel. For the years ended January 31, 1998 and 1997, TARC recorded
income (loss) from processing agreements of $1.4 million and $(7.1) million,
respectively. As of January 31, 1998, TARC was storing approximately 0.7
million barrels of feedstock and intermediate or refined products pursuant to
these processing agreements. Included in the 0.7 million barrels of product
stored at the refinery as of January 31, 1998, is approximately 0.6 million
barrels of feedstock owned by a third party related to a purchase commitment
entered into in April 1997. For the year ended January 31, 1998, TARC incurred
a loss of approximately $7.8 million related to this purchase commitment and
remains subject to market risk for these barrels.

OPERATING LEASES

As of January 31, 1998, TARC has long-term leases covering land and
other property and equipment. Rental expense was approximately $2.2 million,
$4.2 million, $1.9 million and $4 million, respectively, for the years ended
January 31, 1998 and 1997, the six months ended January 31, 1996 and the year
ended July 31,1995. 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, 1998, are as follows (in thousands of dollars):

<TABLE>
<S> <C>
1999 . . . . . . . . . . . . . $ 309
2000 . . . . . . . . . . . . . 309
2001 . . . . . . . . . . . . . . 281
2002 . . . . . . . . . . . . . . 258
2003 . . . . . . . . . . . . . . 200
Later years . . . . . . . . . . 1,163
---------
$ 2,520
=========
</TABLE>

F-28
<PAGE> 125
ANNEX A TO PROSPECTUS

GLOSSARY

"Alkylation" is a process of combining light hydrocarbon molecules to form
high-octane gasoline using a catalyst. Propane and butane by-products are sold
or used as refinery fuel depending on economics.

"API Gravity" is an indication of density of crude oil or other liquid
hydrocarbons as measured by a system recommended by the American Petroleum
Institute (API), measured in degrees. The lower the API Gravity, the heavier the
compound. For example, asphalt has an API Gravity of 8 degrees and gasoline has
an API Gravity of 50 degrees.

"Atmospheric residual oil" is the residual from the atmospheric
distillation of crude oil, which can also be used as a refinery feedstock.

"Btu" or "British Thermal Unit" means the quantity of heat required to
raise the temperature of one pound of water by one degree Fahrenheit.

"Catalytic reforming" is a process which produces high-octane blending
stock for the manufacture of gasoline.

"Coking" means the thermal destruction of vacuum tower bottoms to provide
lighter hydrocarbons, leaving behind a carbonaceous material called "coke."

"Complexity" is a measure of a refinery's downstream processing and
upgrading capacity. A higher complexity rating indicates a greater ability to
upgrade crude oil into higher valued products.

"Crude oil" means the oil as produced from the well; unrefined petroleum.

"Crude oil capacity" means the crude oil processing capacity of the
refinery.

"Crude slate" or "slate" is a listing of the various crudes that are
processed in a refinery.

"Distillate" or "middle distillate" means the mid-boiling range liquid
hydrocarbons distilled from crude oil or condensate, including kerosene, diesel
fuel, and No. 2 fuel oil.

"dwt" means deadweight-ton; a designation for the size or displacement of a
ship.

"Feedstocks" are hydrocarbons such as crude oil and natural gas liquids,
that are processed in a refinery or blended directly into refined products.

"Fluid catalytic cracking" or "FCC" is a refinery process for converting
vacuum gas oils or other intermediate feedstocks at high temperature in the
presence of a catalyst to produce lighter products such as gasoline and blend
stocks for home heating oil and fuel oil. Catalytic cracking greatly enhances
the efficiency of a refinery by converting a greater percentage of hydrocarbon
compounds to gasoline and other light distillates.

"Gross refining margin" is the difference between the value of refined
products and the cost of feedstocks expressed in dollars per barrel of crude oil
processed.

"Hydrodesulfurization" ("HDS") or "Hydrotreating" is the process of
removing sulfur from a hydrocarbon stream in the presence of hydrogen and a
catalyst.

"KWH" means kilowatt-hour.

A-1
<PAGE> 126
"LPG" means liquefied petroleum gas, primarily propane and butane.

"LSWR" means low sulfur waxy residual oil.

"LT/D" means long tons per day.

"MTBE" means methyl tertiary butyl ether, an oxygenated, high-octane
blending component which is used in the production of environmentally sensitive
low polluting gasoline.

"Olefins" are a class of unsaturated hydrocarbons.

"Refinery conversion" refers to the ability of a refinery to convert low
value intermediate hydrocarbon streams to high-value refined products.

"Refined products" means the products such as gasoline, diesel fuel, jet
fuel, and residual fuel, that are produced by a refinery.

"Sour crude" means oil typically containing 2.0% weight of sulfur or more.

"Vacuum gas oil" or "VGO" is produced in the vacuum distillation of crude
oil and is a feedstock to the catalytic cracking unit.

"Vacuum tower bottoms" means the residue produced from the vacuum tower
which serves as feedstock for the Delayed Coking Unit.

"Yield" means the percentage of refined products that are produced from
feedstocks.

A-2
<PAGE> 127

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

All tendered Outstanding Notes, executed Letters of Transmittal and
other related documents should be directed to the Exchange Agent as follows:

By Registered or Certified Mail:

First Union National Bank
1525 W. T. Harris Boulevard
Charlotte, North Carolina 28288-1153
Attention: Corporate Trust Department

By Overnight Mail or Hand Delivery:

First Union National Bank
1525 W. T. Harris Boulevard
Charlotte, North Carolina 28288-1153
Attention: Corporate Trust Department

By Facsimile:

First Union National Bank
Attention: Corporate Trust Department
(704) 590-7626
Confirm by Telephone: (704)590-7408

(Originals of all documents submitted by facsimile should be sent promptly by
hand, overnight delivery, or registered or certified mail.)

Questions and requests for assistance and requests for additional
copies of the Prospectus, the Letter of Transmittal and other related documents
should be directed to the Information Agent at the telephone number and address
set forth below. You may also contact your broker, dealer, commercial bank,
trust company and other nominee for assistance concerning the Exchange Offer.

D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
Banks and Brokers, Call Collect: (212) 425-1395
All Others, Call Toll-Free: (800) [ - ]

No person has been authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Prospectus and the accompanying Letter of Transmittal, and, if given or made,
such information or representations must not be relied upon as having been
authorized. Neither the Prospectus nor the accompanying Letter of Transmittal
nor both together constitute an offer to sell or the solicitation of an offer
to buy any securities other than the securities to which the Prospectus relates
or an offer to sell or the solicitation of an offer to buy such securities in
any circumstances in which such offer or solicitation is unlawful. Neither the
delivery of this Prospectus or the Letter of Transmittal or both together nor
any exchange made hereunder shall, under any circumstances, create any
implication that the information contained or incorporated by reference herein
is correct as of any time subsequent to the date herein or that there has been
no change in the affairs of the Company since such date.

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

TRANSAMERICAN REFINING
CORPORATION

OFFER TO EXCHANGE

$200,000,000
16% SERIES B SENIOR SUBORDINATED NOTES
DUE 2003

FOR

ALL OUTSTANDING

$175,000,000
16% SERIES A SENIOR SUBORDINATED NOTES
DUE 2003

AND

$25,000,000
16% SERIES C SENIOR SUBORDINATED NOTES
DUE 2003

PROSPECTUS
___________, 1998

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

<PAGE> 128
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Articles of Incorporation provide that the directors of
the Company shall be indemnified by the Company to the fullest extent permitted
by Texas law. In addition, the Company's Bylaws require it to indemnify its
directors and officers against any and all liability and reasonable expense
that may be incurred by them in connection with or resulting from (i) any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigate, (ii) an appeal of such an
action, suit or proceeding, or (iii)an inquiry or investigation that could lead
to such an action, suit or proceeding, all to the fullest extent permitted by
Texas law.

The Company expects to enter into indemnification agreements with its
directors that will contractually provide for indemnification and expense
advancement and will include related provisions meant to facilitate the
indemnitees' receipt of such benefits. In addition, the Company expects to
purchase customary directors' and officers' liability insurance policies for
its directors and officers. The Bylaws of the Company and agreements with
directors and officers also provide for indemnification for amounts (i) in
respect of the deductibles for such insurance policies and (ii) that exceed the
liability limits of such insurance policies. Such indemnification may be made
even though directors and officers would not otherwise be entitled to
indemnification under other provisions of the Bylaws or such agreements.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

2.1 - Stock Transfer Agreement dated as of February 23, 1995, between
TARC, TEC and TransAmerican (filed as an exhibit to TARC's and
TEC's Current Report on Form 8-K dated March 23, 1995, and
incorporated herein by reference).

3.1 - Articles of Incorporation of TARC (filed as an exhibit to TARC's
and TEC's Registration Statement on Form S-1 (No. 33-82200), and
incorporated herein by reference).

3.2 - By-laws of TARC (filed as an exhibit to TARC's and TEC's
Registration Statement on Form S-1 (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 (filed as an exhibit to TARC's and
TEC's Current Report on Form 8-K dated February 23, 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 (filed as an
exhibit to TARC's and TEC's Current Report on Form 8-K dated
February 23, 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 (filed as an
exhibit to TARC's and TEC's Current Report on Form 8-K dated
February 23, 1995, and incorporated herein by reference).

II-1
<PAGE> 129
4.4 - Security Agreement dated as of February 23, 1995, from TARC to
First Fidelity Bank, National Association, as Trustee (filed as an
exhibit to TARC's and TEC's Current Report on Form 8-K dated
February 23, 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 (filed as an
exhibit to TARC's and TEC's Current Report on Form 8-K dated
February 23, 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 (filed as an exhibit to TARC's
and TEC's Current Report on Form 8-K dated February 23, 1995, and
incorporated herein by reference).

4.7 - Registration Rights Agreement dated as of February 23, 1995,
between TransTexas, TARC, and TEC (filed as an exhibit to TARC's
and TEC's Current Report on Form 8-K dated February 23, 1995, and
incorporated herein by reference).

4.8 - First Supplemental Indenture dated as of February 24, 1997 among
TARC, TEC and First Union National Bank, f/k/a First Fidelity
Bank, N.A. (filed as an exhibit to TARC's Annual Report on Form
10-K for the year ended January 31, 1997, and incorporated herein
by reference).

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
(filed as an exhibit to TARC's Annual Report on Form 10-K for the
year ended January 31, 1997, and incorporated herein by
reference).

4.10 - Pledge Agreement dated as of March 14, 1997, from TARC to First
Union National Bank, as Trustee (filed as an exhibit to TARC's
Annual Report on Form 10-K for the year ended January 31, 1997,
and incorporated herein by reference).

4.11 - Security Agreement dated as of March 14, 1997, from TARC to First
Union National Bank, as Trustee (filed as an exhibit to TARC's
Annual Report on Form 10-K for the year ended January 31, 1997,
and incorporated herein by reference).

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 (filed as an exhibit to TARC's Annual Report on
Form 10-K for the year ended January 31, 1997, and incorporated
herein by reference).

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 (filed as an exhibit to
TARC's Annual Report on Form 10-K for the year ended January 31,
1997, and incorporated herein by reference).

4.14 - Second Supplemental Indenture dated June 13, 1997 between TARC, as
issuer, TransAmerican Energy Corporation, as guarantor, and First
Union National Bank, as trustee (filed as an exhibit to TARC's
current report on Form 8-K dated June 13, 1997, and incorporated
herein by reference).

4.15 - Loan Agreement dated June 13, 1997 between TARC and TransAmerican
Energy Corporation (filed as an exhibit to TARC's current report
on Form 8-K dated June 13, 1997, and incorporated herein by
reference).

II-2
<PAGE> 130
4.16 - Security and Pledge Agreement dated June 13, 1997 by TARC in favor
of TransAmerican Energy Corporation (filed as an exhibit to TARC's
current report on Form 8-K dated June 13, 1997, and incorporated
herein by reference).

4.17 - Disbursement Agreement dated June 13, 1997 among TARC,
TransAmerican Energy Corporation, Firstar Bank of Minnesota, N.A.,
as disbursement agent and trustee, and Baker & O'Brien, Inc., as
construction supervisor (filed as an exhibit to TARC's current
report on Form 8-K dated June 13, 1997, and incorporated herein by
reference).

4.18 - Form of Mortgage dated June 13, 1997 between TARC and
TransAmerican Energy Corporation (filed as an exhibit to TARC's
quarterly report on Form 10-Q for the quarter ended July 31, 1997,
and incorporated herein by reference).

4.19 - First Amendment dated December 30, 1997 to Loan Agreement between
TARC and TEC (filed as an exhibit to TARC's annual report on Form
10-K for the year ended January 31, 1998, and incorporated herein
by reference).

4.20 - First Amendment dated December 30, 1997 to Disbursement Agreement
among TARC, TEC, Firstar Bank of Minnesota, N.A. and Baker &
O'Brien (filed as an exhibit to TARC's annual report on Form 10-K
for the year ended January 31, 1998, and incorporated herein by
reference).

4.21 - Indenture dated December 30, 1997 between TARC and First Union
National Bank, as trustee, with respect to the $200 million Series
A Senior Subordinated Notes, including the form of Note as an
exhibit (filed as an exhibit to TARC's annual report on Form 10-K
for the year ended January 31, 1998, and incorporated herein by
reference).

4.22 - Warrant Agreement dated December 30, 1997 between TARC and First
Union National Bank, as Warrant Agent, with respect to 175,000
common stock purchase warrants (the "December 1997 Warrants"),
including the form of warrant as an exhibit (filed as an exhibit
to TARC's annual report on Form 10-K for the year ended January
31, 1998, and incorporated herein by reference).

4.23 - Registration Rights Agreement dated December 30, 1997 between TARC
and the holders of the Series A Senior Subordinated Notes (filed
as an exhibit to TARC's annual report on Form 10-K for the year
ended January 31, 1998, and incorporated herein by reference).

4.24 - Securityholders' and Registration Rights Agreement dated December
30, 1997 between TARC, Jefferies & Company, Inc., as the
Purchaser, and the holders of the December 1997 Warrants (filed as
an exhibit to TARC's annual report on Form 10-K for the year ended
January 31, 1998, and incorporated herein by reference).

4.25 - Third Supplemental Indenture dated January 16, 1998 between TARC,
TEC and First Union National Bank (filed as an exhibit to TARC's
annual report on Form 10-K for the year ended January 31, 1998,
and incorporated herein by reference).

4.26 - Irrevocable Trust and Security Agreement dated January 16, 1998
between TARC and First Union National Bank (filed as an exhibit to
TARC's annual report on Form 10-K for the year ended January 31,
1998, and incorporated herein by reference).

4.27 - Indenture dated March 16, 1998 between TARC and First Union
National Bank, as trustee, with respect to the $25 million Series
C Senior Subordinated Notes, including the form of Note as an
exhibit (filed as an exhibit to TARC's annual report on Form 10-K
for the year ended January 31, 1998, and incorporated herein by
reference).

II-3
<PAGE> 131
4.28 - Warrant Agreement dated March 16, 1998 between TARC and First
Union National Bank, as Warrant Agent, with respect to 25,000
common stock purchase warrants (the "March 1998 Warrants"),
including the form of warrant as an exhibit (filed as an exhibit
to TARC's annual report on Form 10-K for the year ended January
31, 1998, and incorporated herein by reference).

4.29 - Registration Rights Agreement dated March 16, 1998 between TARC
and the holders of the Series C Senior Subordinated Notes (filed
as an exhibit to TARC's annual report on Form 10-K for the year
ended January 31, 1998, and incorporated herein by reference).

4.30 - Securityholders' and Registration Rights Agreement dated March 16,
1998 between TARC, Jefferies & Company, Inc., as the Purchaser,
and the holders of the March 1998 Warrants (filed as an exhibit to
TARC's annual report on Form 10-K for the year ended January 31,
1998, and incorporated herein by reference).

4.31 - Note Purchase Agreement dated December 10, 1997 between TARC and
Merrill Lynch Corporate Bond Fund, Inc. - High Income Portfolio
(filed as an exhibit to TARC's annual report on Form 10-K for the
year ended January 31, 1998, and incorporated herein by
reference).

**5.1 - Legal opinion of Gardere & Wynne, L.L.P.

10.1 - Services Agreement dated August 24, 1993, by and among TARC, TEC,
TransTexas and TransAmerican, as amended (filed as an exhibit to
TARC's and TEC's Registration Statement on Form S-1 (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 (filed as an exhibit to TARC's and TEC's
Registration Statement on Form S-1 (No. 33-82200), and incorporated
herein by reference).

10.3 - Indemnification Agreement by and between TARC and each of its
directors (filed as an exhibit to TARC's and TEC's Registration
Statement on Form S-1 (No. 33-82200), and incorporated herein by
reference).

10.4 - Interruptible Gas Sales Terms and Conditions dated between TARC and
TransTexas, as amended (filed as an exhibit to TARC's and TEC's
Registration Statement on Form S-1 (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 (filed as an exhibit to TARC's and
TEC's Registration Statement on Form S-1 (No. 33-82200), and
incorporated herein by reference).

10.6 - Processing Agreement dated March 20, 1996 by and between TARC and
J. Aron & Company (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 (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. (filed as an exhibit to TARC's Form 10-Q for the quarter ended
April 30, 1996, and incorporated herein by reference).

II-4
<PAGE> 132
10.9 - Services Agreement dated June 13, 1997 by and among TNGC Holdings
Corporation, TransAmerican Natural Gas Corporation, TransAmerican
Energy Corporation, TransTexas Gas Corporation, TransTexas Drilling
Services, Inc. and TARC (filed as an exhibit to TARC's quarterly
report on Form 10-Q for the quarter ended July 31, 1997, and
incorporated herein by reference).

10.10 - Asset Purchase Agreement dated September 19, 1997 between GATX
Terminals Corporation and TARC (filed as an exhibit to TARC's
quarterly report on Form 10-Q for the quarter ended October 31,
1997, and incorporated herein by reference).

*12.1 - Ratio of Earnings to Fixed Charges.

21.1 - Schedule of Subsidiaries (filed as an exhibit to TARC's and TEC's
Registration Statement on Form S-1 (No. 33-82200), and incorporated
herein by reference).

*23.1 - Consent of Coopers & Lybrand L.L.P.

**23.2 - Consent of Gardere & Wynne, L.L.P. (set forth in Exhibit 5.1).

*25.1 - Statement of Eligibility of Trustee re: 16% Senior Subordinated
Notes due 2003 (Form T-1).

*99.1 - Letter of Transmittal and Notice of Guaranteed Delivery.

- ----------
* Filed herewith.
** To be filed by amendment.

ITEM 22. UNDERTAKINGS.

The undersigned registrant hereby undertakes:

(1) That, for purposes of determining any liability under the Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this registration statement as of
the time it was declared effective.

(2) That, for the purpose of determining any liability under the Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

(3) That, insofar as indemnification for liabilities arising under
the Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such

II-5
<PAGE> 133
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

(4) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.

(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it
became effective.

II-6
<PAGE> 134

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 28h day of May, 1998.

TRANSAMERICAN REFINING CORPORATION

By: /s/ R. Glenn McGinnis
----------------------------------
R. Glenn McGinnis, President and
Chief Executive Officer

POWER OF ATTORNEY

Each of the undersigned hereby appoints R. Glenn McGinnis and Edwin
B. Donahue, and each of them, as attorney and agent for the undersigned, with
full power of substitution, for and in the name, place and stead of the
undersigned, to sign and file with the Securities and Exchange Commission under
the Securities Act any and all amendments (including post-effective amendments)
and exhibits to this Registration Statement and any and all applications,
instruments, and other documents to be filed with the Securities and Exchange
Commission pertaining to the registration of the securities covered hereby,
with full power and authority to do and perform any and all acts and things
whatsoever requisite or desirable.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on May 28, 1998.

<TABLE>
<CAPTION>
Name Title
---- -----
<S> <C>
/s/ R. Glenn McGinnis President and Chief Executive Officer
- ------------------------------------- (Principal Executive Officer)
R. Glenn McGinnis

/s/ Ed Donahue Vice President and Secretary
- ------------------------------------- (Principal Financial and Accounting Officer)
Ed Donahue

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

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

/s/ John R. Stanley Chairman of the Board
- -------------------------------------
John R. Stanley
</TABLE>

II-7

<PAGE> 135

INDEX TO EXHIBITS

3.1 - Articles of Incorporation of TARC (filed as an exhibit to TARC's
and TEC's Registration Statement on Form S-1 (No. 33-82200), and
incorporated herein by reference).

3.2 - By-laws of TARC (filed as an exhibit to TARC's and TEC's
Registration Statement on Form S-1 (No. 33-82200), and
incorporated herein by reference).

<PAGE> 136
4.4 - Security Agreement dated as of February 23, 1995, from TARC to
First Fidelity Bank, National Association, as Trustee (filed as an
exhibit to TARC's and TEC's Current Report on Form 8-K dated
February 23, 1995, and incorporated herein by reference).

<PAGE> 137
4.16 - Security and Pledge Agreement dated June 13, 1997 by TARC in favor
of TransAmerican Energy Corporation (filed as an exhibit to TARC's
current report on Form 8-K dated June 13, 1997, and incorporated
herein by reference).

<PAGE> 138
4.28 - Warrant Agreement dated March 16, 1998 between TARC and First
Union National Bank, as Warrant Agent, with respect to 25,000
common stock purchase warrants (the "March 1998 Warrants"),
including the form of warrant as an exhibit (filed as an exhibit
to TARC's annual report on Form 10-K for the year ended January
31, 1998, and incorporated herein by reference).

**5.1 - Legal opinion of Gardere & Wynne, L.L.P.

10.8 - Processing Agreement dated April 22, 1996 between TARC and Glencore
Ltd. (filed as an exhibit to TARC's Form 10-Q for the quarter ended
April 30, 1996, and incorporated herein by reference).

<PAGE> 139
10.9 - Services Agreement dated June 13, 1997 by and among TNGC Holdings
Corporation, TransAmerican Natural Gas Corporation, TransAmerican
Energy Corporation, TransTexas Gas Corporation, TransTexas Drilling
Services, Inc. and TARC (filed as an exhibit to TARC's quarterly
report on Form 10-Q for the quarter ended July 31, 1997, and
incorporated herein by reference).

*12.1 - Ratio of Earnings to Fixed Charges.

21.1 - Schedule of Subsidiaries (filed as an exhibit to TARC's and TEC's
Registration Statement on Form S-1 (No. 33-82200), and incorporated
herein by reference).

*23.1 - Consent of Coopers & Lybrand L.L.P.

**23.2 - Consent of Gardere & Wynne, L.L.P. (set forth in Exhibit 5.1).

*25.1 - Statement of Eligibility of Trustee re: 16% Senior Subordinated
Notes due 2003 (Form T-1).

*99.1 - Letter of Transmittal and Notice of Guaranteed Delivery.

- ----------
* Filed herewith.
** To be filed by amendment.

<PAGE> 1
EXHIBIT 12.1

TransAmerican Refining Corporation
Ratio of Earnings to Fixed Charges
(In thousands of dollars)

<TABLE>
<CAPTION>
Six Months Ended
Year Ended January 31, January 31, Year Ended July 31,
---------------------------------- ---------------------- ----------------------------------
1998 1997 1996 1996 1995 1995 1994 1993
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before taxes $(112,008) $ 9,406 $ (67,258) $ (26,071) $ (23,150) $ (64,337) $ (17,353) $ (19,373)

Add:

Equity in (income) loss of
TransTexas (34,394) (12,325) 14,081 156 -- 13,925 -- --
Interest expense, net of
amounts capitalized 20,446 4,663 18,451 5,978 31 12,504 14 17
Portion of rental expense
representative of an
interest factor 747 834 794 378 360 790 357 186
--------- --------- --------- --------- --------- --------- --------- ---------
Earnings(A) $(125,209) $ 2,578 $ (33,932) $ (19,559) $ (22,759) $ (37,118) $ (16,982) $ (19,170)
========= ========= ========= ========= ========= ========= ========= =========
Fixed charges:
Total interest $ 113,400 $ 73,503 $ 59,994 $ 32,180 $ 3,540 $ 31,354 $ 14 $ 17
Portion of rental expense
representative of an
interest factor 747 834 794 378 360 790 357 186
--------- --------- --------- --------- --------- --------- --------- ---------
Fixed Charges(B) $ 114,147 $ 74,337 $ 60,788 $ 32,558 $ 3,900 $ 32,144 $ 371 $ 203
========= ========= ========= ========= ========= ========= ========= =========
Ratio of earnings to fixed
charges(A/B) -- -- -- -- -- -- -- --
========= ========= ========= ========= ========= ========= ========= =========
Earnings inadequate to cover
fixed charges $ 239,356 $ 71,759 $ 94,720 $ 52,117 $ 26,659 $ 69,262 $ 17,353 $ 19,373
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the use in the Registration Statement on Form S-4 of
TransAmerican Refining Corporation as filed with the Securities and Exchange
Commission on May 28, 1998 of our report dated April 30, 1998 relating to our
audit of the balance sheet of TransAmerican Refining Corporation as of January
31, 1998 and 1997 and the related statements of operations, stockholder's
equity and cash flows for the years ended January 31, 1998 and 1997, the six
months ended January 31, 1996 and the year ended July 31, 1995. We also
consent to the reference to our firm under the caption "Independent
Accountants."

COOPERS & LYBRAND L.L.P.

Houston, Texas
May 28, 1998

<PAGE> 1
EXHIBIT 25.1

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM T-1

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

STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE

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

FIRST UNION NATIONAL BANK
(Exact name of trustee as specified in its charter)

United States National Bank 56-0900030
(Jurisdiction of incorporation if (I.R.S. employer
not a national bank) identification no.)

First Union National Bank
90 State House Square - 2nd Floor
Hartford, CT 06103
(860) 692-7216
Attn: W. Jeffrey Kramer
(Address of Principal Executive Offices)

Same as above
-------------
(Name, address and telephone number, including
area code, of trustee's agent for service)

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

76-0229632
(I.R.S. employer identification no.)

TEXAS
(State or other jurisdiction of incorporation or organization)

$200,000,000 16% Series B Senior Subordinated Notes due 2003
(Title of Indenture Securities)

----------------------
<PAGE> 2

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

1300 NORTH SAM HOUSTON PARKWAY EAST
SUITE 320, HOUSTON, TEXAS 77032-2949
(281)986-8811

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

ED DONAHUE, VICE PRESIDENT AND SECRETARY
1300 NORTH SAM HOUSTON PARKWAY EAST
SUITE 320, HOUSTON, TEXAS 77032-2949
(281)986-8811

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

WITH A COPY TO:
C. ROBERT BUTTERFIELD
GARDERE & WYNNE, L.L.P.
3000 THANKSGIVING TOWER
DALLAS, TEXAS 75201
(214) 999-3000

(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)

APPROXIMATE DATE OF COMMENCEMENT OF SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

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

- 2 -
<PAGE> 3
1. General Information. Furnish the following information as to the
trustee:

(a) Name and address of each examining or supervising authority to
which it is subject.

- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Federal Reserve Bank of Richmond, VA Richmond, VA

Comptroller of the Currency Washington, D.C.

Securities and Exchange Commission Division
of Market Regulation Washington, D.C.

Federal Deposit Insurance Corporation Washington, D.C.

(b) Whether it is authorized to exercise corporate trust powers.

The Trustee is authorized to exercise corporate trust powers.

2. Affiliations with obligor and underwriters. If the obligor or any
underwriter for the obligor is an affiliate of the trustee, describe
each such affiliation.

None.

(See Note 1 on Page 6.)

Because the obligor is not in default on any securities issued under indentures
under which the applicant is trustee, Items 3 through 15 are not required
herein.

16. List of Exhibits.

All exhibits identified below are filed as a part of this statement of
eligibility.

1. A copy of the Articles of Association of First Union National
Bank as now in effect, which contain the authority to commence
business and a grant of powers to exercise corporate trust
powers is filed with the T-1 for Production Resource Group
LLC, as filed with the Securities and Exchange Commission on
May 11, 1998 as Registration No. 333-46235.

2. A copy of the certificate of authority of the trustee to
commence business, if not contained in the Articles of
Association is filed with the T-1 for Production

- 3 -
<PAGE> 4
Resource Group LLC, as filed with the Securities and Exchange
Commission on May 11, 1998 as Registration No. 333-46235.

3. A copy of the authorization of the trustee to exercise
corporate trust powers, if such authorization is not contained
in the documents specified in exhibits (1) or (2) above is
filed with the T-1 for Production Resource Group LLC, as filed
with the Securities and Exchange Commission on May 11, 1998 as
Registration No. 333-46235.

4. A copy of the existing By-laws of the trustee, or instruments
corresponding thereto is filed with the T-1 for Production
Resource Group LLC, as filed the Securities and Exchange
Commission on May 11, 1998 as Registration No. 333-46235.

5. Inapplicable.

6. The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939 is included at Page 5 of this Form
T-1 Statement.

7. A copy of the latest report of condition of the trustee
published pursuant to law or to the requirements of its
supervising or examining authority is filed with the T-1 for
Production Resource Group LLC as filed with the Securities and
Exchange Commission on May 11, 1998 as Registration Statement
333-46235.

8. Inapplicable.

9. Inapplicable.

- 4 -
<PAGE> 5
NOTE

Note 1: Inasmuch as this Form T-1 is filed prior to the ascertainment
by the Trustee of all facts on which to base a responsible answer to Item 2,
the answer to said Item is based on incomplete information. Item 2 may,
however, be considered correct unless amended by an amendment to this Form T-1.

SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, First Union National Bank, a national association
organized and existing under the laws of the United States of America, has duly
caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Hartford, and State of Connecticut, on the 26th day of May, 1998.

FIRST UNION NATIONAL BANK
(trustee)

By: /s/ W. Jeffrey Kramer
--------------------------------
W. Jeffrey Kramer
Vice President

CONSENT OF TRUSTEE

Under Section 321(b) of the Trust Indenture Act of 1939, as amended,
and in connection with the proposed issuance by the Obligor of the 16% Series B
Senior Subordinated Notes Due 2003, First Union National Bank as the trustee
herein named, hereby consents that reports of examinations of said Trustee by
Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.

FIRST UNION NATIONAL BANK

By: /s/ W. Jeffrey Kramer
----------------------------
W. Jeffrey Kramer
Vice President

Dated: May 26, 1998

- 5 -

<PAGE> 1

TRANSAMERICAN REFINING CORPORATION
LETTER OF TRANSMITTAL
FOR
TENDER OF ALL OUTSTANDING
16% SERIES A SENIOR SUBORDINATED NOTES DUE 2003
AND
16% SERIES C SENIOR SUBORDINATED NOTES DUE 2003
IN EXCHANGE FOR
16% SERIES B SENIOR SUBORDINATED NOTES DUE 2003

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED (THE "EXPIRATION DATE")

OUTSTANDING NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE

DELIVER TO THE EXCHANGE AGENT:

FIRST UNION NATIONAL BANK

<TABLE>
<S> <C> <C>
By Mail: By Facsimile: By Hand or Overnight Courier:
FIRST UNION NATIONAL BANK (704) 590-7626 FIRST UNION NATIONAL BANK
1525 W.T. Harris Boulevard 1525 W.T. Harris Boulevard
Charlotte, North Carolina Confirm by Telephone Charlotte, North Carolina
28288-1153 28288-1153
Attention: Corporate Trust (704) 590-7408 Attention: Corporate Trust
Department Department
</TABLE>

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

DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED.

The undersigned hereby acknowledges receipt and review of the Prospectus
dated , 1998 (the "Prospectus") of TransAmerican Refining
Corporation, a Texas corporation (the "Company"), and this Letter of Transmittal
(the "Letter of Transmittal"), which together describe the Company's offer (the
"Exchange Offer") to exchange its 16% Series B Senior Subordinated Notes due
2003 (the "Exchange Notes"), which have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement
of which the Prospectus is a part, for an equal aggregate principal amount of
its issued and outstanding 16% Series A Senior Subordinated Notes due 2003 and
16% Series C Senior Subordinated Notes due 2003 (the "Outstanding Notes").
Capitalized terms used but not defined herein have the respective meaning given
to them in the Prospectus.

The Company reserves the right, at any time or from time to time, to extend
the Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the latest date to which the Exchange Offer is extended. The Company
shall notify the holders of the Outstanding Notes of any extension by
announcement thereof, prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.

This Letter of Transmittal is to be used by a holder of Outstanding Notes
if original Outstanding Notes, if available, are to be forwarded herewith or an
Agent's Message is to be used if delivery of Outstanding Notes is to be made by
book-entry transfer to the account maintained by the Exchange Agent at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedures set forth in the Prospectus under the caption "The Exchange Offer --
Procedures for Tendering." Holders of Outstanding Notes whose Outstanding Notes
are not immediately available, or who are unable to deliver their Outstanding
Notes and all other documents required by this Letter of Transmittal to the
Exchange Agent on or prior to the Expiration Date, or who are unable to complete
the procedure for book-entry transfer on a timely basis, must tender their
Outstanding Notes according to the guaranteed delivery procedures set forth in
the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures." See Instructions 1 and 2. Delivery of documents to the Book-Entry
Transfer Facility does not constitute delivery to the Exchange Agent.

The term "holder" with respect to the Exchange Offer means any person in
whose name Outstanding Notes are registered on the books of the Company or any
other person who has obtained a properly completed bond power from the
registered holder. The undersigned has completed, executed and delivered this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer. Holders who wish to tender their Outstanding
Notes must complete this Letter of Transmittal in its entirety.
<PAGE> 2

PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.

THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.

List below the Outstanding Notes to which this Letter of Transmittal
relates. If the space below is inadequate, list the registered numbers and
principal amounts on a separate signed schedule and affix the list to this
Letter of Transmittal.

<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OUTSTANDING NOTES TENDERED
- -------------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED
HOLDER(S) EXACTLY AS NAME(S)
APPEAR(S) ON OUTSTANDING NOTES
(PLEASE FILL IN, IF BLANK) OUTSTANDING NOTE(S) TENDERED
- -------------------------------------------------------------------------------------------------------------------------
AGGREGATE PRINCIPAL PRINCIPAL
REGISTERED AMOUNT REPRESENTED BY AMOUNT
NUMBER(S)* NOTE(S) TENDERED**
- -------------------------------------------------------------------------------------------------------------------------

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

- -------------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Unless otherwise indicated, any tendering holder of Outstanding Notes will be deemed to have tendered the entire
aggregate principal amount represented by such Outstanding Notes. All tenders must be in integral multiples of
$1,000.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>

[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE ENCLOSED HEREWITH.

[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:

Name(s) of Tendering Institution: __________________________________________

Account Number: ____________________________________________________________

Transaction Code Number: ___________________________________________________

[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING:

Name(s) of Registered holder(s) of Outstanding Notes: ______________________

Date of Execution of Notice of Guaranteed Delivery: ________________________

Window Ticket Number (if available): _______________________________________

Name of Eligible Institution that Guaranteed Delivery: _____________________

Account Number (if delivered by book-entry transfer): ______________________

[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:

Name: __________________________________________________________________

Address: _______________________________________________________________
<PAGE> 3

SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY

Ladies and Gentlemen:

Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company for exchange the principal amount of Outstanding
Notes indicated above. Subject to and effective upon the acceptance for exchange
of the principal amount of Outstanding Notes tendered in accordance with this
Letter of Transmittal, the undersigned hereby exchanges, assigns and transfers
to the Company all right, title and interest in and to the Outstanding Notes
tendered for exchange hereby. The undersigned hereby irrevocably constitutes and
appoints the Exchange Agent, the agent and attorney-in-fact of the undersigned
(with full knowledge that the Exchange Agent also acts as the agent of the
Company in connection with the Exchange Offer) with respect to the tendered
Outstanding Notes with full power of substitution to (i) deliver such
Outstanding Notes, or transfer ownership of such Outstanding Notes on the
account books maintained by the Book-Entry Transfer Facility, to the Company and
deliver all accompanying evidences of transfer and authenticity, and (ii)
present such Outstanding Notes for transfer on the books of the Company and
receive all benefits and otherwise exercise all rights of beneficial ownership
of such Outstanding Notes, all in accordance with the terms of the Exchange
Offer. The power of attorney granted in this paragraph shall be deemed to be
irrevocable and coupled with an interest.

The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the
Outstanding Notes tendered hereby and to acquire the Exchange Notes issuable
upon the exchange of such tendered Outstanding Notes, and that the Company will
acquire good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim,
when the same are accepted for exchange by the Company.

The undersigned acknowledge(s) that this Exchange Offer is being made in
reliance upon interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the "SEC"),
including Exxon Capital Holdings Corporation, SEC No-Action Letter (available
April 13, 1989), Morgan Stanley & Co. Inc., SEC No-Action Letter (available June
5, 1991) (the "Morgan Stanley Letter") and Mary Kay Cosmetics, Inc., SEC
No-Action Letter (available June 5, 1991), that the Exchange Notes issued in
exchange for the Outstanding Notes pursuant to the Exchange Offer may be offered
for resale, resold and otherwise transferred by holders thereof (other than (i)
a broker-dealer who purchased Outstanding Notes exchanged for such Exchange
Notes directly from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act and (ii) an affiliate of the
Company), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such holders' business and such holders are not
participating in, and have no arrangement with any person to participate in, the
distribution of such Exchange Notes. The undersigned specifically represent(s)
to the Company that (i) any Exchange Notes acquired in exchange for Outstanding
Notes tendered hereby are being acquired in the ordinary course of business of
the person receiving such Exchange Notes, whether or not the undersigned, (ii)
the undersigned is not participating in, and has no arrangement with any person
to participate in, the distribution of Exchange Notes, and (iii) neither the
undersigned nor any such other person is an "affiliate" (as defined in Rule 405
under the Securities Act) of the Company or a broker-dealer tendering
Outstanding Notes acquired directly from the Company for its own account.

If the undersigned or the person receiving the Exchange Notes is a
broker-dealer that is receiving Exchange Notes for its own account pursuant to
the Exchange Offer, the undersigned acknowledges that it or such other person
will deliver a prospectus in connection with any resale of such Exchange Notes.
The undersigned acknowledges that if the undersigned is participating in the
Exchange Offer for the purpose of distributing the Exchange Notes (i) the
undersigned cannot rely on the position of the staff of the SEC in the Morgan
Stanley Letter and similar SEC no-action letters, and, in the absence of an
exemption therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes, in which case the registration statement must
contain the selling security holder information required by Item 507 or Item
508, as applicable, of Regulation S-K of the SEC, and (ii) a broker-dealer that
delivers such a prospectus to purchasers in connection with such resales will be
subject to certain of the civil liability provisions under the Securities Act
and will be bound by the provisions of the Registration Rights Agreement
(including certain indemnification rights and obligations).

The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Outstanding
Notes tendered hereby, including the transfer of such Outstanding Notes on the
account books maintained by the Book-Entry Transfer Facility.

For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered Outstanding Notes when, as and if the
Company gives oral or written notice thereof to the Exchange Agent. Any tendered
Outstanding Notes that are not accepted for exchange pursuant to the Exchange
Offer for any reason will be returned, without expense, to the undersigned at
the address shown below or at a different address as may be indicated herein
under "Special Delivery Instructions" as promptly as practicable after the
Expiration Date.
<PAGE> 4

All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.

The undersigned acknowledges that the Company's acceptance of properly
tendered Outstanding Notes pursuant to the procedures described under the
caption "The Exchange Offer -- Procedures for Tendering" in the Prospectus and
in the instructions hereto will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of the
Exchange Offer. The undersigned further acknowledges its obligations under the
Registration Rights Agreement as applicable to the Exchange Offer and the
Registration Statement of which the Prospectus is a part.

Unless otherwise indicated under "Special Issuance Instructions," please
issue the Exchange Notes issued in exchange for the Outstanding Notes accepted
for exchange and return any Outstanding Notes not tendered or not exchanged, in
the name(s) of the undersigned. Similarly, unless otherwise indicated under
"Special Delivery Instructions," please mail or deliver the Exchange Notes
issued in exchange for the Outstanding Notes accepted for exchange and any
Outstanding Notes not tendered or not exchanged (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signature(s). In the event that both the "Special Issuance Instructions" and
"Special Delivery Instructions" are completed, please issue the Exchange Notes
issued in exchange for the Outstanding Notes accepted for exchange in the
name(s) of, and return any Outstanding Notes not tendered or not exchanged to,
the person(s) so indicated. The undersigned recognizes that the Company has no
obligation pursuant to the "Special Issuance Instructions" and "Special Delivery
Instructions" to transfer any Outstanding Notes from the name of the registered
holder(s) thereof if the Company does not accept for exchange any of the
Outstanding Notes so tendered for exchange.
<PAGE> 5
- ------------------------------------------------------------------------------

SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)

To be completed ONLY if (i) Outstanding Notes in a principal amount not
tendered, or Exchange Notes issued in exchange for Outstanding Notes accepted
for exchange, are to be issued in the name of someone other than the undersigned
or (ii) Outstanding Notes tendered by book-entry transfer which are not
exchanged are to be reissued by credit to an account maintained at the Book-
Entry Transfer Facility.

ISSUE EXCHANGE NOTES AND/OR OUTSTANDING NOTES TO:

NAME: ________________________________________________________________________
(Please Type or Print)

______________________________________________________________________________

ADDRESS: _____________________________________________________________________

______________________________________________________________________________
(Include Zip Code)

______________________________________________________________________________
(Tax Identification or Social Security Number)

(Complete Substitute Form W-9)

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

SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)

To be completed ONLY if Outstanding Notes in a principal amount not tendered, or
Exchange Notes issued in exchange for Outstanding Notes accepted for exchange,
are to be mailed or delivered to someone other than the undersigned, or to the
undersigned at an address other than that shown below the undersigned's
signature.

MAIL OR DELIVER EXCHANGE NOTES AND/OR OUTSTANDING NOTES TO:

NAME: ________________________________________________________________________
(Please Type or Print)

______________________________________________________________________________

ADDRESS: _____________________________________________________________________

______________________________________________________________________________
(Include Zip Code)

______________________________________________________________________________
(Tax Identification or Social Security Number)

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

[ ] Credit unexchanged Outstanding Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below:
Book-Entry Transfer Facility Account Number: _____________________________
<PAGE> 6
- -------------------------------------------------------------------------------
IMPORTANT
PLEASE SIGN HERE WHETHER OR NOT
OUTSTANDING NOTES ARE BEING PHYSICALLY TENDERED HEREBY
(Complete Accompanying Substitute Form W-9 on Reverse Side)

X ______________________________________________________________________________

X ______________________________________________________________________________
(Signature(s) of Registered Holders of Outstanding Notes)

Dated: __________________________________________________________________ , 1998

(The above lines must be signed by the registered holder(s) of Outstanding Notes
as name(s) appear(s) on the Outstanding Notes or on a security position listing,
or by person(s) authorized to become registered holder(s) by a properly
completed bond power from the registered holder(s), a copy of which must be
transmitted with this Letter of Transmittal. If Outstanding Notes to which this
Letter of Transmittal relate are held of record by two or more joint holders,
then all such holders must sign this Letter of Transmittal. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
then such person must (i) set forth his or her full title below and (ii) unless
waived by the Company, submit evidence satisfactory to the Company of such
person's authority so to act. See Instruction 5 regarding the completion of this
Letter of Transmittal, printed below.)

Name(s): _______________________________________________________________________
(Please Type or Print)

Capacity: ______________________________________________________________________

Address: _______________________________________________________________________

________________________________________________________________________________
(Include Zip Code)

Area Code and Telephone Number: ________________________________________________

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

MEDALLION SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 5)

Certain signatures must be Guaranteed by an Eligible Institution.

Signature(s) Guaranteed by an Eligible Institution: ____________________________
(Authorized Signature)

________________________________________________________________________________
(Title)

________________________________________________________________________________
(Name of Firm)

________________________________________________________________________________
(Address, Include Zip Code)

________________________________________________________________________________
(Area Code and Telephone Number)

Dated: __________________________________________________________________ , 1998

- -------------------------------------------------------------------------------
<PAGE> 7

INSTRUCTIONS

FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER

1. Delivery of this Letter of Transmittal and Outstanding Notes or
Book-Entry Confirmation. All physically delivered Outstanding Notes or any
confirmation of a book-entry transfer to the Exchange Agent's account at the
Book-Entry Transfer Facility of Outstanding Notes tendered by book-entry
transfer (a "Book-Entry Confirmation"), as well as a properly completed and duly
executed copy of this Letter of Transmittal or facsimile hereof or Agent's
Message, and any other documents required by this Letter of Transmittal, must be
received by the Exchange Agent at its address set forth herein prior to 5:00
p.m., New York City time, on the Expiration Date. The method of delivery of the
tendered Outstanding Notes, this Letter of Transmittal and all other required
documents to the Exchange Agent is at the election and risk of the holder and,
except as otherwise provided below, the delivery will be deemed made only when
actually received or confirmed by the Exchange Agent. Instead of delivery by
mail, it is recommended that the holder use an overnight or hand delivery
service. In all cases, sufficient time should be allowed to assure delivery to
the Exchange Agent before the Expiration Date. No Letter of Transmittal or
Outstanding Notes should be sent to the Company.

2. Guaranteed Delivery Procedures. Holders who wish to tender their
Outstanding Notes and whose Outstanding Notes are not immediately available or
who cannot deliver their Outstanding Notes, this Letter of Transmittal or any
other documents required hereby to the Exchange Agent prior to the Expiration
Date or who cannot complete the procedure for book-entry transfer on a timely
basis and deliver an Agent's Message, must tender their Outstanding Notes
according to the guaranteed delivery procedures set forth in the Prospectus.
Pursuant to such procedures: (i) such tender must be made by or through a firm
which is a member of a registered national securities exchange or of the
National Association of Securities Dealers Inc., a commercial bank or a trust
company having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(an "Eligible Institution"); (ii) prior to the Expiration Date, the Exchange
Agent must have received from the Eligible Institution a properly completed and
duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or
hand delivery) setting forth the name and address of the holder of the
Outstanding Notes, the registration number(s) of such Outstanding Notes and the
total principal amount of Outstanding Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within three New York Stock Exchange
trading days after the Expiration Date, this Letter of Transmittal (or facsimile
hereof) together with the Outstanding Notes in proper form for transfer (or a
Book-Entry Confirmation) and any other documents required hereby, must be
deposited by the Eligible Institution with the Exchange Agent within three New
York Stock Exchange trading days after the Expiration Date; and (iii) the
certificates for all physically tendered shares of Outstanding Notes, in proper
form for transfer (or a Book-Entry Confirmation, as the case may be) and all
other documents required hereby are received by the Exchange Agent within three
New York Stock Exchange trading days after the Expiration Date.

Any holder of Outstanding Notes who wishes to tender Outstanding Notes
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery prior to 5:00
p.m., New York City time, on the Expiration Date. Upon request of the Exchange
Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to
tender their Outstanding Notes according to the guaranteed delivery procedures
set forth above.

See "The Exchange Offer -- Guaranteed Delivery Procedures" section of the
Prospectus.

3. Tender of Holder. Only a holder of Outstanding Notes may tender such
Outstanding Notes in the Exchange Offer. Any beneficial holder of Outstanding
Notes who is not the registered holder and who wishes to tender should arrange
with the registered holder to execute and deliver this Letter of Transmittal on
his behalf or must, prior to completing and executing this Letter of Transmittal
and delivering his Outstanding Notes, either make appropriate arrangements to
register ownership of the Outstanding Notes in such holder's name or obtain a
properly completed bond power from the registered holder.

4. Partial Tenders. Tenders of Outstanding Notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Outstanding Notes is tendered, the tendering holder should fill in the principal
amount tendered in the third column of the box entitled "Description of
Outstanding Notes Tendered" above. The entire principal amount of Outstanding
Notes delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated. If the entire principal amount of all Outstanding
Notes is not tendered, then Outstanding Notes for the principal amount of
Outstanding Notes not tendered and Exchange Notes issued in exchange for any
Outstanding Notes accepted will be sent to the holder at his or her registered
address, unless a different address is provided in the appropriate box on this
Letter of Transmittal, promptly after the Outstanding Notes are accepted for
exchange.

5. Signatures on this Letter of Transmittal; Bond Powers and Endorsements;
Medallion Guarantee of Signatures. If this Letter of Transmittal (or facsimile
hereof) is signed by the record holder(s) of the Outstanding Notes tendered
hereby, the signature must correspond with the name(s) as written on the face of
the Outstanding Notes without alteration, enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by a participant
in the Book-Entry Transfer Facility, the signature must correspond with the name
as it appears on the security position listing as the holder of the Outstanding
Notes.
<PAGE> 8

If this Letter of Transmittal (or facsimile hereof) is signed by the
registered holder or holders of Outstanding Notes listed and tendered hereby and
the Exchange Notes issued in exchange therefor are to be issued (or any
untendered principal amount of Outstanding Notes is to be reissued) to the
registered holder, the holder need not and should not endorse any tendered
Outstanding Notes, nor provide a separate bond power. In any other case, such
holder must either properly endorse the Outstanding Notes tendered or transmit a
properly completed separate bond power with this Letter of Transmittal, with the
signatures on the endorsement or bond power guaranteed by an Eligible
Institution.

If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered holder or holders of any Outstanding Notes listed,
such Outstanding Notes must be endorsed or accompanied by appropriate bond
powers, in each case signed as the name of the registered holder or holders
appears on the Outstanding Notes.

If this Letter of Transmittal (or facsimile hereof) or any Outstanding
Notes or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and, unless waived by the Company, evidence satisfactory to the Company
of their authority to act must be submitted with this Letter of Transmittal.

Endorsements on Outstanding Notes or signatures on bond powers required by
this Instruction 5 must be guaranteed by an Eligible Institution.

No signature guarantee is required if (i) this Letter of Transmittal (or
facsimile hereof) is signed by the registered holder(s) of the Outstanding Notes
tendered herein (or by a participant in the Book-Entry Transfer Facility whose
name appears on a security position listing as the owner of the tendered
Outstanding Notes) and the Exchange Notes are to be issued directly to such
registered holder(s) (or, if signed by a participant in the Book-Entry Transfer
Facility, deposited to such participant's account at such Book-Entry Transfer
Facility) and neither the box entitled "Special Delivery Instructions" nor the
box entitled "Special Registration Instructions" has been completed, or (ii)
such Outstanding Notes are tendered for the account of an Eligible Institution.
In all other cases, all signatures on this Letter of Transmittal (or facsimile
hereof) must be guaranteed by an Eligible Institution.

6. Special Registration and Delivery Instructions. Tendering holders should
indicate, in the applicable box or boxes, the name and address (or account at
the Book-Entry Transfer Facility) to which Exchange Notes or substitute
Outstanding Notes for principal amounts not tendered or not accepted for
exchange are to be issued or sent, if different from the name and address of the
person signing this Letter of Transmittal. In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.

7. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Outstanding Notes pursuant to the Exchange Offer.
If, however, Exchange Notes or Outstanding Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered holder
of the Outstanding Notes tendered hereby, or if tendered Outstanding Notes are
registered in the name of any person other than the person signing this Letter
of Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Outstanding Notes pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with this Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering holder.

EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OUTSTANDING NOTES LISTED IN THIS LETTER
OF TRANSMITTAL.

8. Tax Identification Number. Federal income tax law requires that a holder
of any Outstanding Notes which are accepted for exchange must provide the
Company (as payer) with its correct taxpayer identification number ("TIN"),
which, in the case of a holder who is an individual is his or her social
security number. If the Company is not provided with the correct TIN, the holder
may be subject to a $50 penalty imposed by Internal Revenue Service. (If
withholding results in an over-payment of taxes, a refund may be obtained).
Certain holders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional instructions.

To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of failure
to report all interest or dividends or (ii) the Internal Revenue Service has
notified the holder that such holder is no longer subject to backup withholding.
If the Outstanding Notes are registered in more than one name or are not in the
name of the actual owner, see the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for information on which
TIN to report.

The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligations regarding backup
withholding.
<PAGE> 9

9. Validity of Tenders. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of tendered
Outstanding Notes will be determined by the Company in its sole discretion,
which determination will be final and binding. The Company reserves the absolute
right to reject any and all Outstanding Notes not properly tendered or any
Outstanding Notes the Company's acceptance of which would, in the opinion of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right to waive any conditions of the Exchange Offer or defects or irregularities
in tenders as to particular Outstanding Notes. The Company's interpretation of
the terms and conditions of the Exchange Offer (including this Letter of
Transmittal and the instructions hereto) shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Outstanding Notes must be cured within such time as the Company shall
determine. Neither the Company, the Exchange Agent nor any person shall be under
any duty to give notification of defects or irregularities with regard to
tenders of Outstanding Notes nor shall any of them incur any liability for
failure to give such notification.

10. Waiver of Conditions. The Company reserves the absolute right to waive,
in whole or part, any of the conditions to the Exchange Offer set forth in the
Prospectus.

11. No Conditional Tender. No alternative, conditional, irregular, or
contingent tender of Outstanding Notes on transmittal of this Letter of
Transmittal will be accepted.

12. Mutilated, Lost, Stolen or Destroyed Outstanding Notes. Any holder
whose Outstanding Notes have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address indicated above for further
instructions.

13. Requests for Assistance or Additional Copies. Requests for assistance
or for additional copies of the Prospectus or this Letter of Transmittal may be
directed to the Exchange Agent at the address or telephone number set forth on
the cover page of this Letter of Transmittal. Holders may also contact their
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offer.

14. Withdrawal. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "The Exchange
Offer -- Withdrawal of Tenders."

IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE HEREOF
(TOGETHER WITH THE OUTSTANDING NOTES DELIVERED BY BOOK-ENTRY TRANSFER OR IN
ORIGINAL HARD COPY FORM) MUST BE RECEIVED BY THE EXCHANGE AGENT, OR THE NOTICE
OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT, PRIOR TO THE
EXPIRATION DATE.
<PAGE> 10

<TABLE>
<C> <S> <C>
- -----------------------------------------------------------------------------------------------------------------------

SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT Social Security Number
RIGHT AND CERTIFY BY SIGNING AND DATING BELOW OR Employer Identification Number
FORM W-9
----------------------------------------
------------------------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY PART 2 -- Certification -- Under penalties of perjury, I PART 3 --
INTERNAL REVENUE SERVICE certify that:

(1) The number shown on this form is my correct Taxpayer Awaiting TIN [ ]
Identification Number (or I am waiting for a number to
be issued to me) and

(2) I am not subject to backup withholding either because Please complete the
PAYER'S REQUEST FOR TAXPAYER I am exempt from backup withholding, I have not been Certificate of Awaiting
IDENTIFICATION NUMBER (TIN) notified by the Internal Revenue Service ("IRS") that Taxpayer Identification Number
I am subject to backup withholding as a result of below.
failure to report all interest or dividends, or the
IRS has notified me that I am no longer subject to
backup withholding.
------------------------------------------------------------------------------------------

Certification Instructions -- You must cross out item (2) in Part 2 above if you have been
notified by the IRS that you are currently subject to backup withholding because you have
failed to report all interest and dividends on your tax return.

SIGNATURE ___________________________________________________ DATE ________________ , 1998
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>

NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.

YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9

- -------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER

I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number to the payer within 60
days, 31% of all reportable payments made to me thereafter will be withheld
until I provide a number.

<TABLE>
<S> <C>
- ----------------------------------------------- ---------------------- , 1998
Signature Date
</TABLE>
- -------------------------------------------------------------------------------

- -------------------------------------------------------------------------------
CERTIFICATE FOR FOREIGN RECORD HOLDERS

Under penalties of perjury, I certify that I am not a United States citizen
or resident (or I am signing for a foreign corporation, partnership, estate or
trust).

- ----------------------------------------------- ---------------------- , 1998
Signature Date

- -------------------------------------------------------------------------------
<PAGE> 11

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9

GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER -- Social Security Numbers have nine digits separated by two hyphens:
i.e., 000-00-0000. Employer Identification Numbers have nine digits separated by
only one hyphen: i.e., 00-0000000. The table below will help determine the type
of number to give the payer.

<TABLE>
<CAPTION>
==============================================================
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- --------------------------------------------------------------
<C> <S> <C>
1. Individual The individual
2. Two or more individuals (joint The actual owner of the
account) account or, if combined
funds, the first
individual on the
account(1)
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
4. a. The usual revocable savings The grantor-trustee(1)
trust (grantor is also
trustee) The actual owner(1)
b. So-called trust account that
is not a legal or valid
trust under State law
5. Sole proprietorship The owner(3)

<CAPTION>
==============================================================
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- --------------------------------------------------------------
<S> <C> <C>
6. Sole proprietorship The owner(3)
7. A valid trust, estate, or The legal entity(4)
pension trust
8. Corporate The corporation
9. Association, club, religious, The organization
charitable, educational or
other tax-exempt organization
10. Partnership The partnership
11. A broker or registered nominee The broker or nominee
12. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a state
or local government, school
district, or prison) that
receives agricultural program
payments
==============================================================
</TABLE>

(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show your individual name. You may also enter your business name. You may
use either your SSN or EIN.
(4) List first and circle the name of the valid trust, estate or pension trust.
(Do not furnish the identifying number of the personal representative or
trustee unless the legal entity is not designated in the account title.)
NOTE:If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 12

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
(SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE)

PAGE 2

NAME

If you are an individual, you must generally provide the name shown on your
social security card. However, if you have changed your last name, for instance,
due to marriage, without informing the Social Security Administration of the
name change, please enter your first name, the last name shown on your social
security card, and your new last name.

OBTAINING A NUMBER

If you don't have a taxpayer identification number ("TIN"), apply for one
immediately. To apply, obtain Form SS-5, Application for a Social Security Card,
from your local office of the Social Security Administration, or Form SS-4,
Application for Employer Identification Number, from your local Internal Revenue
Service (the "IRS") office.

PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING

The following is a list of payees generally exempt from backup withholding and
or which no information reporting is required. For interest and dividends, all
listed payees are exempt except the payee in item (9). For broker transactions,
payees listed in (1) through (13) and a person registered under the Investment
Advisers Act of 1940 who regularly acts as a broker are exempt. Payments subject
to reporting under sections 6041 and 6041A are generally exempt from backup
withholding only if made to payees described in items (1) through (7), except
that a corporation (except certain hospitals described in Regulations section
1.6041-3(c)) that provides medical and health care services or bills and
collects payments for such services is not exempt from backup withholding or
information reporting.

(1) A corporation.

(2) An organization exempt from tax under section 501(a), or an individual
retirement plan ("IRA"), or a custodial account under section 403(b)(7) if
the account satisfies the requirements of section 401(f)(2).

(3) The United States or any of its agencies or instrumentalities.

(4) A state, the District of Columbia, a possession of the United States, or
any of their political subdivision or instrumentalities.

(5) A foreign government or any of its political subdivisions, agencies or
instrumentalities.

(6) An international organization or any of its agencies or instrumentalities.

(7) A foreign central bank of issue.

(8) A dealer in securities or commodities required to register in the U.S., the
District of Columbia or a possession of the U.S.

(9) A futures commission merchant registered with the Commodity Futures Trading
Commission.

(10) A real estate investment trust.

(11) An entity registered at all times during the tax year under the Investment
Company Act of 1940.

(12) A common trust fund operated by a bank under section 584(a).

(13) A financial institution.

(14) A middleman known in the investment community as a nominee or who is listed
in the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List.

(15) A trust exempt from tax under section 664(c) or described in section
4947(a)(1).

Payments of dividends generally not subject to backup withholding include the
following:

- - Payments to nonresident aliens subject to withholding under section 1441.

- - Payments to partnerships not engaged in a trade or business in the U.S. and
that have a least one nonresident alien partner.

- - Payments made by certain foreign organizations.

- - Payments of patronage dividends not paid in money.

- - Section 404(k) payments made by an ESOP.

Payments of interest generally not subject to backup withholding include the
following:

- - Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business and you have not provided your
correct TIN to the payer.

- - Payments of tax-exempt interest (including exempt-interest dividends under
section 852).

- - Payments described in section 6049(b)(5) to nonresident aliens.

- - Payments on tax-free covenant bonds under section 1451.

- - Payments made by certain foreign organizations.

- - Mortgage interest paid by you.

Payments that are not subject to information reporting are generally also not
subject to backup withholding. For details, see sections 6041, 6041A(a), 6042,
6044, 6045, 6049, 6050A, and 6050N, and the regulations under those sections.

PRIVACY ACT NOTICE. -- Section 6109 requires you to furnish your correct TIN to
persons who must file information returns with the IRS to report interest,
dividends, and certain other income paid to you, mortgage interest you paid, the
acquisition or abandonment of secured property, cancellation of debt, or
contributions you made to an IRA. The IRS uses the numbers for identification
purposes and to help verify the accuracy of your tax return. The IRS may also
provide this information to the Department of Justice for civil and criminal
litigation and to cities, states and the District of Columbia to carry out their
tax laws. You must provide your TIN whether or not you are required to file a
tax return. Payers must generally withhold 31% of taxable interest, dividend,
and certain other payments to a payee who does not furnish a TIN to a payer.
Certain penalties may also apply.

PENALTIES

(1) FAILURE TO FURNISH TIN. -- If you fail to furnish your correct TIN to a
requester (the person asking you to furnish your TIN), you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.

(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.

(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.

(4) MISUSE OF TINS. -- If the requester discloses or uses TINs in violation of
Federal law, the requester may be subject to civil and criminal penalties.

FOR ADDITIONAL INFORMATION CONTACT YOUR
TAX CONSULTANT OR THE IRS
<PAGE> 13

NOTICE OF GUARANTEED DELIVERY
FOR THE EXCHANGE OFFER
BY
TRANSAMERICAN REFINING CORPORATION
16% SERIES B SENIOR SUBORDINATED NOTES DUE 2003
FOR
ALL OUTSTANDING
16% SERIES A SENIOR SUBORDINATED NOTES DUE 2003
AND
16% SERIES C SENIOR SUBORDINATED NOTES DUE 2003

PURSUANT TO THE PROSPECTUS DATED , 1998

- --------------------------------------------------------------------------------
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERED OUTSTANDING NOTES MAY BE
WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
- --------------------------------------------------------------------------------

As set forth in the Prospectus dated , 1998 (the "Prospectus")
under the caption "The Exchange Offer -- Guaranteed Delivery Procedures" and the
accompanying Letter of Transmittal (the "Letter of Transmittal") and Instruction
2 thereto, this form, or one substantially equivalent hereto, must be used to
accept the Exchange Offer if certificates representing the 16% Series A Senior
Subordinated Notes due 2003 or 16% Series C Senior Subordinated Notes due 2003
(the "Outstanding Notes") of TransAmerican Refining Corporation, a Texas
corporation (the "Company"), are not immediately available or if the procedure
for book-entry transfer cannot be completed in a timely basis or time will not
permit a holder's certificates or other required documents to reach the Exchange
Agent prior to the Expiration Date. Such form may be delivered by hand or
transmitted by facsimile transmission or mail to the Exchange Agent and must
include a guarantee by an Eligible Institution unless such form is submitted on
behalf of an Eligible Institution. Capitalized terms used and not defined herein
have the meanings given to them in the Prospectus.

The Exchange Agent for the Exchange Offer is:

FIRST UNION NATIONAL BANK

<TABLE>
<S> <C> <C>
By Mail: By Facsimile: By Hand or Overnight Courier:
FIRST UNION NATIONAL BANK (704) 590-7626 FIRST UNION NATIONAL BANK
1525 W.T. Harris Boulevard 1525 W.T. Harris Boulevard
Charlotte, North Carolina 28288-1153 Confirm by Telephone: Charlotte, North Carolina 28288-1153
Attention: Corporate Trust Department (704) 590-7408 Attention: Corporate Trust Department
</TABLE>

DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OR TRANSMISSION VIA A FACSIMILE
NUMBER OTHER THAN THE ONES LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.

This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE> 14

Ladies and Gentlemen:

Upon the terms and subject to the conditions set forth in the Prospectus
and accompanying Letter of Transmittal, receipt of which is hereby acknowledged,
the undersigned hereby tenders to TransAmerican Refining Corporation, a Texas
corporation (the "Company"), the principal amount of Outstanding Notes listed
below pursuant to the guaranteed delivery procedures set forth in the Prospectus
and accompanying Letter of Transmittal.

<TABLE>
<S> <C>
CERTIFICATE NUMBER(S) PRINCIPAL AMOUNT TENDERED
(IF AVAILABLE) (MUST BE IN INTEGRAL MULTIPLES OF $1,000)

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

- ------------------------------------------------------------ ------------------------------------------------------------
</TABLE>

If Outstanding Notes will be tendered by book entry transfer:

Name of Tendering Institution: -------------------------------------------------

Account Number: ----------------------------------------------------------------

- --------------------------------------------------------------------------------
SIGN HERE

---------------------------------------------------------
Signature(s)

---------------------------------------------------------
Name(s) (Please Type or Print)

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

---------------------------------------------------------
Address

---------------------------------------------------------
Zip Code

---------------------------------------------------------
Area Code and Telephone No.

Dated: ------------ , 1998
- --------------------------------------------------------------------------------
<PAGE> 15

GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEES)

The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., or a commercial bank
or trust company having an office in the United States, hereby (a) represents
that the above-named person(s) has a net long position in the Outstanding Notes
tendered hereby within the meaning of Rule 14e-4 under the Securities Exchange
Act of 1934, as amended, (b) represents that such tender of Outstanding Notes
complies with Rule 14e-4 and (c) guarantees delivery to the Exchange Agent of
certificates representing the Outstanding Notes tendered hereby, in proper form
for transfer, or confirmation of book-entry transfer of such Outstanding Notes
into the Exchange Agent's account at the Book-Entry Transfer Facility (as
defined in the Letter of Transmittal), in each case, together with a properly
completed and duly executed Letter of Transmittal with any required signature
guarantees and any other documents required by the Letter of Transmittal, within
three New York Stock Exchange trading days after the date hereof.

- ------------------------------------------------------------ ------------------------------------------------------------
Name of Firm Title

- ------------------------------------------------------------ ------------------------------------------------------------
Authorized Signature Name (Please Type or Print)

- ------------------------------------------------------------
Address Dated: ------------- , 1998

- ------------------------------------------------------------
Area Code and Telephone No.
</TABLE>

NOTE: DO NOT SEND CERTIFICATES REPRESENTING OUTSTANDING NOTES WITH THIS FORM.
CERTIFICATES FOR OUTSTANDING NOTES MUST BE SENT WITH YOUR LETTER OF
TRANSMITTAL.